Texas Insurance Law Newsbrief - February 10, 2026

INSURER CAN RECOVER COSTS SPENT DEFENDING ADDITIONAL INSURED

A Western District Magistrate Judge evaluated policy provisions between an insured, insurer, and additional insureds and determined that the insurer could recover in subrogation against its own insured for attorneys’ fees and costs incurred defending the additional insureds under a policy.

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Hartford Fire Ins. Co. v. Hunt Constr. Grp., Inc., 2026 U.S. Dist. LEXIS 11014 (January 21, 2026). The insured was a general contractor under a policy which listed two subcontractors as additional insureds, and all 3 insureds were provided a defense in by the insurer in an arbitration.

The arbitration panel awarded attorneys’ fees to the subcontractors as prevailing parties under the contract and ordered the insured to pay their attorneys’ fees and costs, which its insurer now seeks in reimbursement from its insured. The Magistrate Judge determined that the insurer’s rights to recover reimbursement were not extinguished by the settlement agreements but looked to the policy and specifically, the section titled “Transfer of Rights of Recovery Against Others to Us” to determine if the additional insureds were included as “others” under this section. “Read as a whole, particularly the ‘Transfer of rights of Recovery Against Other [sic] to Us’ and the ‘Joint Defense and Separation of Insureds’ provisions together, the court cannot find that the Policy prohibits subrogation in this situation.” The Magistrate Judge held that the insured was an “Other” as it pertains to the defense provided to the additional insureds, so the insurer was allowed to recover reimbursement for its attorneys’ fees and costs against its insured.

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MAGISTRATE JUDGE RECOMMENDS GRANTING OF PROPOSED CLASS ACTION AGAINST ALLSTATE FIRE

A Magistrate Judge in the Western District recommended a class be certified under Federal Rule of Civil Procedure 23.

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Sims v. Allstate Fire, 2026 U.S. Dist. LEXIS 11016 (W.D. Tex. January 20, 2026). This case involves multiple insureds who purchased homeowner’s insurance policies from the insurer, who submitted claims for coverage that were undisputed by the insurer. But the insureds argued that the insurer breached its policies by calculating ACV owed for covered losses by deducting both material and non-material depreciation from the estimated cost to repair or replace damaged property.

Under the policies, the insurer was required to pay either (1) the actual cash value (ACV) of the covered loss or (2) the replacement cost value (RCV) if the insureds chose to repair or replace the damaged property. The magistrate judge had to determine if the insureds had met their burden to establish that the proposed class satisfied the requirements of Rule 23, both the requirements of Rule 23(a) and Rule 23(b). Following review, the Magistrate Judge recommended granting the insureds’ motion to certify the class, in part, but also recommended adjustments to the proposed class definition.

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MAGISTRATE JUDGE RECOMMENDS DISMISSAL OF INSURANCE AGENT TO MAINTAIN FEDERAL SUBJECT MATTER JURISDICTION

A Western District Magistrate Judge recommended dismissal of the insurance agent in a case when liability was accepted by the insurer for that party.

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Newman v. Homesite Ins. Co., 2026 U.S. Dist. LEXIS 12665 (W.D. Tex. January 22, 2026). An insured sued both its insurance agent and its insurer in litigation, but the insurer accepted liability for its agent under Texas Insurance Code § 542.006 and removed the case to federal court under diversity jurisdiction. However, no party moved to dismiss the insurance agent or remand the case to state court, despite the insurance agent having the same jurisdiction as the insured. “Federal courts have an obligation to assess subject matter jurisdiction before exercising the judicial power of the United States.” The Magistrate Judge recommended that the District Judge dismiss the insurance agent from the case without prejudice.

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INSURED BEWARE: TEXAS REAFFIRMS FORUM SELECTION CLAUSES ARE NOT AGAINST PUBLIC POLICY

The Southern District Court reaffirmed that Texas law does not prohibit forum selection clauses as a matter of public policy, and that Texas law is clear on the issue.

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Meldi Hosp. Mgmt., LLC v. Mt. Hawley Ins. Co., 2026 U.S. Dist. LEXIS 12462 (S.D. Tex. January 23, 2026). An insured filed suit against its insurer, who then removed the suit under the policy’s forum selection clause requiring the case to be brought in the state or federal courts of New York. The insured opposed transfer and argued that Texas Insurance Code article 21.42 established public policy that should override the forum selection clause. “The Texas Supreme Court has made it clear that article 21.42 and similar provisions of Texas law are not expressions of public policy sufficient to defeat a valid forum-selection and choice-of-law clause.” The Court rejected the insured’s argument and noted that multiple published opinions rejected the same argument the insured made.

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INSURED MUST SHOW PREJUDICE TO ESTABLISH INSURER’S WAIVER OF APPRAISAL CLAUSE

The Dallas Court of Appeals granted mandamus relief, finding that the trial court abused its discretion in denying State Farm’s motion to compel appraisal.  

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In In re State Farm Lloyds, No. 05-25-01112-CV, 2025 LX 591346 (Tex. App.—Dallas Dec. 17, 2025, no pet. h.), State Farm and its claims adjusters sought mandamus relief compelling appraisal after the trail judge refused to enforce an appraisal clause. The case arose from a hail damage claim, which, after the insured submitted a claim, State Farm found that the covered damage fell below the deductible. The insured retained a public adjuster, obtained an engineer’s report, and sent additional information, disputing State Farm’s determination. However, State Farm maintained its position, and later made a written demand for appraisal, and moved to compel appraisal and abate the suit. The insured attempted to argue that State Farm waived appraisal by failing to invoke it earlier, however, the court disagreed.

First, the Court of Appeals found that State Farm could not rely on the non-waiver clause to defeat the claim of non-waiver. However, the insured had the burden to prove waiver, including a showing of prejudice, and insured was unable to do so. Under Texas law, waiver of an appraisal clause occurs when the party seeking appraisal fails to demand it within a reasonable time after the parties reach an impasse on the amount of the loss, if the failure prejudices the opposing party. If an insured believes that an impasse has been reached, they can avoid prejudice by demanding appraisal themselves. In this case, the court found that the insureds failed to meet their burden in establishing waiver and prejudice. Although the insureds attempted to argue that they suffered prejudice because of incurred expert and litigation expenses, when appraisal is available to either party, such expenses generally do not constitute prejudice. As such, the court of appeals concluded that the trial judge abused her discretion in denying State Farm’s motion to compel appraisal and ordered her to issue an order compelling appraisal.

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WESTERN DISTRICT OF TEXAS ANALYZES INSURANCE AGENT LIABILITY

The Western District of Texas found in favor of an insurance agent, granting its motion to dismiss for failure to state a claim.

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In Siantou v. NSure Ins. Servs., No. 1:24-cv-00742-DAE, 2025 LX 568661 (W.D. Tex. 2025), the insured filed suit against NSure and its insurance agent, alleging that his homeowner’s policy was cancelled because NSure failed to notify him that premium payments were not being received by the insurer. The insured asserted causes of action of promissory estoppel, breach of fiduciary duty, DTPA violations, negligence, negligence per se, and gross negligence.

The court dismissed the insured’s breach of fiduciary duty and promissory estoppel claims for similar reasons. Texas does not recognize the relationship between an insurance agent and a client as a formal fiduciary relationship. Rather, to impose such a relationship, the fiduciary relationship must exist prior to, and apart from, the interaction made basis of a suit. Here, the court found the insured’s vague allegations that Nsure promised to defend his interests and “act as a fiduciary representative” were insufficient to demonstrate a fiduciary relationship or support his claim for breach of fiduciary duty. The court further found that these allegations regarding Nsure’s alleged promise were too vague and indefinite to support a claim for promissory estoppel.

The Court further found that the insured failed to state a DPTA claim in alleging that Nsure engaged in an “unconscionable action” by failing to inform him of the unpaid premiums which led to the cancellation of his homeowner’s policy. The insured’s negligence claims failed because, again, the insured failed to sufficiently allege facts that suggested a special relationship with Nsure. Under Texas law, an insurance agent owes two common law duties: (1) to use reasonable diligence to place the requested insurance coverage, and (2) to inform the insured if unable to obtain such coverage. However, the facts and circumstances surrounding an agent’s dealing with an insured may give rise to additional duties. Here, the insured did not allege that Nsure violated either of these duties and did not allege facts suggesting a special relationship. As such, the insured’s claims for negligence, negligence per se, and gross negligence were dismissed.

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COURT FINDS THAT CLAIMANTS LACK STANDING TO DISQUALIFY INSURED’S INSURER-APPOINTED COUNSEL

The Beaumont Court of Appeals analyzed an insurer’s right to conduct its insured’s defense.

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Everton v. Taboada, No. 09-24-00452-CV, 2025 LX 558230 (Tex. App.—Beaumont Dec. 18, 2025, no pet. h.) arose from a dispute between neighbors arising from alleged water damage due to flooding caused by one of the neighbors. The neighbors filed suit, alleging, among other things, that the insureds were negligent. The allegedly negligent neighbor’s insurer agreed to defend him under a reservation of rights. However, the claimants moved to disqualify the insurer-appointed counsel, arguing that liability, and coverage, turned on whether the insured was negligent, creating an irreconcilable conflict.

An insurer has the right to control the defense and the insured cannot choose independent counsel and require the insurer to reimburse the expense, unless the facts to be adjudicated on liability are the same facts upon which coverage depends. This is called the “independent counsel rule.” The claimants in this case moved to disqualify the insurer-appointed counsel under the independent counsel rule and the Texas Disciplinary Rules of Professional Conduct. First, the court found that the claimant did not prove privity to the insurance contract between the insurer and the insured nor did the claimants argue that they were third-party beneficiaries. In Texas, an injured party is generally prohibited from directly suing the defendant’s insurer unless it is established that the insured has a legal obligation to pay damages to the injured party. As strangers to the insurance policy, the claimants lacked standing to seek disqualification of the insurer-appointed counsel and could not enforce a contractual right between the insured and the insurer. The court further found that the claimants failed to show actual prejudice, as required to seek disqualification under the Texas Disciplinary Rules of Professional Conduct.

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FIFTH CIRCUIT SAYS ‘ARISING OUT OF’ IS BROAD, BUT DOES NOT ALWAYS EXCLUDE COVERAGE WHEN THERE IS MORE THAN ONE CAUSE OF INJURY

The Fifth Circuit ruled that the broad interpretation of ‘arising out of’ language in a homeowners’ insurance policy did not exclude coverage

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Occidental Fire & Cas. Co. of N.C. v. Cox, No. 24-20388, 2025 LEXIS 32251 (5th Cir. 2025). Plaintiff was initially injured by falling off a bed after ingesting drugs with a friend, then two friends moved him later without stabilizing his neck and spine, causing a burning sensation that he testified he did not experience after the initial fall. Plaintiff sued the homeowner friend (the insured), and the insurer filed a coverage suit. “…Occidental’s basis for the Coverage Suit was that it had no duty to defend nor indemnify [its insured] because [Plaintiff’s] injuries fell within the Policy’s controlled substance exclusion.” The Fifth Circuit determined that the District Court improperly focused only on the drug causing the fall and not the subsequent cause of injury due to the insured’s help and determined that the controlled substance exclusion did not apply.

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COVERAGE-RELATED EMAILS BETWEEN INSURER AND COUNSEL PRIOR TO ANTICIPATION OF LITIGATION MAY NOT BE PRIVILEGED

The Western District held that emails between the insurer and counsel were not privileged before anticipation of litigation, because the attorney was acting in the capacity of providing insurance-related services rather than legal advice

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Fort Stockton Indep. Sch. Dist. v. Liberty Mut. Fire Ins. Co., No. 24-CV-00043-DC-CF, 2025 LEXIS 257574 (W.D. Tex. Dec. 12, 2025). The insured shared several emails with its attorneys prior to anticipation of litigation, wherein the attorneys provided guidance on coverage questions. The insured argued that the emails were not privileged because the attorney was acting in a capacity other than that of an attorney. “Though the Court recognizes there can often be overlap between legal and insurance services, the emails reflect that counsel was acting in the capacity of providing insurance-related services.” Accordingly, the Western District held that the emails were not privileged.

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SETTLEMENT AGREEMENT IS ENFORCEABLE DESPITE INSURED’S ALLEGATION OF ATTORNEY MISCONDUCT

The Fifth Circuit upheld a settlement agreement between an insured and his insurer.

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Harris v. Meridian Sec. Ins. Co., No. 25-10778, 2025 LEXIS 32358 (5th Cir. 2025). The insured sued regarding property damage during the Texas winter storm in 2021. Prior to trial, the parties engaged in mediation and reached a settlement, but the insured refused to sign the agreement citing misbehavior by his counsel. The insured appealed the granting of a motion to enforce the settlement agreement raising arguing that the settlement agreement was unenforceable due to coercion and breach of fiduciary duty by his attorney and that the district court’s enforcement violated his due process rights because he says he did not have notice of the hearing. The Fifth Circuit upheld the settlement agreement reasoning that coercion has to come from the opposing party and the insured’s other issues were not addressed with the district court.

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INSURER HAS NO CONTRACTUAL OBLIGATION TO COVER RESULTING WATER DAMAGE FROM “FROZEN PIPES” WHEN INSURED FAILS TO MEET EXCEPTIONS

The Southern District recently held that an insurer had no contractual obligation to cover resulting damage from burst frozen pipes when the insured admitted to intentionally shutting off the heat without taken precautions with the water supply. Barona v. State Farm Lloyds, No. 4:24-CV-01393, 2025 LEXIS 257379 (S.D. Tex. Dec. 12, 2025).

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Barona v. State Farm Lloyds, No. 4:24-CV-01393, 2025 LEXIS 257379 (S.D. Tex. Dec. 12, 2025). The insured’s commercial property suffered water damage after a freeze, but the insured admitted to turning off the heat to the building without draining the water pipes or shutting off the water supply. The policy required certain exceptions, including maintaining the heat in the building or structure, draining the equipment, and shutting off the water supply. “The policy unambiguously states that [the insurer] will not provide coverage for several enumerated exclusions…[including] any damage caused by ‘Frozen Plumbing.’” The Southern District held that the insured did not meet the exceptions to avoid the exclusion, so the insurer had no contractual obligation to cover the damages.

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