The “Duty to Defend” is a term of art used to describe an insurance company’s obligation to defend policyholders against claims made under a liability insurance policy. In the context of workplace injuries, a recent ruling from the United States Court of Appeals for the Fifth Circuit (applying Texas law) demonstrated how important it is for employers to request this defense from their insurance carriers – regardless of whether or not the employer thinks the insurance company will provide coverage. Moreno v. Sentinel Insurance Co. (5th Cir. 2022).
Construction contractors should take note of the case as a timely reminder of the importance of providing notice to insurers of claims even if they think there may not be coverage.
Summary of the Case
In July 2016, Osman Moreno fell from a ladder while working as a painter for N.F. Painting. Moreno then sued N.F. Painting and the owner of the project, Beazer Homes, for damages in Texas state court. N.F. Painting had a “Business Owner’s Policy” with Sentinel Insurance but believed that the policy would not respond to Moreno’s suit because it thought Moreno was its employee and, therefore, covered under worker’s compensation. N.F. Painting did not contact Sentinel to request a defense under its liability policy, even when Moreno amended his claim to allege that he was an independent contractor and not an employee. However, N.F. Painting’s co-defendant, Beazer Homes, did not hesitate to contact Sentinel about Moreno’s suit.
In 2019, without notifying Sentinel, N.F. Painting and Moreno agreed to a $1,627,541.35 judgment. Roughly one month later, Moreno sued Sentinel for breach of contract. The case was removed to federal court.
Moreno argued that Sentinel breached its insurance contract with N.F. Painting because it refused to pay the agreed judgment on N.F. Painting’s behalf. The trial court disagreed and dismissed Moreno’s suit against Sentinel. On appeal, the Fifth Circuit affirmed, finding that N.F. Painting had not satisfied the notice requirements of its policy with Sentinel. Accordingly, the Fifth Circuit held that Sentinel had not breached its insurance contract by not defending N.F. Painting and by not paying the proposed judgment against N.F. Painting. Put differently, Sentinel could not be blamed for N.F.'s Painting’s decision to handle the matter on its own.
Finally, the Fifth Circuit noted that Sentinel “did not have an obligation to sua sponte inject itself into the state court action” and that N.F. Painting’s inability to control N.F. Painting’s defense of Moreno’s injury claim, together with N.F. Painting’s agreement to entry of judgment against it in the amount of approximately $1.6 million, constitute prejudice as a matter of law, which also defeated the claim.
It appears that Sentinel would have defended N.F. Painting in the suit against Moreno if N.F. Painting would have requested a defense. However, because N.F. Painting failed to ask, Sentinel was not required to defend N.F. Painting. Put another way, Sentinel had no duty to defend – unless and until – N.F. Painting requested the defense. It is worth noting that Sentinel still learned about the suit through Beazer Homes. Still, in the eyes of the Fifth Circuit, this was not sufficient – the notification had to come directly from N.F. Painting. Indeed, in the words of the Fifth Circuit, “despite having knowledge and opportunity, an insurer is not required to simply interject itself into a proceeding on its insured’s behalf.”