Coastal Refining & Marketing, Inc. v. United States Fidelity and Guaranty Co

In Coastal Refining & Marketing, Inc. v. United States Fidelity and Guaranty Co., 218 S.W.3d 279 (Tex. App.--Houston 14th Dist. 2007, pet. denied), the Court stated that whether an insurer is prejudiced by "delayed notice is generally a question of fact." However, our sister court went on to recognize that prejudice from delayed notice may sometimes be established as a matter of law. Id. at 287-88. For example, the court stated that "entry of a default judgment will ordinarily constitute prejudice as a matter of law." Id. at 287. The court explained that the substantive change in position for an insurer caused by a default judgment generally renders a default judgment prejudicial because "before default judgment, an insurer can escape liability for a covered claim if the plaintiff fails to meet its burden of proof," whereas "after a default judgment, . . . an insurer can no longer defend against the underlying claim unless it first meets a new burden of proof on new issues." Id. at 288. The court also specifically stated that it was not "foreclosing the possibility that an insurer could be prejudiced by events other than default judgment." Id. at 287-88. For the same reasons an insurer is prejudiced by a default judgment, when an additional insured settles a third-party claim made against it without ever notifying its insurer of the claim, the insurer would also generally seem to suffer a substantive change in position and thus be prejudiced. Id. at 296. The Court appeared to specifically recognize prejudice arising under these circumstances when it stated, "Nor do we imply that an insurer cannot be excused from the duty to indemnify its insured or the insured's subrogees for the costs of a settlement made without the insurer's consent if the only prejudice shown is non-monetary." Id.