Dairyland County Mutual Insurance Company of Texas v. Childress

In Dairyland County Mutual Insurance Company of Texas v. Childress, 650 S.W.2d 770 (Tex. 1983), the insured, Booth, was involved in a collision while driving a vehicle furnished to him by another person for his regular use. The second vehicle was occupied by the Childress family, who subsequently sued Booth. While that suit was pending, Booth's insurer, Dairyland, sued Booth seeking a declaratory judgment that the non-owner's policy did not cover an automobile furnished to Booth for his regular use. The Childresses were not made parties to the declaratory judgment action. An agreed judgment was rendered declaring that no coverage was provided. After securing a judgment against Booth, the Childresses sued Dairyland for the amount of the judgment, attorney's fees, and for recovery under the DTPA. Dairyland filed a cross-action for attorney's fees, alleging that the DTPA claim had not been made in good faith. The trial court rendered judgment that both parties take nothing. The court of appeals affirmed the take nothing judgment against Dairyland but reversed and rendered judgment for the Childresses for the policy limits and attorney's fees. One of the issues presented to the Supreme Court was whether the Childresses were bound by the declaratory judgment action between the insurer and the insured when they were not made parties. Relying on the doctrines of res judicata and collateral estoppel, Dairyland argued that the Childresses' suit was derivative of Booth's coverage and therefore they were in privity with Booth. Dairyland, 650 S.W.2d at 773. The Supreme Court rejected that argument because the Childresses, as non-parties, could exercise no control over the declaratory judgment suit and their interests were not represented by a party to the action. Id. at 774. Noting that the Declaratory Judgments Act requires that all persons who have or claim any interest which would be affected by the declaration must be made parties to the suit and no declaration shall prejudice the rights of persons who are not parties to the proceedings, the Court held that the doctrines of res judicata and collateral estoppel were inapplicable. Id.