One of the worst “loopholes” in the law that can affect you if you are involved in a car accident is the non-cooperation defense that an insurance company can raise as an excuse to avoid paying you when their negligent client fails to act responsibly after an accident. The non-cooperation defense is directly contradictory to the State of Texas public policy to require drivers to maintain at least the minimum amount of insurance coverage required by law. Yet for some reason, the state of Texas allows it. Even Federal Trucking Laws have recognized that the conduct of a driver should not give rise to a loss of coverage. This article will discuss why the non-cooperation defense should be declared void.
What is the Non-Cooperation Defense?
The non-cooperation defense is a contract-based policy defense that an auto insurance company may assert as a basis to refuse payment when their insured driver negligently causes a car accident and then refuses to report it to his insurance company and/or cooperate with the company’s efforts to defend the claims against their insured. It results in the insurance company withdrawing coverage and refusing to defend the insured or pay the judgment. Thus, if you practice as a Texas car accident attorney, you need to be familiar with the non-cooperation defense and the various ways you can attempt to force a defendant’s cooperation when the insurance company is playing the non-cooperation card.
The Non-Cooperation Defense is Based on Contract Law
To understand the non-cooperation defense, you need to understand the basic principle that insurance policies are contracts. When you enter into an auto insurance contract, the insurance company agrees to 1) provide you with a legal defense if someone asserts that you are liable for causing a car accident, and; 2) pay any judgment taken against you up to the full amount of the coverage limits that you agreed to purchase. You, in turn, agree to certain terms and conditions for the coverage to apply. One of these conditions is that you will cooperate with the insurance company so that they can defend the case. If you fail to cooperate to the detriment of their ability to defend the claim, you are in breach of contract. Now, the insurance company has the right to withdraw coverage due to your breach.
What Happens When a Defendant Refuses to Cooperate?
When a defendant refuses to cooperate, the insurance company may choose to defend the case under a reservation of rights, or they may deny coverage altogether. Defending under a reservation of rights is done sometimes when the insurance company is not certain if they have legitimate grounds to assert non-cooperation as a defense, so they agree to the defendant the case without waiving the right to refuse to pay the claim and assert a breach of contract by the insured due to their lack of cooperation. If the insurance company chooses to withdraw coverage, then the insured is left to defend himself and is legally responsible for paying any judgment on his own.
Why Would a Defendant Refuse to Cooperate?
If a defendant fails or refuses to cooperate, coverage is withdrawn and he becomes personally responsible. So why would anyone buy insurance and then refuse to cooperate so that they could not avail themselves of the protection of insurance? The most common reason a defendant fails to cooperate is simply because he or she fails to understand the consequences. The defendant may be from another country and uneducated about our legal system or they may think the insurance company is supposed to “just handle it” without them. Sometimes they may move or go to jail and they just forget about the car wreck. For whatever reason they fail to cooperate, this can be a serious problem for the plaintiff when the non-cooperation defense is triggered by the defendant’s self-harming conduct.
Consequences of Non-Cooperation
When an individual defendant refuses to cooperate, the insurance coverage basically goes away and you are left trying to collect money from the defendant directly. The problem with this is that most defendants are judgment-proof. Homestead and bankruptcy laws protect them from being put in jail or having their home taken away to pay a debt. You can take a judgment and then have your driver’s license revoked, but that won’t fix your car or heal your injuries. The non-cooperation of a defendant can leave a personal injury victim having to pay out of pocket forhis or her own repair bills and medical care.
Insurance Coverage and Public Policy in Texas
The State of Texas obviously recognizes the importance of auto insurance coverage. This can be seen in both the statutes and the case law. The Texas Insurance Code imposes a duty on all drivers to carry certain minimum limits of auto liability insurance to protect other drivers when they cause an accident. In fact, when auto insurance carriers have attempted to escape coverage by asserting clauses like the family member exclusion, the courts have held that the exclusion is void to the extent it causes the driver to fall below the minimum limits of coverage. In light of this recognition, it simply makes no sense that the non-cooperation of a driver should result in insurance coverage simply going away and leaving the injured victim unprotected. All we are doing is protecting insurance companies’ ability to defend a case at the expense of injured victims. Isn’t this contradictory to the real purpose of insurance?
The Non-Cooperation Defense Does Not Allow Interstate Truck Insurers to Avoid Responsibility
The federal government regulates insurance requirements for interstate truckers. Like Texas, the United States has passed a law requiring that interstate truck drivers carry certain minimum limits of insurance coverage. These amounts are much higher due to the potential for widespread damage and serious injury that 18-wheelers can cause. The minimum limits for commercial motor vehicles range from $750,000.00 to $5,000,000.00 depending upon what the truck is hauling.
However, unlike Texas, the federal government has recognized that the real importance of requiring insurance coverage is to protect the victims, not the insurance companies. In order to participate in interstate trucking, all motor carriers are required to obtain an insurance policy that contains an MCS-90 endorsement. The MCS-90 endorsement is a form that specifically reads:
It is understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, this endorsement, or any other endorsement thereon, or violation thereof, shall relieve the company from liability or from the payment of any judgment, within the limits of liability herein described, irrespective of final condition, insolvency, or bankruptcy of the insured.
The MCS-90 endorsement requires the insurance company to pay any judgment up to their limits. This requirement is regardless of whether they cooperate with the insurance company. It includes default judgments taken by truck accident lawyers and their clients when the insurance company had no notice of the lawsuit being filed. Other provisions in the MCS-90 endorsement allow the insurance company to go after their insured to collect their money back, but it does not allow them to leave the victim to have to try to do that on their own. (It is important to know that these federal laws apply to interstate vs intrastate truck drivers.) The MCS-90 endorsement effectively nullifies any non-cooperation defense the insurance company might try to assert under state law.
Final Thoughts on Non-Cooperation
Texas courts have declared the policy of Texas to ensure that there is a minimum amount of liability insurance coverage. The state statutes seem consistent with the policy. Yet for some reason, it gets tossed out the window when a defendant does not cooperate with his own insurance company. Through no fault of the victim, they can be left without insurance to pay for the losses and injuries just because there is a non-cooperation clause in the insurance contract. The person for whom the insurance coverage really protects has no say in whether the defendant cooperates.
The federal government has found an easy solution to this in the MCS-90 endorsement. There is no reason why Texas could not have a similar endorsement on auto policies that would prevent insurance companies from shifting the burden of pursuing a potentially judgment-proof individual to innocent victims by claiming the non-cooperation defense.