After a car accident, an injured person may spend weeks dealing almost entirely with an insurance company.

The insurance adjuster calls. The insurer requests medical records. The insurer evaluates the damage. The insurer makes a settlement offer. And if the claim eventually settles, the insurer may provide the money.

So if negotiations fail, an obvious question arises:

Why not just sue the insurance company?

In Texas, the answer is usually that you cannot—at least not simply because the insurance company issued a liability policy covering the person you believe injured you.

Texas generally follows what courts call the “no direct action” rule. In an ordinary liability case, an injured third party generally must establish the liability of the insured defendant before pursuing the insurer's obligation to indemnify that defendant.

That distinction between the person who allegedly caused the injury and the company insuring that person is an important feature of Texas insurance law.

What Is a “Direct Action” Against an Insurance Company?

A direct action is, broadly speaking, an attempt by an injured third party to proceed directly against the alleged wrongdoer's liability insurer based on the insurer's obligation to cover its insured.

Suppose Driver A allegedly runs a red light and hits Driver B.

Driver A has an automobile liability policy with Insurance Company X.

Driver B may understandably think the lawsuit should look like this:

Driver B v. Insurance Company X

After all, Insurance Company X may be defending the claim and may ultimately pay a covered judgment.

But that is generally not how an ordinary Texas negligence lawsuit works.

The lawsuit ordinarily proceeds against Driver A, the person allegedly responsible for the accident.

The existence of liability insurance does not ordinarily make the insurer itself the tortfeasor.

Texas Generally Prohibits Direct Actions Against Liability Insurers

The Supreme Court of Texas has recognized the general rule that a plaintiff who is not a party to the insurance policy cannot ordinarily sue the defendant's insurer for indemnification before the defendant's liability has been established.

In In re Essex Insurance Company, the Texas Supreme Court addressed an injured plaintiff's attempt to obtain a declaration concerning the defendant's insurer's duty to indemnify before the underlying defendant's liability had been determined.

The Court explained:

“Texas law does not permit [the plaintiff] to sue Essex directly”

for a declaration concerning indemnification before the insured defendant's liability had been established. Texas Courts

The principle is sometimes called Texas's “no direct action” rule.

The insurance company and the insured defendant are legally distinct parties, even when the insurer is paying lawyers to defend the lawsuit and may ultimately be responsible for satisfying a covered judgment.

Why Doesn't Texas Let the Plaintiff Sue the Insurance Company?

There are several reasons behind the rule.

First, the injured plaintiff generally is not a party to the liability insurance contract. The policy is ordinarily an agreement between the insurer and its insured.

Second, the insurer's duty to indemnify depends upon the insured becoming legally obligated to pay damages that fall within the policy's coverage.

And third, keeping liability insurance out of the underlying tort case helps separate two very different questions:

Did the defendant legally cause the plaintiff's damages?

and:

Does an insurance policy cover the defendant's resulting liability?

Those questions may involve completely different facts and legal issues.

A negligence jury generally does not need to decide whether the defendant purchased a $30,000, $300,000, or $1 million insurance policy before deciding whether the defendant negligently caused an accident.

Texas Evidence Law Also Generally Keeps Liability Insurance Away From the Jury

The no-direct-action concept fits with another familiar feature of Texas litigation.

Texas Rule of Evidence 411 provides:

“Evidence that a person was or was not insured against liability is not admissible to prove whether the person acted negligently or otherwise wrongfully.”

The rule does not make insurance evidence inadmissible for every conceivable purpose. It specifically recognizes other potential purposes, such as proving a witness's bias or prejudice or proving agency, ownership, or control.

But the basic idea is straightforward.

A jury generally should not reason:

“The defendant has insurance, so awarding a large amount of money doesn't really hurt him.”

Nor should a jury reason:

“The defendant has no insurance, so we should reduce the damages.”

Liability is supposed to turn on the evidence and applicable law rather than the existence or absence of insurance.

But the Insurance Company May Still Control Much of the Defense

This creates one of the stranger features of liability litigation.

The plaintiff may not be able to sue the liability insurer directly, but the insurer may nevertheless play an enormous role behind the scenes.

Depending upon the policy and circumstances, the insurer may:

• hire defense counsel;
• investigate the claim;
• communicate with the claimant;
• evaluate potential liability;
• negotiate settlement;
• pay defense expenses; and
• ultimately pay a covered settlement or judgment.

Thus, the company with substantial financial involvement in the litigation may not appear in the case caption at all.

That is not an accident. It reflects the distinction between the underlying liability dispute and the insurance coverage relationship.

What Is the Difference Between the Duty to Defend and the Duty to Indemnify?

Liability insurance commonly creates two distinct obligations that should not be confused.

The duty to defend concerns whether the insurer must provide a legal defense to its insured.

The duty to indemnify concerns whether the insurer ultimately must pay a settlement or judgment falling within the policy's coverage.

These duties are related but legally distinct.

Texas courts have repeatedly dealt with disputes in which an insurer may have a duty to defend even though indemnification remains unresolved, or circumstances in which coverage issues can be determined separately from the underlying lawsuit.

The Texas Supreme Court has also recognized limited circumstances in which an insurer's duty to indemnify can be determined before the underlying liability lawsuit concludes—for example, when the same reasons eliminating the duty to defend also eliminate any possibility of indemnity. Texas Courts

But that does not give an injured third-party claimant a general right to sue the liability insurer directly.

What About Texas Insurance Code Chapter 541?

This is where the subject becomes more complicated.

Texas Insurance Code Chapter 541 prohibits various unfair methods of competition and unfair or deceptive acts or practices in the insurance business.

For example, Texas Insurance Code § 541.060 identifies prohibited unfair settlement practices.

But the existence of statutes regulating insurers does notmean that every person negotiating with another person's insurance company automatically has a private cause of action against that insurer.

Texas law distinguishes between an insured asserting rights under his or her own insurance contract and a third-party claimant seeking payment under somebody else's liability policy.

That distinction can dramatically affect who may sue, what causes of action exist, and what damages may be recovered.

First-Party Insurance Claims Are Different

The no-direct-action rule should not be misunderstood to mean that Texans generally cannot sue insurance companies.

They certainly can.

Suppose a homeowner purchases an insurance policy covering the homeowner's own house. A storm damages the house, the homeowner makes a claim, and the homeowner alleges that the insurer wrongfully refuses to pay covered benefits.

That is a first-party insurance dispute.

The homeowner is asserting rights arising from his or her own insurance policy.

Texas Insurance Code Chapter 542A, for example, expressly applies to certain actions against insurers arising from claims involving covered real property, including actions alleging breach of contract and specified statutory and common-law claims. Texas Insurance Code § 542A.002. Texas Statutes

That situation is fundamentally different from an accident victim attempting to sue the tortfeasor's liability carrier merely because the carrier insured the defendant.

So Who Do You Sue After a Texas Car Accident?

Ordinarily, you sue the person or entity you contend is legally responsible for causing your damages.

If another driver negligently causes an accident, the negligence claim generally belongs against the driver—not simply against the driver's automobile insurer.

If an employee negligently causes an accident while acting within the course and scope of employment, there may also be claims against the employer depending upon the facts.

If a defective product contributed to the accident, additional parties may potentially be responsible.

Insurance is important because it may provide a source for satisfying covered liability, but insurance coverage and substantive liability are not the same thing.

What Happens If You Win a Judgment?

Once the insured's liability has been established, the legal landscape changes.

An insurer's obligation to indemnify may then become ripe for determination, depending upon the policy, the judgment, and the underlying facts.

The Texas Supreme Court's discussion of the no-direct-action rule specifically distinguishes cases in which an injured plaintiff attempts to pursue the insurer before liability has been established from cases involving an insured's judgment creditor after liability has already been determined. Texas Courts

Coverage disputes may still exist.

An insurer might contend, for example, that the conduct producing the judgment falls outside the policy's coverage, that an exclusion applies, or that the insured failed to satisfy a policy condition.

Thus, winning against the defendant does not necessarily decide every insurance issue.

What Is a Stowers Claim?

Texas has another important insurance doctrine that sometimes becomes relevant when an insurer refuses a reasonable opportunity to settle a claim against its insured.

Under the Texas Stowers doctrine, a liability insurer can, under appropriate circumstances, incur liability for negligently failing to accept a qualifying settlement demand within policy limits.

The doctrine primarily protects the insured from being exposed to an excess judgment because the insurer controlling the defense unreasonably refused an opportunity to settle within available coverage.

Suppose an insured has a $100,000 liability limit.

The plaintiff offers to settle a serious claim for $100,000 under circumstances satisfying the requirements of a valid Stowers demand.

The insurer refuses.

The case proceeds to trial and produces a $500,000 judgment.

Potential disputes may then arise concerning the insurer's handling of the settlement opportunity and responsibility for the excess exposure.

That is a very different legal theory from simply suing the insurance company directly at the beginning of the negligence case.

Can the Injured Plaintiff Ever End Up Pursuing the Insurer?

Potentially, yes.

Texas's no-direct-action rule is a general rule, not a statement that an injured person can never under any circumstances have a claim involving the defendant's insurer.

The procedural posture can change after liability has been established. Assignments, judgments, statutory causes of action, particular policy provisions, and specialized areas of insurance law can create different issues.

Texas appellate courts have also addressed particular statutory circumstances involving direct Stowers-related claims. Texas Courts

But those situations should not be confused with a general right to name an alleged tortfeasor's liability insurer as a defendant in the original tort lawsuit.

An Example

Consider a simple accident.

Sarah is stopped at a red light in Houston. Robert allegedly rear-ends her while looking at his phone.

Robert is insured by ABC Insurance Company.

Sarah makes a claim. ABC's adjuster investigates the accident, communicates with Sarah, obtains medical records, and eventually offers $8,000.

Sarah believes her damages are worth $50,000 and rejects the offer.

Who does Sarah ordinarily sue?

Robert.

She alleges that Robert was negligent and seeks damages resulting from Robert's negligence.

ABC Insurance Company may provide Robert's lawyer. ABC may finance the defense. ABC may negotiate throughout the lawsuit. ABC may ultimately pay a settlement or covered judgment.

But ABC's financial involvement does not ordinarily transform Sarah's negligence lawsuit into Sarah v. ABC Insurance Company.

That distinction is the practical effect of Texas's no-direct-action rule.

Why This Rule Surprises People

Insurance dominates modern personal-injury litigation economically.

Yet insurance is frequently invisible procedurally.

The claimant may spend months communicating with an insurer before litigation. Once suit is filed, however, the pleadings identify the allegedly responsible person or business rather than simply naming the liability carrier.

That can seem artificial.

But legally, two relationships exist:

Plaintiff → Defendant: Did the defendant commit a tort or otherwise become legally liable?

Insured → Insurer: Does the insurance contract require the insurer to defend or indemnify the defendant?

Texas generally does not allow an injured third party to collapse those relationships into a single lawsuit merely because the insurer may ultimately provide the money.

The Bottom Line

Texas generally follows the no-direct-action rule.

A person injured by someone else's alleged negligence ordinarily cannot sue the alleged tortfeasor's liability insurance company directly for indemnification before establishing the insured defendant's liability. The Texas Supreme Court has expressly recognized that general principle. Texas Courts

That does not mean insurance is irrelevant. Far from it.

The insurer may investigate the claim, provide the defense, negotiate settlement, and ultimately pay a covered judgment. Insurance coverage disputes, Stowers claims, assignments, first-party insurance claims, and post-judgment proceedings can also create circumstances in which an insurer becomes a party to litigation.

But in the ordinary Texas liability lawsuit, the basic distinction remains:

You sue the person or company you contend is legally responsible for the injury—not merely the insurance company that issued the liability policy.

This article provides general information about Texas law and is not legal advice. Insurance disputes can involve complicated questions concerning policy language, coverage, standing, assignments, settlement demands, and the procedural posture of the underlying liability case. Anyone facing a significant insurance or liability dispute should consider obtaining advice concerning the particular circumstances.

At David C. Barsalou, Attorney at Law, PLLC, we help clients navigate business, family, tax, estate planning, and real estate matters ranging from document drafting to litigation with clarity and confidence. If you’d like guidance on your situation, schedule a consultation today. Call us at (713) 397-4678, email barsalou.law@gmail.com, or reach us through our Contact Page. We’re here to help you take the next step.