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State Farm Fire & Casualty Co. v. Gandy
Texas Supreme Court
925 S.W.2d 696 (1996)
Julie Gandy (plaintiff) brought a sexual-abuse claim against her stepfather, Ted Pearce, and her mother for negligently failing to prevent it. Pearce had homeowner’s insurance with State Farm Fire & Casualty Company (State Farm) (defendant). State Farm defended Pearce reserving its rights regarding coverage defenses that the policy might not have been in force and that intentional acts were excluded. Following defense missteps, Pearce’s lawyer agreed to a settlement offer under which Pearce confessed judgment and assigned Gandy his rights under the policy and Gandy gave up the right to collect from Pearce personally. State Farm was not notified. Pearce’s breach-of-contract claim was a chose in action assigned to Gandy. Gandy sued State Farm as Pearce’s assignee, raising two theories: (1) a Miller v. Shugart claim that the claim was covered, and she could collect the settlement amount; and (2) if the claim was not covered, Pearce was injured by his State-Farm-appointed counsel, resulting in an unnecessarily high judgment. As part of the summary-judgment proceeding, the district court found that there was no coverage under the policy because sexual abuse was excluded intentional conduct, but that State Farm had breached its obligation to properly defend Pearce. The appellate court affirmed but criticized the Texas Supreme Court case that forced it to affirm the assignment to Gandy. State Farm appealed, arguing the assignment to Gandy was invalid.
Rule of Law
Holding and Reasoning (Hecht, J.)
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