Texas State and Federal Courts Continue Trend of Denying Declaratory Relief to Insurers Based on Non-Justiciability Grounds

Under Texas law, whether an insurer is under a duty to defend its insured in pending litigation is universally held a present controversy that is ripe and justiciable when the liability lawsuit against the insured is filed. More often than not, however, whether an insurer must indemnify its insured in connection with claims asserted against it by a third party is a question that cannot be resolved until the liability lawsuit is concluded by judgment or settlement. An exception to this rule of non-justiciability of the indemnity obligation is when the same reasons an insurer has no duty to defend the insured also mean that there is no coverage under a liability policy. In these instances, a court can decide that an insurer has no duty to defend or to indemnify the insured even before the pending litigation is over (Farmers Tex. Cnty. Mut. Ins. Co. v Griffin, 955 S.W.2d 81, 84 (Tex. 1997)) (the “Griffin exception”).

Inapplicability of the Griffin exception used to deny relief – even to excess insurers

In recent years, however, both state and federal courts have cited the inapplicability of the Griffin exception as a basis for denying declaratory relief to insurers in situations where a declaration of the parties’ rights and responsibilities under a liability policy prior to the conclusion of the pending underlying litigation would serve a useful purpose by resolving uncertainty and clarifying the parties’ positions. This trend suggests that it will be more difficult in the future for insurers with fact scenarios that do not match up with Griffin to get clarification and guidance from courts applying Texas law. Such insurers will be faced with having to respond to settlement demands under circumstances where uncertainty reigns and where guessing wrong may present excess exposure.

The most recent example of a court citing the inapplicability of the Griffin exception as a basis for denying declaratory relief is Century Sur. Co. v RTI Services, LLC, 2020 WL 2851874 (5th Cir. Oct. 8, 2025), in which the Fifth Circuit Court of Appeals, in a brief per curiam opinion, held that the issue of whether an excess carrier owed a duty to indemnify an insured that did not give prompt notice of an underlying lawsuit was not justiciable. The insured was being defended in the underlying litigation by the primary carrier. The excess insurer’s policy had a provision requiring the insured to furnish the excess carrier with notice of a suit within 14 days after notifying the underlying insurer. The excess insurer brought a declaratory judgment action seeking a determination that it had no duty to indemnify the insured because the 14-day notice requirement was a pre-condition to coverage under the terms of the policy.

The Fifth Circuit affirmed the district court’s decision and noted that the underlying liability lawsuit was still pending with no judgment entered, and the excess insurer had no duty to pay until the underlying insurance was exhausted. Accordingly, the trial court’s conclusion that the matter was not ripe for adjudication was correct. However, the court also cited the Griffin exception, and stated that the only way the district court’s decision regarding non-justiciability could be erroneous was if the trial court had erred in holding that the excess insurer had no duty to defend. Because the underlying insurer was defending, the excess insurer had no duty to defend. Further, the reasons negating any duty on the part of the excess insurer to defend were different from the issues affecting whether there was a duty to indemnify. Therefore, the duty to indemnify was not justiciable.

The court’s decision with regard to non-justiciability was certainly correct. Under Texas law, breach of a notice provision typically requires prejudice. The existence of prejudice is almost invariably an issue of fact that cannot be determined until the underlying litigation is concluded. However, the court’s refusal to apply the Griffin exception signals an increased willingness on the part of courts generally to tie the justiciability of the duty to indemnify to issues regarding the existence of a duty to defend. This is particularly problematic for excess insurers.

An earlier state court example of reliance on the inapplicability of the Griffin exception to hold an indemnity controversy non-justiciable is Farmers Ins. Exch. v Cincinnati Ins. Co., 2024 WL 3973432 (Tex. App.—Houston [1st Dist.] Aug. 29, 2024), in which a Texas appellate court held that a controversy between two insurers providing excess coverage was non-justiciable based in large part on the inapplicability of the Griffin exception. Farmers Insurance Exchange and Cincinnati Insurance Company both insured a property manager. Cincinnati issued a primary policy and an excess policy to a mutual insured. Cincinnati and Farmers agreed that the primary policy issued by Cincinnati provided the first layer of coverage. Farmers issued a liability policy to the mutual insured but took the position that the policy did not furnish coverage at all for liability involving the premises where the underlying drowning death took place. Not only did Farmers and Cincinnati dispute the existence of coverage under the Farmers policy, but the two insurers disagreed on whether the Farmers policy and the Cincinnati excess policy furnished coverage at the same level, or whether one insurer’s policy was primary to the other insurer’s.

Cincinnati filed a declaratory judgment action to have the insurers’ respective rights and duties under their policies determined while the underlying liability case against the mutual insured was still pending. The trial court determined that the Farmers policy provided coverage, and held that the Farmers policy and the Cincinnati excess policy furnished coverage at the same level in excess of the Cincinnati primary policy. On appeal, the Houston Court of Appeals determined that no justiciable controversy on indemnity was presented, reversed the trial court’s judgment and rendered judgment dismissing the case for lack of jurisdiction. The court relied largely on the inapplicability of the Griffin exception in holding that the controversy was not justiciable until the underlying litigation against the mutual insured was concluded by judgment or settlement.

Griffin may not apply, but declaratory relief may still be appropriate

A court has discretion whether to decide a declaratory judgment action. In doing so, it must determine whether the action is justiciable, whether the court has authority to grant declaratory relief and whether to exercise its discretion to decide or dismiss the action. For an action to be justiciable, it must be capable of being litigated and decided and must not be hypothetical, conjectural, or based on the possibility of a factual scenario that will never develop. If a matter is determined to be justiciable, the court must decide whether to exercise its discretion to decide the case. This decision is based on a variety of factors that are weighed in order to determine whether a declaration of the parties’ rights would provide relief from uncertainty and serve a useful purpose.

Among the issues that may be determinative of whether an insurer has a duty to indemnify the insured and that are separate from questions concerning any duty to defend are:

• whether one insurer’s coverage is excess to or co-primary with another insurer’s coverage;
• whether a person or organisation qualifies as an insured under a policy;
• the timing of the damage involved in the underlying liability case – ie, whether the damage began or took place during a particular policy period;
• the amount of applicable coverage furnished by a policy; and
• whether an “absolution pollution exclusion” or similar exclusion precludes coverage.

In cases involving these issues, the reasons why the insurer may have no duty to indemnify have nothing to do with the duty to defend, or the insurer may have no duty to defend at all because the coverage furnished is excess. Declaratory relief can serve a useful purpose in these cases by determining the existence of a duty to indemnify even before the liability case is resolved. If insurers cannot obtain declaratory relief as to their rights because the Griffin exception does not apply, then such insurers will often be faced with policy limit settlement demands that must be responded to when the existence or amount of coverage is disputed or unclear. Under Texas law, an insurer takes coverage into account in determining whether to accept a settlement demand at its own risk. This trend of using the inapplicability of the Griffin exception as a basis for denying declaratory relief means that insurers will likely have to continue making decisions about settlement demands without the benefit of judicial clarification as to what their policies cover and how much coverage their policies provide.

The forum selection clause: applied by Texas courts, but challenged by insureds

Insurance litigation has increased in the past decade in complexity and amount in controversy, but the law and court systems of many states have been unable to keep pace. This is especially true in large commercial first-party losses that involve towers of coverage. One tool insurance carriers increasingly use to streamline litigation – either because of favourable law or venues better equipped to handle eight- and nine-figure litigation – is the forum selection clause.

These clauses, which specify the court or jurisdiction where disputes are litigated and often the law that applies, generally come in two types: mandatory/exclusive clauses, which require that disputes be litigated only in the designated forum, and permissive/non-exclusive clauses that allow litigation in the designated forum but do not preclude other venues. This article focuses on mandatory forum selection clauses.

Insurers include forum selection clauses to achieve predictability and consistency in legal proceedings. Forum selection clauses have multiple benefits, including (i) reducing litigation costs by centralising disputes in a familiar forum; (ii) mitigating the risk of facing litigation in multiple or distant jurisdictions; (iii) utilising favourable laws or precedents in a chosen venue; and (iv) promoting efficient case management by relying on courts familiar with insurance contract interpretation.

Unsurprisingly, insureds often resist application of forum selection clauses. The result can be significant litigation and briefing about the forum selection clause at the outset of the case, before the substantive issues are addressed. This not only delays resolution of the substantive coverage or legal issues, but it drives up costs immediately. This hurts both parties. It drives up defence costs for the insurers and attorney fees owed to the insured’s lawyers, which can make settlement more difficult.

Forum selection clauses are generally enforceable in Texas

Although their use has increased in recent years, these types of clauses are not new to Texas courts, which favour the freedom of the parties to contract how they see fit. Thus, courts will generally enforce forum selection clauses. In fact, a court that does not enforce a forum selection clause abuses its discretion – a very high legal standard – absent clear evidence of one of four elements. They are that (i) enforcement would be unreasonable or unjust, (ii) the clause is invalid for reasons of fraud or overreaching, (iii) enforcement would contravene a strong public policy of the forum where the suit was brought, or (iv) the selected forum would be seriously inconvenient for trial.

A 20-year old case called In re AIU Ins. Co., 148 S.W.3d 109, 121 (Tex. 2004) set out these factors. In that case, the insured plaintiff initiated suit in Hildalgo County, Texas, and the insurance company moved to dismiss based on the insurance policy’s forum-selection clause. The trial court denied the motion, but, on a mandamus petition, the Supreme Court of Texas directed the Hildalgo County Court to grant the insurer’s motion to dismiss. The Supreme Court of Texas noted that litigating in New York was not a significant inconvenience. New York was not some remote alien forum that would deprive the insured of his day in court or discourage him from bringing his claims.

The Court also found no evidence of fraud or overreaching for the insurance contract to contain a New York forum selection clause and held that mandamus relief was appropriate because subjecting a party to trial in a forum other than the one agreed upon, and requiring an appeal to vindicate the rights granted in a forum selection clause, is harassing in nature and only benefits the breaching party.

Yet they continue to be challenged by insureds

Despite this two-decade-old precedent, insureds continue to challenge forum selection clauses. In a pending case in Hidalgo County, Texas District Court styled IDEA Public Schools v Westchester Surplus Lines Ins. Co., et al., No C-3463-24-B, the district court denied a group of insurers’ motion to dismiss pursuant to a New York forum selection clause in the policies. The insurers argued that, much like In re AIU, the insurance tower’s New York forum selection clause was enforceable because, among other things, litigating a case between numerous large insurers and a school district in New York would not be a significant inconvenience. Further, there was no evidence of fraud or overreaching. However, the district court disagreed, denying the motion to dismiss and allowing the case to continue in Texas, though it did not specify its reasoning.

The insurers filed a mandamus petition (a form of interlocutory appeal) to the intermediate court of appeals, which affirmed the district court’s decision. The intermediate court did not address the substantive issue, however, merely holding that the insurers did not meet their burden to warrant mandamus relief. The insurers then filed a subsequent mandamus petition to the Supreme Court of Texas. That petition is pending as of the date of publication of this article.

What the Court does in response to this petition may have dramatic effects on the enforceability of forum selection clauses in Texas. Enforcing the provision would re-affirm the Court’s prior opinion in In re AIU and other cases enforcing these contractual provisions. This may discourage future litigants from challenging similar forum selection clauses in large first-party cases. However, if the Court reverses, modifies or distinguishes its holding in In re AIU, it could change the litigation landscape in Texas. If this happens, insurers may need to re-evaluate whether they include forum selection clauses in policies or invoke them, given that litigation costs will quickly increase due litigation of this issue at the onset of a case.

Freight broker liability – will the US Supreme Court limit claims against freight brokers, and will that result in lower settlement demands to brokers and their insurers?

In the last several years, Texas and other locales in the United States have seen a significant increase in large verdicts arising out of commercial transportation accidents. These verdicts have also involved different types of entities named as defendants, as claimants have sought to hold not only the trucking company and its drivers accountable, but they have asserted claims against freight brokers, despite the law in certain jurisdictions that such claims are pre-empted by federal law. The scope of federal pre-emption is presently before the United States Supreme Court in the matter styled Montgomery v Caribe Transport II, LLC, et al., No 24-1238.

The law of Texas and other jurisdictions arguably permits freight broker liability based upon a negligent entrustment standard, while the federal standards should pre-empt these claims in matters where federal jurisdiction controls. In many ways, the proliferation of claims against freight brokers is a result of the significant increase in commercial trucking verdicts and settlements in Texas. And this issue is of particular importance in Texas, which the data shows has the highest volume of freight moving along its roadways in the United States, and the highest volume of fatal trucking accidents.

This lack of certainty makes responding to the time-limited demands under the Stowers doctrine especially problematic for freight brokers and their insurers.

In short, Texas law, pursuant to G.A. Stowers Furniture Co. v American Indem. Co., 15 S.W.2d 544 (Tex. Comm’n App. 1929, holding approved), places a tort duty on liability insurers to respond to reasonable demands and settle third-party claims against insureds. Generally speaking, Stowers and its progeny require an insurer to exercise ordinary care in the settlement of claims to protect insureds against excess judgments. The duty is activated by a settlement demand when in a case where the insureds liability is reasonably clear and:

• the claim against the insured is within the scope of coverage;
• there is a demand within policy limits; and
• the terms of the demand are such that an ordinarily prudent insurer would accept it, considering the likelihood and degree of the insured’s potential exposure to an excess judgment.

As noted above, freight brokers’ level of culpability under the law is extremely uncertain at this time, only adding more uncertainty for insurers when faced with demands by claimants seeking to invoke the duties owed under the Stowers doctrine. This uncertainty has only added fuel to the fire and created larger demands and risk.

Bottom line

As the trend of higher settlement demands, settlements and verdicts in commercial transportation matters continues, the frequency of claims against freight brokers will likely increase unless the United States Supreme Court steps in and definitively sets the standard of care for freight broker liability, which would allow freight brokers and their insurers to act with more certainty.

Whether the Supreme Court’s ruling in Montgomery v Caribe Transport creates clarity or further uncertainty remains to be seen. However, the firm remains hopeful that some clarity on the issue will arise in 2026.