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NO. 06-0816 - Supreme Court of Texas

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					_____________________________________________________________________



                   NO. 06-0816
____________________________________________________________________

                    IN THE SUPREME COURT OF TEXAS
_____________________________________________________________________



            HECTOR RAUL TREVINO AND MARIO MOYEDA,
                                            Petitioners

                                   v.

      PROGRESSIVE COUNTY MUTUAL INSURANCE COMPANY,
                                             Respondent


_____________________________________________________________________

                 RESPONDENT’S BRIEF ON THE MERITS
_____________________________________________________________________


CROFTS & CALLAWAY                  ADAMI, GOLDMAN & SHUFFIELD, INC.
A Professional Corporation         Larry J. Goldman
Michael J. Murray                  State Bar No. 08093450
State Bar No. 24007721             Michelle M. Copeland
Sharon E. Callaway                 State Bar No. 24007036
State Bar No. 05900200             Nowlin Building
4040 Broadway, Suite 525           9311 San Pedro Avenue, Suite 900
San Antonio, Texas 78209           San Antonio, Texas 78216
(210) 225-5551                     (210) 349-0500
(210) 225-7110 (telecopier)        (210) 349-7228 (telecopier)



                     ATTORNEYS FOR RESPONDENT
           PROGRESSIVE COUNTY MUTUAL INSURANCE COMPANY
                                            TABLE OF CONTENTS

INDEX OF AUTHORITIES ............................................................................................... v

STATEMENT OF THE CASE ........................................................................................xiii

ISSUES PRESENTED ..................................................................................................... xiv

I.       An insured’s breach of the cooperation condition negates an insurer’s duties
         to defend and indemnify if that breach results in prejudice to the insurer.
         Prejudice arises as a matter of law from a default judgment against the
         insured that the insurer could not prevent. Alejandro Alvarado failed to
         comply with that condition by undertaking affirmative acts that precluded
         Progressive from defending claims asserted by Petitioners. Those claims
         were resolved by a default judgment rendered against Alvarado. Did the
         Court of Appeals correctly conclude that Alvarado’s breach of the
         cooperation condition, which led to the rendition of a default judgment that
         Progressive could not prevent, prejudiced Progressive as a matter of law?

II.      The Texas Motor Vehicle Safety Responsibility Act affirmatively prohibits
         insurers from cancelling or voiding policies after the occurrence of an
         accident, but has never been understood to preclude an insurer from
         insisting upon material compliance with policy terms that are conditions
         precedent to its liability. In codifying the statutory precursor to Section
         601.073 of that Act, the Legislature expressly disavowed any intention to
         make a substantive change in the law. Construing the statute to deny an
         insurer’s right to enforce conditions precedent to its liability is not only
         inconsistent with expressed legislative intent and but also likely to produce
         untenable results. Did the Court of Appeals correctly conclude that Section
         601.073 does not abrogate an insurer’s right to demand compliance with the
         cooperation clause as a condition precedent to its liability on a policy?

STATEMENT OF FACTS.................................................................................................. 1

SUMMARY OF ARGUMENT........................................................................................... 9

ARGUMENT..................................................................................................................... 10

I.       The Cooperation Clause of the Progressive Insurance Policy Creates a
         Condition Precedent to Progressive’s Liability on the Policy................................ 10




                                                               ii
       A.     Mutually-Beneficial Standard Policy Provisions Such as the Notice
              of Suit Provision Have Routinely Been Deemed Conditions
              Precedent to an Insurer’s Liability on a Policy ........................................... 11

       B.     The Cooperation Clause, Like the Rest of the Notice of Suit
              Provision, Creates a Condition Precedent That Must Be Satisfied
              Before an Insurer Can Be Liable on a Policy.............................................. 12

II.    Petitioners Failed to Meet Their Burden of Establishing That Alvarado
       Satisfied the Cooperation Condition Imposed By the Policy and There Is
       No Evidence to Support the Trial Court’s Findings; in the Alternative, The
       Evidence Conclusively Established Alvarado’s Breach ........................................ 15

       A.     Standard of Review ..................................................................................... 16

       B.     Petitioners Bore the Burden of Proving That Alvarado Did Not
              Breach the Cooperation Condition.............................................................. 17

       C.     Petitioners Failed to Adduce Any Evidence That Could Support a
              Finding of Cooperation ............................................................................... 18

       D.     In the Alternative, the Evidence in the Record Conclusively
              Establishes That Alvarado Breached the Cooperation Condition............... 20

III.   Alvarado’s Breach of the Cooperation Condition Resulted in Prejudice to
       Progressive Because It Was Unable to Defend in the Underlying Litigation
       and Could Not Prevent or Contest the Resulting Default Judgment...................... 30

IV.    Texas’ Compulsory Automobile Insurance Statute Does Not Preclude
       Insurers from Demanding Material Compliance with the Terms of Policies ........ 37

       A.     Standard of Review ..................................................................................... 38

       B.     By Its Plain Meaning, Section 601.073(c) Is Inapplicable to This
              Case ............................................................................................................. 38

       C.     The Legislature Did Not Intend Any Substantive Change in the Law
              by Its 1995 Codification of the Statute; the Prior Law Clearly Did
              Not Prohibit Insurers from Insisting Upon Material Compliance with
              Policy Conditions ........................................................................................ 41




                                                            iii
                 1.        The Safety Responsibility Act, Even Following Its
                           Transformation into a Compulsory Automobile Insurance
                           Scheme, Permitted an Insurer to Demand Compliance With
                           Policy Conditions ............................................................................. 41

                 2.        The Legislature Expressly Disclaimed Any Intent to Change
                           the Law Substantively with the Statute’s 1995 Codification........... 43

        D.       Petitioners’ Argument Would Produce Absurd Results.............................. 46

        E.       Petitioners’ Construction Would Adversely Impact the Entire State
                 Without Any Clear Expression of Legislative Intent to Reach That
                 Result........................................................................................................... 47

CONCLUSION AND PRAYER....................................................................................... 49

CERTIFICATE OF SERVICE.......................................................................................... 50

APPENDIX

Progressive County Mut. Ins. Co. v. Trevino,
      202 S.W.3d 811 (Tex. App.--San Antonio 2006, pet. filed) ................................... A




                                                               iv
                                        INDEX OF AUTHORITIES

Cases

Alabama Farm Bureau Mut. Cas. Ins. Co.v. Mills,
  271 Ala. 192, 123 So.2d 138 (1960).............................................................................. 15

All-Star Ins. Corp. v. Steel Bar, Inc.,
  324 F.Supp. 160 (N.D. Ind. 1971) ................................................................................. 40

American Policyholder’s Ins. Co. v. Baker,
 119 N.H. 958, 409 A.2d 1346 (1979) ............................................................................ 21

American Transit Ins. Co. v. Sartor,
 3 N.Y.3d 71, 814 N.E.2d 1189, 781 N.Y.S.2d 630 (2004) ........................................... 15

Aranda v. Insurance Co. of N. Am.,
  748 S.W.2d 210 (Tex. 1988) ......................................................................................... 14

Arizona Prop. & Cas. Ins. Guar. Fund v. Helme,
  153 Ariz. 129, 735 P.2d 451 (1987) .............................................................................. 15

Associated Indem. Corp. v. CAT Contracting, Inc.,
  964 S.W.2d 276 (Tex. 1998) ................................................................................... 17, 18

Baker v. Guaranty Nat’l Ins. Co.,
  615 S.W.2d 303 (Tex. Civ. App.--Austin 1981, writ ref’d n.r.e.) ................................. 48

Blue Cross Blue Shield of Tex. v. Duenez,
  201 S.W.3d 674 (Tex. 2006) ......................................................................................... 38

Bostrom Seating, Inc. v. Crane Carrier Co.,
  140 S.W.3d 681 (Tex. 2004) ......................................................................................... 16

Cameron v. Berger,
  336 Pa. 229, 7 A.2d 293 (1938)..................................................................................... 15

Centex Corp. v. Dalton,
  840 S.W.2d 952 (Tex. 1992) ................................................................................... 11, 12

City of Keller v. Wilson,
  168 S.W.3d 802 (Tex. 2005) ......................................................................................... 16

City of San Antonio v. City of Boerne,
  111 S.W.3d 22 (Tex. 2003) ........................................................................................... 38


                                                            v
Conold v. Stern,
  138 Ohio St. 352, 35 N.E.2d 133 (1941) ....................................................................... 15

Criswell v. European Crossroads Shopping Ctr., Ltd.,
  792 S.W.2d 945 (Tex. 1990) ......................................................................................... 12

Dairyland County Mut. Ins. Co. of Texas v. Roman,
 498 S.W.2d 154 (Tex. 1973) ............................................................................. 12, 17, 18

Employers Cas. Co. v. Tilley,
 496 S.W.2d 552 (Tex. 1973) ......................................................................................... 26

Enserch Corp. v. Shand Morahan & Co., Inc.,
  952 F.2d 1485 (5th Cir. 1992) ................................................................................. 35, 36

Frazier v. Glens Falls Indem. Co.,
  278 S.W.2d 388 (Tex. Civ. App.--Fort Worth 1955, writ ref’d n.r.e.).......................... 33

Gates Formed Fibre Prods., Inc. v. Imperial Cas. & Indem. Co.,
 702 F.Supp. 343 (D. Me. 1988) ..................................................................................... 21

Griffin v. Fidelity & Cas. Co. of New York,
  273 F.2d 45 (5th Cir. 1960) ..................................................................................... 32, 33

Griggs v. Bertram,
  88 N.J. 347, 443 A.2d 163 (1982) ................................................................................. 15

Gulf Ins. Co. v. Parker Products, Inc.,,
 498 S.W.2d 676 (Tex. 1973) ............................................................................. 35, 36, 37

Hernandez v. Gulf Group Lloyds,
 875 S.W.2d 691 (Tex. 1994) ......................................................................................... 31

Howard v. Allen,
 254 S.C. 455, 176 S.E.2d 127 (1970) ............................................................................ 15

In re Forlenza,
  140 S.W.3d 373 (Tex. 2004) ......................................................................................... 38

In re Users Sys. Servs.,
  22 S.W.3d 331 (Tex. 1999)(orig. proceeding)............................................................... 27

Johnson Controls, Inc. v. Bowes,
  381 Mass. 278, 409 N.E.2d 185 (1980)......................................................................... 15




                                                           vi
Klein v. Century Lloyds,
  154 Tex. 160, 275 S.W.2d 95 (1955) ................................................................ 12, 17, 20

Landscape Design & Const., Inc. v. Harold Thomas Excavating, Inc.,
  604 S.W.2d 374 (Tex. Civ. App.--Dallas 1980, writ ref’d n.r.e.) ................................. 14

Lidawi v. Progressive County Mut. Ins. Co.,
  112 S.W.3d 725 (Tex. App.--Houston [14th Dist.] 2003, no pet.)................................ 17

McGuire v. Commercial Union Ins. Co. of New York,
 431 S.W.2d 347 (Tex. 1968) ................................................................................... 21, 47

McIntyre v. Ramirez,
 109 S.W.3d 741 (Tex. 2003) ......................................................................................... 38

McKimm v. Bell,
 790 S.W.2d 526 (Tenn. 1990) ....................................................................................... 15

Members Ins. Co. v. Branscum,
 803 S.W.2d 462 (Tex. App.--Dallas 1991, no writ) ...................................................... 43

Members Mut. Ins. Co. v. Cutaia,
 476 S.W.2d 278 (Tex. 1972) ................................................................................... 12, 47

Miller v. Dilts,
 463 N.E.2d 257 (Ind.1984) ............................................................................................ 15

National Ins. Ass'n v. Peach,
  926 S.W.2d 859 (Ky. App. 1996).................................................................................. 40

New Amsterdam Cas. Co. v. Hamblen,
  144 Tex. 306, 190 S.W.2d 56 (1945) ...................................................................... 12, 40

Northbrook Prop. & Cas. Ins. Co. v. Applied Sys., Inc.,
  313 Ill.App.3d 457, 729 N.E.2d 915 (2000).................................................................. 15

Northern County Mut. Ins. Co. v. Davalos,
  140 S.W.3d 685 (Tex. 2004) ................................................................. 24, 25, 26, 27, 28

O’Leary v. Lumbermen’s Mut. Cas. Co.,
  178 Conn. 32, 420 A.2d 888 (1979) .............................................................................. 15

Ogunsuada v. General Acc. Ins. Co. of Am.,
 695 A.2d 996 (R.I. 1997)............................................................................................... 15




                                                           vii
Ohio Cas. Group v. Risinger,
 960 S.W.2d 708 (Tex. App.--Tyler 1997, writ denied) ................................................. 32

Perez v. Kleinert,
  211 S.W.3d 468 (Tex. App.--Corpus Christi 2006, no pet. h.) ..................................... 27

Philadelphia Indem. Ins. Co. v. Stebbins Five Cos., Ltd.,
  2002 WL 31875596 (N.D. Tex. 2002) .......................................................................... 14

Progressive County Mut. Ins. Co. v. Trevino, et al.,
  202 S.W.3d 811 (Tex. App.--San Antonio 2006,
  pet. filed) .................................................................. xiii, 8, 11, 13, 16, 23, 30, 31, 35, 37

Quorum Health Resources, L.L.C. v. Maverick County Hosp. Dist.,
 308 F.3d 451 (5th Cir. 2002) ................................................................................... 21, 25

Simpson v. United States Fid. & Guar. Co.,
  562 N.W.2d 627 (Iowa 1997) ........................................................................................ 15

Southwell v. University of the Incarnate Word,
  974 S.W.2d 351 (Tex. App.--San Antonio 1998, pet. denied) ...................................... 13

St. Paul Guardian Ins. Co. v. Centrum G.S. Ltd.,
   383 F.Supp.2d 891 (N.D. Tex. 2003) ............................................................................ 31

State Farm Lloyds Ins. Co. v. Maldonado,
  963 S.W.2d 38 (Tex. 1998) ............................................................................... 12, 18, 39

State Farm Mut. Auto. Ins. Co. v. Traver,
  980 S.W.2d 625 (Tex.1998) .................................................................................... 24, 26

Struna v. Concord Ins. Servs., Inc.,
  11 S.W.3d 355 (Tex. App.--Houston [1st Dist.] 2000, no pet.) .................................... 32

Temple v. State Farm Ins. Co.,
  548 S.W.2d 838 (Ky. 1977)........................................................................................... 15

Texas Dep’t of Protective & Regulatory Servs. v. Mega Child Care, Inc.,
  145 S.W.3d 170 (Tex. 2004) ......................................................................................... 38

Texas Dep’t of Transp. v. City of Sunset Valley,
  146 S.W.2d 637 (Tex. 2004) ......................................................................................... 46

Texas Farm Bureau Mut. Ins. Co. v. Sturrock,
  146 S.W.3d 123 (Tex. 2004) ......................................................................................... 11



                                                          viii
Trevino v. Allstate Ins. Co.,
  651 S.W.2d 8 (Tex. App.--Dallas 1983, writ ref’d n.r.e.) ............................................. 17

Triton Oil & Gas Corp. v. Marine Contractors & Supply, Inc.,
  644 S.W.2d 443 (Tex. 1982) ......................................................................................... 20

Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S. Carolina, L.P.,
  433 F.3d 365 (4th Cir. 2005) ......................................................................................... 25

United States Cas. Co v. Schlein,
 338 F.2d 169 (5th Cir. 1964) ......................................................................................... 33

Villegas v. Carter,
  711 S.W.2d 624 (Tex. 1986) ......................................................................................... 27

Vrazel v. Skrabanek,
  725 S.W.2d 709 (Tex. 1987) ......................................................................................... 36

Warner v. Reagan Buick, Inc.,
 240 Neb. 668, 483 N.W.2d 764 (1992) ......................................................................... 15

Watson v. Jones,
 227 Kan. 862, 610 P.2d 619 (1980)............................................................................... 15

Weaver v. Hartford Accident & Indem. Co.,
 570 S.W.2d 367 (Tex. 1978) ....................................................................... 12, 13, 31, 34

Wheeler v. Allstate Ins. Co.,
 592 S.W.2d 2 (Tex. Civ. App.--Beaumont 1979, no writ) ............................................ 34

Wilson v. Farmers Ins. Group,
 655 N.W.2d 414 (N.D. 2003) ........................................................................................ 15

Wolverine Ins. Co. v. Sorrough,
 122 Ga. App. 556, 177 S.E.2d 819 (1970) .................................................................... 15

Womack v. Allstate Ins. Co.,
 156 Tex. 467, 296 S.W.2d 233 (1956) ................................................................... 12, 36

Yeo v. State Farm Ins Co.,
  219 Mich.App 254, 555 N.W.2d 893 (1996)................................................................. 15




                                                            ix
Statutes

Act of June 28, 1951, 52nd Leg.,
 R.S., ch. 498, § 1 et seq., 1951 Tex. Gen Laws 1210.................................................... 41

Act of June 28, 1951, 52nd Leg.,
 R.S., ch. 498, § 21(f), 1951 Tex. Gen. Laws 1220-21................................................... 43

Act of June 11, 1963, 58th Leg.,
 R.S., ch. 506, § 1 et seq., 1963 Tex. Gen. Laws 1320................................................... 42

Act of May 6, 1965, 59th Leg.,
 R.S., ch. 131, § 1 et seq., 1965 Tex. Gen. Laws 298..................................................... 42

Act of June 18, 1965, 59th Leg.,
 R.S., ch. 703, § 1 et seq., 1965 Tex. Gen. Laws 1636................................................... 42

Act of June 4, 1969, 61st Leg.,
 R.S., ch. 433, § 1 et seq., 1969 Tex. Gen. Laws 1467................................................... 42

Act of June 8, 1971, 62nd Leg.,
 R.S., ch. 744, § 1 et seq., 1971 Tex. Gen. Laws 2389................................................... 42

Act of June 15, 1971, 62nd Leg.,
 R.S., ch. 944, § 1 et seq., 1971 Tex. Gen. Laws 2866................................................... 42

Act of June 19, 1975, 64th Leg.,
 R.S., ch. 347, § 1 et seq., 1975 Tex. Gen. Laws 931..................................................... 42

Act of June 17, 1981, 67th Leg.,
 R.S., ch. 800, § 1 et seq., 1981 Tex. Gen. Laws 3053................................................... 42

Act of June 17, 1983, 68th Leg.,
 R.S., ch. 436, § 1 et seq., 1983 Tex. Gen. Laws 2496................................................... 42

Act of June 19, 1983, 68th Leg.,
 R.S., ch. 797, § 1 et seq., 1983 Tex. Gen. Laws 3122................................................... 42

Act of June 3, 1985, 69th Leg.,
 R.S., ch. 239, § 17, 1985 Tex. Gen. Laws 1181 ............................................................ 42

Act of May 18, 1987, 70th Leg.,
 R.S., ch. 104, § 4, 1987 Tex. Gen. Laws 248 ................................................................ 42

Act of June 11, 1987, 70th Leg.,
 R.S., ch. 289, § 1 et seq., 1987 Tex. Gen. Laws 1649................................................... 42


                                                       x
Act of June 18, 1987, 70th Leg.,
 R.S., ch. 580, § 1 et seq., 1987 Tex. Gen. Laws 2284................................................... 42

Act of June 14, 1989, 71st Leg.,
 R.S., ch. 499, § 1 et seq., 1989 Tex. Gen. Laws 1610................................................... 42

Act of June 16, 1991, 72nd Leg.,
 R.S., ch. 806, § 1 et seq., 1991 Tex. Gen. Laws 2821................................................... 42

Act of August 30, 1991, 72nd Leg.,
 2nd C.S., ch. 12, § 15.01, 1991 Tex. Spec. Laws 252................................................... 42

Act of June 17, 1993, 73rd Leg.,
 R.S., ch. 685, § 14.01, 1993 Tex. Gen. Laws 2559, 2671 ............................................. 42

Act of May 1, 1995, 74th Leg.,
 R.S. ch. 165, § 25, 1995 Tex. Gen. Laws 1025, 1871 ................................................... 46

TEX. GOV’T CODE ANN. § 311.023 (Vernon 2005) .................................................... 38, 46

TEX. GOV’T CODE ANN. § 323.007 (Vernon 2005) .................................................... 44, 45

TEX. REV. CIV. STAT. ANN. Article 6701h...................................................... 39, 41, 42, 43

TEX. TRANSP. CODE ANN. § 1.001(a)(Vernon 1999) .................................................. 45, 46

TEX. TRANSP. CODE ANN. § 601.073 (Vernon 1999) ............................... 39, 41, 43, 44, 49

Other Authorities

Charles Silver & Kent Syverud,
  The Professional Responsibilities of Insurance Defense Lawyers,
  45 DUKE L. J. 255 (1995)......................................................................................... 26, 28

Charles Silver,
  Does Insurance Defense Counsel Represent the Company or the Insured?,
  72 TEX. L. REV. 1583 (1994)......................................................................................... 26

Ellen S. Pryor,
  Mapping the Changing Boundaries of the Duty to Defend in Texas,
  31 TEX. TECH L. REV. 869 (2000) ................................................................................. 28



Michael D. Morrison & James R. Old, Jr.,
 Economics, Exigencies and Ethics: Whose Choice? Emerging Trends and Issues in


                                                           xi
   Texas Insurance Defense Practice,
   53 BAYLOR L. REV. 349 (2001)..................................................................................... 26

Robert W. Calvert, “No Evidence” and “Insufficient Evidence” Points of Error,
  38 TEX. L. REV. 361 (1960) ........................................................................................... 16

RESTATEMENT (SECOND) OF CONTRACTS § 224 (1981) ................................................... 11

RESTATEMENT (SECOND) OF CONTRACTS § 225 (1981) ................................................... 14

RESTATEMENT (SECOND) OF CONTRACTS § 227(1)(1981)................................................ 14

RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 31(2)(a)(2000) ............... 27

RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 32(2)(c) (2000) .............. 27

COUCH ON INSURANCE 3D § 199:1 (West 1999)............................................................... 20

COUCH ON INSURANCE 3D, § 199:6 (West 1999) .............................................................. 14

13 WILLISTON ON CONTRACTS (FOURTH) § 38.1 (West 2000)......................................... 11

13 WILLISTON ON CONTRACTS (FOURTH) § 38.3 (West 2000) ......................................... 11

14 WILLISTON ON CONTRACTS (FOURTH) § 41:3 (West 2000)......................................... 40

16 WILLISTON ON CONTRACTS (FOURTH) § 149:106 (West Supp. 2004)......................... 14

Rules

TEX. R. APP. P. 55.2(f)....................................................................................................... 11

TEX. R. CIV. P. 12 .............................................................................................................. 27

TEX. R. CIV. P. 54 .............................................................................................................. 17

TEX. DISCIP. R. PROF’L COND. 1.15(a)(3) ......................................................................... 27




                                                                xii
                          STATEMENT OF THE CASE

Nature of Case:     In an underlying action, No. 02-06-18422-MCV, Trevino, et al. v.
                    Alvarado, filed in the 293rd Judicial District Court of Maverick
                    County, Texas, Petitioners Hector Raul Trevino and Mario Moyeda
                    alleged that they were injured when the vehicle in which they were
                    riding was struck by a truck driven by Alejandro Alvarado in April
                    2001. (II CR 170). On or about June 26, 2002, Petitioners filed suit
                    against Alvarado, who was a named insured on an automobile
                    liability policy issued by Respondent Progressive County Mutual
                    Insurance Company. (I CR 60; II CR 171). After Alvarado
                    rejected a defense tendered by Progressive in that action, Petitioners
                    obtained a post-answer default judgment against Alvarado,
                    awarding them damages in excess of the liability limits set forth in
                    the Progressive policy. (II CR 176-77). Petitioners then filed this
                    action, on or about November 19, 2003, seeking to enforce the
                    default judgment against Progressive. (I CR 1).


Trial Court:        No. 03-11-19601-MCV, Trevino, et al. v. Progressive County Mut.
                    Ins. Co., in the 365th Judicial District Court, Maverick County,
                    Texas, the Honorable Amado J. Abascal, III, presiding.


Trial Court’s       The trial court rendered judgment for Petitioners, awarding them
Disposition:        damages, interest, attorney’s fees, and court costs. (II CR 258).


Court of Appeals:   Progressive County Mut. Ins. Co. v. Trevino, et al., 202 S.W.3d 811
                    (Tex. App.--San Antonio 2006, pet. filed)(App. A). Justice Karen
                    Angelini authored the opinion, in which Justice Sarah Duncan
                    joined. Justice Sandee Bryan Marion wrote a separate opinion
                    concurring with the majority in part and dissenting in part.

Court of Appeals’   The Court of Appeals reversed the trial court’s judgment and
Disposition:        rendered judgment that Petitioners take nothing by their claims
                    against Progressive. See Progressive County Mut. Ins. Co., 202
                    S.W.3d at 820.

Requested           Progressive requests that the Court deny the petition for review; in
Disposition from    the alternative, Progressive requests that the Court affirm the Court
This Court:         of Appeals’ judgment.



                                          xiii
                            ISSUES PRESENTED


I.    An insured’s breach of the cooperation condition negates an insurer’s duties
      to defend and indemnify if that breach results in prejudice to the insurer.
      Prejudice arises as a matter of law from a default judgment against the
      insured that the insurer could not prevent. Alejandro Alvarado failed to
      comply with that condition by undertaking affirmative acts that precluded
      Progressive from defending claims asserted by Petitioners. Those claims
      were resolved by a default judgment rendered against Alvarado. Did the
      Court of Appeals correctly conclude that Alvarado’s breach of the
      cooperation condition, which led to the rendition of a default judgment that
      Progressive could not prevent, prejudiced Progressive as a matter of law?


II.   The Texas Motor Vehicle Safety Responsibility Act affirmatively prohibits
      insurers from cancelling or voiding policies after the occurrence of an
      accident, but has never been understood to preclude an insurer from insisting
      upon material compliance with policy terms that are conditions precedent to
      its liability. In codifying the statutory precursor to Section 601.073 of that
      Act, the Legislature expressly disavowed any intention to make a substantive
      change in the law. Construing the statute to deny an insurer’s right to
      enforce conditions precedent to its liability is not only inconsistent with
      expressed legislative intent but also likely to produce untenable results. Did
      the Court of Appeals correctly conclude that Section 601.073 does not
      abrogate an insurer’s right to demand compliance with the cooperation
      clause as a condition precedent to its liability on a policy?




                                        xiv
TO THE HONORABLE SUPREME COURT OF TEXAS:

        Progressive County Mutual Insurance Company (“Progressive”) respectfully

presents this Respondent’s Brief on the Merits. Progressive requests that this Court deny

the Petition for Review in this matter; in the alternative, Progressive requests that this

Court affirm the decision of the Court of Appeals for the Fourth Court of Appeals

District, which rendered judgment that Petitioners take nothing by their claims. In

support thereof, Progressive respectfully shows as follows:

                                       STATEMENT OF FACTS

        Progressive issued a Texas Personal Automobile Policy (policy number

35768464-1) to Juan T. Gonzalez, Sr. (II CR 170, 190-210).1 The Progressive policy

covered several vehicles, including a 1984 Chevrolet truck. (II CR 190). The policy also

declared coverage for a total of five drivers, including Alejandro Alvarado. (Id.). The

standard form policy comported, in all material respects, with the requirements imposed

by state law upon motor vehicle liability insurers. The policy, which was in effect for a

period of one year commencing on April 7, 2001, stated policy limits for bodily injury

and property damage of $20,007.00 per person and $40,007.00 per accident. (II CR 190).

        The policy provided that Progressive “will pay damages for bodily injury or

property damage for which any covered person becomes legally responsible because of

an auto accident.”           (II CR 194, Part A).             Along with circumstantial disclaimers,


1
   Progressive will cite to the record as follows: the Clerk’s Record, which consists of two consecutively-paginated
volumes, will be cited as “CR” with a leading roman numeral noting the volume of the record in which the matter
cited is found and a following Arabic numeral noting the page upon which the matter cited is found; the Reporter’s
Record, which also consists of two volumes, will be cited “RR” and referred to in the same fashion as the Clerk’s
Record. Finally, the Supplemental Clerk’s Record will be cited as “Supp CR” with a following page reference.
Progressive’s policy conditioned coverage upon compliance with certain standard

contractual duties:

       PART E - DUTIES AFTER AN ACCIDENT OR LOSS

       GENERAL DUTIES

       A.     We must be notified promptly of how, when and where the accident
              or loss happened. Notice should also include the names and
              addresses of any injured persons and of any witnesses. If we show
              that your failure to provide notice prejudices our defense, there is no
              liability coverage under the policy.

       B.     A person seeking any coverage must:

              1.      Cooperate with us in the investigation, settlement or defense
                      of any claim or suit.

(II CR 203-204). Alvarado was required to comply with these provisions.

       On April 17, 2001, as he drove the Chevrolet truck in the southbound lane of F.M.

1021 in Eagle Pass, Alvarado’s vehicle collided with a truck in which Hector Raul

Trevino and Mario Moyeda were riding. (I CR 61; II CR 170). Claiming that they had

suffered injuries in the accident and that Alvarado had proximately caused those injuries,

Trevino and Moyeda instituted suit against Alvarado on June 26, 2002, in the 293rd

Judicial District Court of Maverick County, Texas. (I CR 60). Alvarado was properly

served in the underlying suit and complied with his contractual obligation to deliver the

suit papers to Progressive. (I CR 66; II CR 171). Shortly after the accident, Alvarado

had participated in a telephone interview with a Progressive representative. (I RR 53; II

CR 231-243).       A subsequent letter to Alvarado noted his opposition to paying any

damages to Trevino or Moyeda, but cited a standard policy provision reserving to



                                             2
Progressive the right to settle or defend any claim asking for damages arising from a

covered accident.          (Id.).    Upon being notified of the suit, Progressive began an

investigation and came to a preliminary conclusion that both parties had contributed to

the collision. (I CR 117). Progressive assumed a defense on Alvarado’s behalf without a

reservation of rights, retaining counsel to undertake that representation. (I CR 117; II CR

171; I RR 166).

        Shortly after counsel was retained on his behalf, however, Alvarado began

subverting the defense. The record reflects that after Progressive told him it would

assume the defense and retained counsel had answered the lawsuit, Alvarado filed his

own answer, offering his own theories of the case. (I RR 52, 57-58, 166-67). Petitioners’

counsel characterized that pleading as “frivolous.”                       (I RR 57-58).          There is no

disagreement that Alvarado failed to show for a deposition noticed by Petitioners, despite

at least one effort to reschedule the deposition. (I RR 62-63, 167).2 Alvarado also failed

to respond to written discovery propounded by Petitioners, necessitating the service of

only basic, unverified responses and failed to attend a scheduled mediation. (I RR 167).

        When Alvarado did finally respond to the entreaties of Progressive, that response

was decidedly non-cooperative. Carol Alvarado, the Defendant’s wife and guardian,

called Progressive and left a message instructing Progressive to “just go ahead and deny

coverage” for the April 17, 2001 accident:

        Hello this is Carol Alvarado calling, and I’m calling in response to a letter
        of March 17, 2003 that I just received that’s post marked April 16, 2003.
2
   The record contains copies of correspondence sent by retained counsel to Alvarado and envelopes associated with
each piece of correspondence indicating that the letter had been refused. These documents were admitted into
evidence at trial to prove, among other things, “matters for which Progressive had knowledge.” (I RR 158).


                                                        3
       Um I’m speaking on behalf of my husband because I’m his guardian. He’s
       had more problems since this accident of April 17th and the reason I’m
       calling this. Um as far as we’re concern, you can just go ahead and deny
       coverage for that accident. That would be fine with us if you just deny
       coverage with regard to the lawsuit. Just inform the parties that you’re
       denying coverage, send us a copy of the letter, and I mean that’s fine. We
       have we have nothing that they can there’s nothing that they can do to us by
       suing us cause well you know we’re pretty well judgment proof anyway
       and my husband is injured. I, myself, have cancer so we just don’t have the
       resources, the energy to be involved in this at all. I don’t have a phone. I
       can’t call you back um so just go ahead and deny coverage with regard that
       accident of that day, April 17, 2001. I’m speaking on behalf of my husband
       as his guardian and that’s fine with us. Thanks.

(I CR 153; II CR 245). Following its receipt of that message, Progressive filed a

declaratory judgment action. (II CR 229). For a variety of reasons, the outcome of that

proceeding is not relevant to this litigation.        But documents admitted to show

Progressive’s knowledge of such matters revealed that, in the context of the declaratory

judgment proceeding, Alvarado filed pleadings expressly confirming that he wished the

withdrawal of counsel. (I CR 109)(requesting that “any attorney currently claiming to

represent me be withdrawn [from the underlying litigation] and that Progressive have no

obligation to pay any judgement [sic] rendered in [the underlying litigation].”).

       Progressive eventually acceded to Alvarado’s expressed wishes, requesting that its

retained counsel withdraw from the representation, but only after affording Alvarado

thirty days to find substitute counsel. (I RR 63). Following the expiration of those thirty

days, on October 16, 2003, counsel retained by Progressive withdrew from the

representation. (II CR 171). Before withdrawing, counsel filed a motion for continuance,

but that motion was apparently denied. (I RR 63-64; I CR 163).




                                             4
       The claims asserted by Petitioners against Alvarado went to trial on October 20,

2003. (I CR 5). Alvarado did not appear at trial and was not represented at that

proceeding. (I CR 163)(trial proceeded as scheduled).        The trial court, the Honorable

Rey Perez presiding, conducted a brief trial, during which Petitioners introduced

evidence concerning Alvarado’s liability to them and their damages. (I CR 163-166). On

the same day, the trial court rendered judgment in Petitioners’ favor, awarding

$45,000.00 in damages to Trevino and $25,000.00 to Moyeda. (I CR 11). The trial court

ordered that the judgment bear interest and that Petitioners recover their costs of court

from Alvarado. (I CR 12). Given Alvarado’s decision to terminate the representation by

its retained counsel, Progressive had no opportunity to attack the resulting judgment

either in the trial court or on appeal.

       With that unchallenged judgment in hand, Petitioners filed the instant action

against Progressive on November 19, 2003 in the 365th Judicial District Court of

Maverick County. (I CR 2-8). They alleged, by their First Amended Original Petition,

that they were judgment creditors of Alvarado and that they had standing to bring a claim

directly against Progressive as third party beneficiaries of the policy in effect at the time

of the accident. (II CR 169). They sought to enforce the judgment to the extent of the

liability limits set forth in the Progressive policy. (II CR 171). As a result, Petitioners

sought a judgment against Progressive awarding each of them “one-half (1/2) of the full

per accident policy limit of $40,007.00.” (Id.). They generally alleged that all conditions

precedent to bringing suit had been performed or had occurred. (Id.). Progressive

answered, specifically noting that “Alejandro Alvarado and Plaintiffs, as judgment


                                             5
creditors, have failed to comply with the cooperation clause contained in the policy of

insurance.” (II CR 255).

       When the trial court denied Progressive’s motion for summary judgment, the case

proceeded to a bench trial on November 22, 2004. (I RR 1). Petitioners introduced the

judgment in the underlying case, the Progressive policy issued to Juan T. Gonzalez, and

Progressive’s Responses to Plaintiffs’ Request for Admissions. (I RR 34-39). Several

specific admissions were read into the record. (Id.). Those admissions demonstrated that

Progressive is a corporation engaged in the business of insurance, that it issued a policy

to Juan T. Gonzalez, Sr., that Alvarado was named as a driver covered by the policy and

that the Chevrolet pickup that Alvarado was driving on April 17, 2001 was a covered

vehicle. (I RR 36-37). Progressive also admitted that the policy was effective on the date

of the accident and that liability for any collision was limited to $20,007.00 per person

and $40,007.00 per occurrence. (I RR 37-38). Finally, Progressive admitted that the

judgment rendered by the 293rd Judicial District Court in the underlying litigation was a

final judgment that was rendered after trial. (I RR 39). Significantly, though, none of

these admissions related to any purported cooperation by Alvarado.               Counsel for

Petitioners also testified at the trial, but limited his testimony to the issue of his fees. (I

RR 40-80).     While Petitioners’ counsel explained that his work in the case was

complicated by Progressive’s pleadings concerning Alvarado’s breach of the cooperation

condition, he offered no testimony or evidence to establish that Alvarado had cooperated

in the defense. (I RR 69, 74).




                                              6
       At the conclusion of Petitioners’ evidence, Progressive presented an oral motion

for judgment, urging that Petitioners had failed to meet their burden to establish that all

conditions precedent to coverage -- and specifically, the cooperation condition -- had

been satisfied. (I RR 87-88, 91-92, 93-95, 102, 106-07, 115). Petitioners urged the court

to find, instead, that the cooperation provision created a covenant rather than a condition.

(I RR 90, 92-93, 96-97, 100-02, 104-06, 109).             The trial court eventually denied

Progressive’s motion without stating a reason for that ruling and reiterated that

conclusion when Progressive later reurged its motion for judgment. (I RR 117, 159).

       The trial court rendered judgment for Petitioners, awarding the full policy limit of

$40,007.00 plus interest accrued on the judgment in the earlier case. (II CR 258-59).

Petitioners were also awarded attorney’s fees and post-judgment interest.             (Id.).

Following the rendition of judgment, Progressive made a timely request for findings of

fact and conclusions of law. (II CR 261). Among its findings, the trial court found that

Alvarado “did not unreasonably refuse to cooperate in the investigation, settlement, or

defense of the Underlying Litigation.” (Supp. CR 5). The court also found that the

“defense of the underlying litigation by [Progressive] was not prejudiced by any failure

of [Alvarado] to cooperate.”        (Id.).   The court concluded that Alvarado “did not

materially breach the subject insurance policy” and that Petitioners were entitled to

recover directly from Progressive, all sums owed based upon the earlier judgment subject

to the liability limits set forth in the policy. (Supp. CR 6).

       Progressive moved to modify the judgment and, alternatively, for new trial. (II CR

263-88; II RR 1). In so doing, it specifically attacked the legal and factual insufficiency


                                               7
of the evidence to support the findings concerning the satisfaction cooperation and

prejudice; it also attacked the trial court’s conclusion that Petitioners could enforce the

policy. (II CR 273, 277, 284-86). After a hearing on the motion to modify and motion

for new trial, the trial court denied each on January 31, 2004. (II CR 302). Progressive

perfected an appeal to the Fourth Court of Appeals. (II CR 309).

       The Court of Appeals reversed the trial court’s judgment and rendered judgment

that Petitioners take nothing by their claims against Progressive. See Progressive County

Mut. Ins. Co. v. Trevino, 202 S.W.3d 811, 820 (Tex. App.--San Antonio 2006, pet. filed).

The panel, consisting of Justices Angelini, Duncan, and Marion, unanimously held that

the cooperation clause in the policy created a condition precedent to coverage and that

Petitioners had failed to establish satisfaction of that condition. Id. at 816, 820. The

panel was likewise unanimous in concluding that the policy defense available to

Progressive as a result of such a breach had not been statutorily abrogated. Id. at 818-20.

The panel split, however, as to whether Alvarado’s breach of the cooperation condition

was prejudicial to Progressive. Id. at 817-18, 820. Justice Marion concluded in dissent

that Progressive had not been prejudiced by Alvarado’s breach. Id. at 820. Justice

Angelini, joined by Justice Duncan, concluded, however, that Progressive had been

prejudiced as a matter of law. Id. at 817-18.




                                                8
                             SUMMARY OF ARGUMENT

       The long history of Texas jurisprudence demonstrates that cases involving

material breaches of the cooperation clause in a standard automobile insurance policy,

which creates a condition precedent to the insurer’s liability on the policy, are

exceedingly rare. Rarer still are those cases, like this one, where the breach is both

obvious and prejudicial as a matter of law.

       Relying on controlling authority, the Court of Appeals concluded that an insured’s

overt rejection of coverage must necessarily amount to a breach of the cooperation

condition in a standard insurance policy. Indeed, such an act by the insured is the

extreme example of non-cooperation; an insured who rejects coverage exercises the right

of any litigant to terminate his or her lawyer, but, in so doing, compels the withdrawal of

any representation afforded by the insurer. When the insured later incurs the liability

imposed by a default judgment and precludes the insurer from attacking that judgment on

appeal, the prejudice stemming from the rejection of coverage attaches as a matter of law.

Here, the Court of Appeals did nothing more than reach those uncontroversial

conclusions. In so doing, it also properly construed the mandatory automobile insurance

law to conclude that insurers maintain the right to insist upon material compliance with

policy conditions intended to protect the contractual rights of those insurers.

       The Court of Appeals did nothing other than prove that existing precedent is more

than sufficient to resolve disputes that are as rare as this one. That truth strongly suggests

that this is a case that does not merit further review. But to the extent that review might

be deemed worthwhile, the Court of Appeals’ judgment should be affirmed.


                                              9
                                      ARGUMENT

       Few, if any, cases decided in Texas have ever considered whether an insured’s

overt rejection of coverage after the insured has assumed a defense amounts to a failure

to comply with the cooperation condition in a standard automobile insurance policy that

prejudices the insurer. That stands to reason, because the multiplicity of incentives to the

insured for cooperating and allowing the insurer to control the defense -- including the

specter of significant personal liability -- make such choices extraordinarily irrational.

Notwithstanding the reasons that a factual scenario like this one is unique, the Court of

Appeals’ opinion in this case ensures that there is a remarkably small likelihood that

these circumstances will ever recur. It does so by its reliance on controlling authority to

amply support a conclusion that an insured’s rejection of coverage is an extraordinarily

prejudicial act of non-cooperation in derogation of the insured’s express contractual

obligations. The Court of Appeals, thus, reinforced the clear incentives for insureds to

cooperate in the defense of actions against them by, at the very least, permitting the

insurer to control the litigation. Because the Court of Appeals did nothing other than

apply controlling precedent to a situation that is likely to remain unique in Texas

jurisprudence for some time, review of this matter should be denied. Alternatively, the

judgment should be affirmed.

I.     The Cooperation Clause of the Progressive Insurance Policy Creates a
       Condition Precedent to Progressive’s Liability on the Policy.

       The Court of Appeals unanimously reached the altogether uncontroversial

conclusion, based on controlling precedent, that the cooperation clause in the Progressive



                                            10
policy creates a condition precedent to coverage. See Progressive, 202 S.W.3d at 816. It

would appear that Petitioners have not raised any specific argument concerning the

viability of that decision; instead, Petitioners shrug off the conclusion as “unsupported

dicta” and argue that characterizing the clause as a condition precedent is largely

irrelevant. See Pet. Br. at 18 n.4. Despite its wrongfully dismissive tone, the Petitioners’

failure to challenge that conclusion requires that the Court of Appeals’ determination be

upheld. See TEX. R. APP. P. 55.2(f). Nevertheless, even assuming that a challenge to the

Court of Appeals’ conclusion concerning the characterization of the cooperation clause as

a condition could be fairly inferred from the issues presented in Petitioners’ brief, that

challenge must fail.

       A.     Mutually-Beneficial Standard Policy Provisions Such as the Notice of
              Suit Provision Have Routinely Been Deemed Conditions Precedent to
              an Insurer’s Liability On a Policy

       The construction of a contract is a question of law, subject to de novo review. See,

e.g, Texas Farm Bureau Mut. Ins. Co. v. Sturrock, 146 S.W.3d 123, 126 (Tex.

2004)(construction of contract presents a question of law). This Court has recognized

that “a condition precedent is an event that must happen or be performed before a right

can accrue to enforce an obligation.” Centex Corp. v. Dalton, 840 S.W.2d 952, 956 (Tex.

1992); see also RESTATEMENT (SECOND) OF CONTRACTS § 224 (1981). Such conditions

benefit the promisor (in the case of an insurance contract, the insurer) and limit the

circumstances under which the promisor must perform.              See 13 WILLISTON ON

CONTRACTS (FOURTH) §§ 38.1, 38.3 (West 2000). Certainly, conditions are not favored

in the law. See Criswell v. European Crossroads Shopping Ctr., Ltd., 792 S.W.2d 945,


                                            11
948 (Tex. 1990). But that maxim does not compel that courts construing contractual

language determine, in every instance, that the contract is devoid of conditions. See

Centex Corp., 840 S.W.2d at 955-56 (recognizing that agreement to pay a finder’s fee

was unenforceable by finder because the agreement imposed a condition precedent that

went unsatisfied). Indeed, this Court has repeatedly concluded that significant provisions

of insurance policies -- language similar, if not identical, to that in question here -- create

conditions precedent to the insurer’s liability on the policy. See State Farm Lloyds Ins.

Co. v. Maldonado, 963 S.W.2d 38, 40 (Tex. 1998); Harwell v. State Farm Mut. Auto. Ins.

Co., 896 S.W.2d 170, 173-74 (Tex. 1995); Liberty Mut. Ins. Co. v. Cruz, 883 S.W.2d

164, 165 (Tex. 1993)(per curiam); Weaver v. Hartford Accident & Indem. Co., 570

S.W.2d 367, 369 (Tex. 1978); Members Mut. Ins. Co. v. Cutaia, 476 S.W.2d 278, 279

(Tex. 1972); Womack v. Allstate Ins. Co., 156 Tex. 467, 472, 296 S.W.2d 233, 236

(1956); Klein v. Century Lloyds, 154 Tex. 160, 162, 275 S.W.2d 95, 96 (1955); New

Amsterdam Cas. Co. v. Hamblen, 144 Tex. 306, 310, 190 S.W.2d 56, 58 (1945). Since

such policy provisions are mutually-beneficial, their recognition as conditions precedent

does not contravene any public policy interest. See Dairyland County Mut. Ins. Co. of

Texas v. Roman, 498 S.W.2d 154, 157-58 (Tex. 1973).

       B.     The Cooperation Clause, Like the Rest of the Notice of Suit Provision,
              Creates a Condition Precedent That Must be Satisfied Before An
              Insurer Can Be Liable On a Policy

       The Progressive policy language tracks the standard endorsement promulgated by

the Texas Department of Insurance, which compels “a person seeking coverage” to

“cooperate with us in the investigation, settlement, or defense of any claim or suit,”


                                              12
among other things. (II CR 203). Construing an identical clause in the broader context of

the policy provisions that surround it, this Court has already held that the entire “notice of

suit” provision in a standard automobile insurance policy creates conditions precedent to

an insurer’s liability. See Harwell, 896 S.W.2d at 173. Aside from a minor difference in

how the paragraphs are formatted, the policy language here is identical to the language

construed in Harwell. See Progressive, 202 S.W.3d at 816. Relying on Harwell, the

Court of Appeals panel unanimously concluded that there was no basis to treat the

obligations imposed by the cooperation clause any differently than those set forth in the

provisions surrounding it. Id.

       That conclusion finds support in several fundamental principles of contract

construction as well. First, each section of the notice of suit provision, including the

cooperation clause, serves some role in achieving the unifying purpose of that provision:

protecting the insurer’s right to a meaningful opportunity to defend the suit without any

collusion between the insured and the claimant.         See Weaver, 570 S.W.2d at 369.

Moreover, concluding that the cooperation clause was intentionally included within the

broader provision construed in Harwell is a proper result because the cooperation clause,

if construed by itself, would readily be deemed to create a condition precedent.         That

language allocates to the insured nearly-complete control in assuring that it will cooperate

with the insurer in the defense of the action. See, e.g., Southwell v. University of the

Incarnate Word, 974 S.W.2d 351, 358 (Tex. App.--San Antonio 1998, pet.

denied)(student had control over whether she would complete degree requirements and,

therefore, requirements created condition precedent to receipt of college degree). The


                                             13
insured, therefore, determines whether the condition will be satisfied and, under the

Restatement’s formulation of the governing principle, should therefore be made to bear

the risk of forfeiture resulting from the non-occurrence of that condition.                                        See

RESTATEMENT (SECOND) OF CONTRACTS § 227(1)(1981)(“In resolving doubts as to

whether an event is made a condition of an obligor’s duty . . . an interpretation is

preferred that will reduce the obligee’s risk of forfeiture unless the event is within the

obligee’s control.”). Further, that conclusion also accounts for the practical effects that

should flow from an insured’s non-cooperation; an uncooperative insured risks personal

liability while limiting the possibility that he may be indemnified by the insurer.3

         Furthermore, a conclusion that the cooperation clause creates a condition

precedent to the insurer’s liability on the policy comports with the national majority view

of that provision. See 16 WILLISTON ON CONTRACTS (FOURTH) § 149:106 & n. 52 (West

Supp. 2004)(“The cooperation clause is a material condition of the insurance contract”);

COUCH ON INSURANCE 3D, § 199:6 (West 1999)(discussing cooperation clause and

explaining that “it makes little difference what the provision is called, since it is a

3
    The remedy available for an insured’s failure to comply with the provision demonstrates still another reason to
support a conclusion that the language creates a condition precedent. Unlike the breach of a covenant, which gives
rise to a subsequent claim for damages without necessarily affecting the enforceability of the contract itself, the
breach of a condition precedent renders the contract unenforceable at the election of the non-breaching party but
does not, in a general sense, entitle the non-breaching party to damages. See Landscape Design & Const., Inc. v.
Harold Thomas Excavating, Inc., 604 S.W.2d 374, 376 (Tex. Civ. App.--Dallas 1980, writ ref’d n.r.e.); see also
RESTATEMENT (SECOND) OF CONTRACTS § 225 (1981). A conclusion that the cooperation provision creates a
covenant would, in practical effect, mean that a lack of cooperation by the insured could give rise to an action for
monetary damages. That result has never been embraced by Texas courts. See, e.g., Philadelphia Indem. Ins. Co. v.
Stebbins Five Cos., Ltd., 2002 WL 31875596 at *5-6 (N.D. Tex. 2002)(rejecting argument that cooperation clause is
covenant by noting, among other things, that “the only applicable case law treats cooperation clauses as conditions
precedent, relieving an insurer of liability rather than creating an affirmative cause of action against its insured.”).
Indeed, characterizing the cooperation clause as a covenant, the breach of which would support a claim for damages,
would contravene the very public policy recognizing the “special relationship” between insurers and their insureds
by permitting that relationship to readily devolve into combative litigation by which the insurer seeks recompense
from the insured. See Aranda v. Insurance Co. of N. Am., 748 S.W.2d 210, 212-13 (Tex. 1988).


                                                          14
material condition of the policy, and a breach of the provision by the insured constitutes a

defense to liability on the policy and relieves the insurer of its obligations under the

contract . . . .”).       Courts in a substantial number of jurisdictions nationwide have

acknowledged and followed the conclusion that the notice of suit provisions found in

most insurance policies, including the cooperation requirement, create a condition

precedent to coverage, regardless of the particular risk insured.4

        The Court of Appeals’ conclusion that the cooperation clause is a condition

precedent to coverage is not dicta and it is amply supported. Accordingly, to the extent

that Petitioners may be said to have challenged it, the Court of Appeals’ holding that the

cooperation clause creates a condition precedent to coverage is clearly correct and should

not be disturbed.

II.     Petitioners Failed to Meet Their Burden of Establishing That Alvarado
        Satisfied the Cooperation Condition Imposed By the Policy and There is No
        Evidence to Support the Trial Court’s Findings; In the Alternative, the
        Evidence Conclusively Established Alvarado’s Breach.

        The proper characterization of the cooperation clause as a condition precedent to

Progressive’s liability placed the evidentiary burden of establishing the satisfaction of the
4
    See, e.g., Alabama Farm Bureau Mut. Cas. Ins. Co. v. Mills, 271 Ala. 192, 198, 123 So.2d 138, 144 (1960);
Arizona Prop. & Cas. Ins. Guar. Fund v. Helme, 153 Ariz. 129, 136-37, 735 P.2d 451, 458-59 (1987); O’Leary v.
Lumbermen’s Mut. Cas. Co., 178 Conn. 32, 38, 420 A.2d 888, 891 (1979); Wolverine Ins. Co. v. Sorrough, 122 Ga.
App. 556, 560, 177 S.E.2d 819, 822 (1970); Northbrook Prop. & Cas. Ins. Co. v. Applied Sys., Inc., 313 Ill.App.3d
457, 464, 729 N.E.2d 915, 920-21 (2000); Miller v. Dilts, 463 N.E.2d 257, 260-61 (Ind.1984); Simpson v. United
States Fid. & Guar. Co., 562 N.W.2d 627, 631-32 (Iowa 1997); Watson v. Jones, 227 Kan. 862, 866, 610 P.2d 619,
623 (1980); Temple v. State Farm Ins. Co., 548 S.W.2d 838, 840 (Ky. 1977); Yeo v. State Farm Ins. Co., 219
Mich.App. 254, 257, 555 N.W.2d 893 (1996); Wilson v. Farmers Ins. Group, 655 N.W.2d 414, 416 (N.D. 2003);
Griggs v. Bertram, 88 N.J. 347, 360, 443 A.2d 163 (1982); American Transit Ins. Co. v. Sartor, 3 N.Y.3d 71, 76,
814 N.E.2d 1189, 1192, 781 N.Y.S.2d 630, 633 (2004); Conold v. Stern, 138 Ohio St. 352, 358, 35 N.E.2d 133, 137
(1941); Cameron v. Berger, 336 Pa. 229, 233, 7 A.2d 293, 295 (1938); Ogunsuada v. General Acc. Ins. Co. of Am.,
695 A.2d 996, 999 (R.I. 1997); Howard v. Allen, 254 S.C. 455, 460-61, 176 S.E.2d 127, 129 (1970); McKimm v.
Bell, 790 S.W.2d 526, 528 (Tenn. 1990); but see Johnson Controls, Inc. v. Bowes, 381 Mass. 278, 282, 409 N.E.2d
185 (1980)(notice provisions of the insurance policies should no longer be strictly construed as a condition
precedent to the insurer’s liability); Warner v. Reagan Buick, Inc., 240 Neb. 668, 676, 483 N.W.2d 764, 771
(1992)(notice of suit provision is not a condition precedent).


                                                       15
condition upon Petitioners. All three members of the Court of Appeals’ panel agreed that

Petitioners failed to meet their burden to prove Alvarado’s cooperation with Progressive,

concluding that there was no evidence to support the trial court’s finding that Alvarado

“did not unreasonably refuse to cooperate in the investigation, settlement, or defense of

the Underlying Litigation.” See Progressive, 202 S.W.3d at 816. Again, Petitioners

apparently have not challenged the allocation of the burden of proof, as they argue that

inferences support a finding that Alvarado’s non-cooperation was reasonable.

Nevertheless, the panel’s conclusion is demonstrably correct.

       A.     Standard of Review

       There is “no evidence” to support a jury’s finding when, inter alia, there is a

complete absence of evidence to support that vital fact. See City of Keller v. Wilson, 168

S.W.3d 802, 811 (Tex. 2005)(citing Robert W. Calvert, “No Evidence” and “Insufficient

Evidence” Points of Error, 38 TEX. L. REV. 361, 362-63 (1960))(emphasis added).

Certainly, evidence of a vital fact may come in the form of inferences. See id. But

neither jurors nor reviewing courts are permitted to draw unreasonable inferences from

the evidence, even if those unreasonable inferences might support the finding under

attack. See id. at 812 (citing Bostrom Seating, Inc. v. Crane Carrier Co., 140 S.W.3d

681, 684-85 (Tex. 2004))(evidence and the inferences to be drawn from that evidence

“cannot be taken out of context in a way that makes it seem to support a [finding] when

in fact it never did.”). Thus, while “courts reviewing all the evidence in a light favorable

to the verdict must assume jurors made all inferences in favor of their verdict if




                                            16
reasonable minds could,” such courts must disregard any inferences that reasonable

minds could not draw. See id. at 821.

        B.       Petitioners Bore the Burden of Proving that Alvarado Did Not Breach
                 the Cooperation Condition

        It is axiomatic that “a party seeking to recover under a contract bears the burden of

proving that all conditions precedent have been satisfied.” Associated Indem. Corp. v.

CAT Contracting, Inc., 964 S.W.2d 276, 283 (Tex. 1998).5 That conclusion gives effect

to Texas Rule of Civil Procedure 54, which compels the party seeking affirmative relief

to establish that all conditions precedent have been satisfied or have occurred:

        In pleading the performance or occurrence of conditions precedent, it shall
        be sufficient to aver generally that all conditions precedent have been
        performed or have occurred. When such performances or occurrences have
        been so plead, the party so pleading same shall be required to prove only
        such of them as are specifically denied by the opposite party.

TEX. R. CIV. P. 54. That rule applies to contracts of insurance. See Ratcliff v. National

County Mut. Fire Ins. Co., 735 S.W.2d 955, 957 (Tex. App.--Dallas 1987, writ dism’d

w.o.j.) (citing Roman, 498 S.W.2d at 154; Trevino v. Allstate Ins. Co., 651 S.W.2d 8, 11-

12 (Tex. App.--Dallas 1983, writ ref’d n.r.e.)(observing that “The law is clear that

performance of a condition precedent is an essential element of the plaintiff’s case on

which the plaintiff has the burden of proof . . . .”)).

        A party seeking to step into the shoes of an insured by claiming against a policy as

the insured’s judgment creditor must prove that the insured would be able to recover on

the policy. See Klein, 154 Tex. at 162, 275 S.W.2d at 96. Thus, a claimant seeking to

5
   “Failure to meet conditions precedent is not an ‘affirmative defense.’” See Lidawi v. Progressive County Mut.
Ins. Co., 112 S.W.3d 725, 729 n.1 (Tex. App.--Houston [14th Dist.] 2003, no pet.).


                                                      17
recover on the policy must establish that all conditions precedent to the insurer’s liability

have been satisfied, whether by a pleading that is unanswered or by affirmative proof in

the face of the express denial that a condition has occurred. See Maldonado, 963 S.W.2d

at 40 (requiring third party claimant to prove that actual trial condition of insurance

policy had been satisfied); cf. Roman, 498 S.W.2d at 159 (where defendant had not

pleaded that conditions had gone unsatisfied, it could not complain of “plaintiff’s failure

to . . . establish that the condition was performed.”).

       Petitioners alleged in their First Amended Original Petition that “all conditions

precedent to bringing suit against Defendant Progressive have been performed or have

occurred.” (II CR 171). That assertion shifted the burden of pleading to Progressive,

which met that burden in its Third Amended Original Answer by responding that

“Alejandro Alvarado and Plaintiffs, as judgment creditors, have failed to comply with the

cooperation clause contained in the policy of insurance mentioned in Plaintiffs’ Original

Petition.” (II CR 255). Progressive’s pleading compelled Petitioners to prove that

Alvarado satisfied that condition. See Associated Indem. Corp., 964 S.W.2d at 283 n.6.

       C.     Petitioners Failed to Adduce Any Evidence That Could Support a
              Finding of Cooperation

       Given that Petitioners bore the burden to establish cooperation, the Court of

Appeals’ unanimous finding that there was no evidence of that fact is unassailable. The

record in this case affirmatively demonstrates that Petitioners did not introduce any

evidence to support a finding that Alvarado “did not unreasonably refuse to cooperate in

the investigation, settlement, or defense of the Underlying Litigation.” (Supp CR 5). At



                                              18
trial, Petitioners introduced only the judgment in the underlying litigation, the subject

insurance policy, and certain of Progressive’s responses to Petitioners’ Requests for

Admissions. (I RR 34-39). None of that evidence, however, offers any suggestion that

Alvarado cooperated with Progressive or that his non-cooperation was somehow

reasonable. The judgment in the underlying litigation is wholly devoid of any reference

to efforts by Alvarado to cooperate with Progressive and does not offer any reason to

justify his non-cooperation. (I CR 11-12). Likewise, while the policy clearly spells out

Alvarado’s duty to cooperate, the policy itself does not contain any proof that Alvarado

actually cooperated with Progressive in the underlying litigation or offer any explanation

for his failure to cooperate. (I CR 45). Finally, none of the admissions read into evidence

dealt, in any fashion, with Alvarado’s lack of cooperation. (I RR 36-39).

       Beyond their documentary evidence, Petitioners introduced the testimony of their

counsel. (I RR 40-86). Counsel, however, largely confined his testimony to the amount

and reasonableness of his claimed attorney’s fees. (Id.). To the extent that his testimony

touched in any way upon the specific non-cooperation issue, counsel only contended that

he was forced to undertake additional work because of Progressive’s contention that

Alvarado did not cooperate. (I RR 44-45, 46, 74-76). When asked questions about

cooperation, counsel replied that it “didn’t matter to me” whether Alvarado attended his

deposition and admitted that he had not considered whether Alvarado had cooperated in

the underlying litigation. (I RR 73-77). Clearly, Petitioners did not adduce any evidence

of Alvarado’s cooperation. The Court of Appeals’ unanimous holding that there was no

evidence to support the trial court’s finding is correct and should not be disturbed.


                                             19
      D.     In the Alternative, the Evidence in the Record Conclusively Establishes
             That Alvarado Breached the Cooperation Condition

      Even if Progressive somehow bore the burden of proof with respect to the

cooperation condition, the evidence conclusively establishes that Alvarado did not

cooperate and that his non-cooperation was unreasonable. A matter is conclusively

established by the evidence if ordinary minds could reasonably draw only one conclusion

from that evidence. See Triton Oil & Gas Corp. v. Marine Contractors & Supply, Inc.,

644 S.W.2d 443, 446 (Tex. 1982).

      Petitioners are correct that the cooperation obligations of an insured are not well-

defined. But that is so because the task of defining the manifold ways in which the clause

could be breached defies a specific delineation of duties owed by the insured. A broad

conception of the duty to cooperate is necessary, particularly in third-party insurance

contexts, because “the insurer cannot anticipate what type of cooperation will be required

with the same degree of specificity as in a first-party context,” and because “[n]o insurer

could hope to thoroughly anticipate and specifically name every sort of detail it might

require from its insured, or precisely what cooperative actions would serve its interests.”

COUCH ON INSURANCE 3D § 199:1 (West 1999). This Court has echoed that concern with

its recognition that “the provision requiring co-operation on the part of the insured is

more elastic than the other provisions” found in the notice of suit provision. See Klein,

154 Tex. at 162, 275 S.W.2d at 96.

      Given those constraints, courts across the country have chosen to define the

parameters of the cooperation requirement broadly. The Fifth Circuit, construing Texas



                                            20
law, has explained that at a bare minimum, “cooperation clauses are intended to

guarantee to insurers the right to prepare adequately their defense on questions of

substantive liability.” Quorum Health Resources, L.L.C. v. Maverick County Hosp. Dist.,

308 F.3d 451, 468 (5th Cir. 2002). Certainly, the satisfaction of that bare minimum

precludes the formation of any agreement by the insured “which would operate to impose

liability upon his insurer or would deprive the insurer of the use of a valid defense.” See

McGuire v. Commercial Union Ins. Co. of New York, 431 S.W.2d 347, 351-52 (Tex.

1968). But the protection afforded by the clause would be somewhat hollow if it were

limited to specific collusion between the insured and the claimant. See, e.g., Gates

Formed Fibre Prods., Inc. v. Imperial Cas. & Indem. Co., 702 F.Supp. 343, 348 (D. Me.

1988)(“The design of the [cooperation clause] . . . was not only to obviate the risk of a

covinous or collusive combination between the assured and the insured third party, but

also to restrain the assured from voluntary action materially prejudicial to the insurer’s

contractual rights . . . .”). Thus, the cooperation provision ensures that the insured will

not “intentionally and deliberately take any action which would substantially affect

adversely the insurer’s defense, settlement, or other handling of the claim.” American

Policyholder’s Ins. Co. v. Baker, 119 N.H. 958, 961, 409 A.2d 1346, 1348 (1979). In

that light, undoubtedly, an insured’s affirmative rejection of coverage, which deprives the

insurer of an opportunity to defend the lawsuit, is a breach of the cooperation condition.

See McGuire, 431 S.W.2d at 352-53 (an insured cannot cause the imposition of liability

against an insurer without permitting a meaningful opportunity to defend the action).




                                            21
         In this case, the record discloses a variety of circumstances that defy the trial

court’s finding that Alvarado “did not unreasonably refuse to cooperate” in the defense.

(Supp CR 5).      Given the many different ways in which an insured can breach the

cooperation condition, the evidence establishes that Alvarado undertook a variety of acts

that affirmatively demonstrated that he was not cooperating and that his non-cooperation

was unreasonable. Immediately after the accident, Alvarado was adamant that another

vehicle had caused the accident and was insistent that Progressive not pay Petitioners’

claim.    (I RR 168).    Initially ignoring those entreaties, Progressive unconditionally

assumed the defense of the litigation. (I CR 117). Despite the unconditional nature of

Progressive’s undertaking, Alvarado directly interfered with the representation. As the

Court of Appeals noted, there was testimony during the trial of this matter that Alvarado

filed a pro se answer, offering his own theories of the case, despite the fact that retained

counsel had filed an answer on Alvarado’s behalf. (I RR 166-67). Petitioners’ counsel

independently characterized those pleadings as frivolous, suggested that they had been

filed in bad faith, and requested that Progressive demand that Alvarado withdraw the

pleadings. In each respect, Alvarado’s conduct subverted the defense that Progressive

offered and infringed upon Progressive’s undeniable right to control the litigation.

         The most significant evidence of Alvarado’s unreasonable non-cooperation,

though, is Alvarado’s rejection of the coverage offered by the Progressive policy. By

virtue of Alvarado’s affirmative decision to reject coverage (distinguishable from a




                                            22
request to deny the claim), Progressive was precluded from exercising its right to defend

Alvarado in the underlying action.6 That fact conclusively negates the relevant finding.

         At some point after receiving correspondence from Progressive concerning the

litigation and Alvarado’s need to cooperate in that effort, Carol Alvarado left a message

with a Progressive adjuster. That message provided an unequivocal rejection of the

coverage available for this accident:

         Hello this is Carol Alvarado calling, and I’m calling in response to a letter
         of March 17, 2003 that I just received that’s post marked April 16, 2003.
         Um I’m speaking on behalf of my husband because I’m his guardian. He’s
         had more problems since this accident of April 17th and the reason I’m
         calling this. Um as far as we’re concern, you can just go ahead and
         deny coverage for that accident. That would be fine with us if you just
         deny coverage with regard to the lawsuit. Just inform the parties that
         you’re denying coverage, send us a copy of the letter, and I mean that’s
         fine. We have we have nothing that they can there’s nothing that they can
         do to us by suing us cause we’ll you know we’re pretty well judgment
         proof anyway and my husband is injured. I, myself, have cancer so we just
         don’t have the resources, the energy to be involved in this at all. I don’t
         have a phone. I can’t call you back um so just go ahead and deny coverage
         with regard that accident of that day, April 17, 2001. I’m speaking on
         behalf of my husband as his guardian and that’s fine with us. Thanks.

(I CR 153; II CR 227-28, 245)(emphasis added). The exact nature of Ms. Alvarado’s

demand on behalf of her husband/ward is indisputable: Alvarado wanted nothing to do

with the litigation, for whatever reason, and asked directly that coverage for the accident

6
  Despite the extraordinary attention devoted to the topic in Petitioners’ brief, see Pet. Br. at 14-16, Progressive has
never contended on appeal that Alvarado’s non-cooperation was manifest in his failure to appear at the trial that led
to the default judgment against him. Not surprisingly, then, the Court of Appeals did not hold that Progressive
suffered prejudice from Alvarado’s non-appearance at trial. Instead, the Court of Appeals’ majority expressly held
that Progressive was prejudiced as a matter of law “Because the lawyer hired by Progressive to represent Alvarado
was not permitted to appear on Alvarado’s behalf, the lawyer was prevented from mounting a defense to limit
Alvarado’s liability and damages and from stopping the entry of the default judgment. Moreover, the lawyer hired
by Progressive to represent Alvarado was unable to file a motion for new trial or seek other appellate relief.”
Progressive, 202 S.W.3d at 817-18. Petitioners’ reliance on the majority’s choice of parenthetical comments
following a citation to a persuasive source cannot define the Court of Appeals’ actual holding, which clearly had
nothing whatsoever to do with Alvarado’s non-appearance at trial.


                                                          23
be denied. Ms. Alvarado’s statement confirms that her husband understood the adverse

personal consequences that might result from that decision, but chose to proceed without

the protections afforded by the policy anyway. While that conclusion is self-evident in

the statement, it is further supported by Alvarado’s pleadings in the declaratory judgment

action, which state: “I, Alejandro Alvarado, request that Progressive Insurance Co. has no

duty to defend me in the [underlying action] . . . and that any attorney currently claiming

to represent me be withdrawn.”          (I CR 108-09).   While only admitted to prove

Progressive’s knowledge of that assertion, the pleading is certainly proof that Progressive

knew that its insured no longer wished to be covered for this accident and, more

specifically, that he no longer consented to any representation by any attorney retained by

Progressive. (Id.; I RR 158, 170).

       By requesting that coverage be denied, Alvarado necessarily interfered with

Progressive’s ability to defend the action. The insurance policy generally reserves a right

to defend an action against the insured as it sees fit. See State Farm Mut. Auto. Ins. Co.

v. Traver, 980 S.W.2d 625, 627 (Tex.1998); (I CR 36). While this contractual right to

defend the action is well-recognized, this Court has clearly acknowledged its corollary:

that an insured may choose to reject the defense tendered by the insurer, but if that

rejection is wrongful, the insured assumes the risks of that decision. See, e.g., Northern

County Mut. Ins. Co. v. Davalos, 140 S.W.3d 685, 690 (Tex. 2004)(“Davalos chose to

reject Northern’s tender and conduct his own defense . . . . That was his right. But having

rejected the insurer’s defense without a sufficient conflict, Davalos lost his right to

recover the costs of that defense.”).


                                             24
       The decision in Davalos admittedly did not involve any question of the insured’s

non-cooperation. Reviewing a similar factual circumstance in the context of an insurer’s

claim of non-cooperation, however, the Fourth Circuit has held that an insured’s rejection

of coverage by a refusal to accept the representation afforded by the insurer is a breach of

the cooperation clause because it “interfered with the insurance companies’ right to

conduct a defense.” Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.

Carolina, L.P., 433 F.3d 365, 374-75 (4th Cir. 2005)(insured’s refusal to cooperate by

complete rejection of counsel retained by insurer, “could not have been more stark”).

Thus, where the insured chooses to deprive the insurer of the contractual right to

interpose and control the defense of an action, that choice must be the most extreme

example of an insured’s non-cooperation. See Quorum Health Resources, L.L.C., 308

F.3d at 468 (insured breaches cooperation condition when conduct “materially

prejudice[s] the insurer’s ability to defend the lawsuit on the insured’s behalf.”)

       There is no reason to distinguish a rejection of coverage resulting from a

disagreement about the identity of counsel from Alvarado’s rejection of coverage. In

each instance, the result is the same: the insurer is precluded from conducting a defense

because of the affirmative choice made by the insured. In fact, the only perceptible

distinction between those contingencies is the broader effect that a rejection of all

coverage for a particular occurrence must have on an insurer’s obligations. When an

insured differs with the identity of counsel chosen by the insured, the disagreement at

least leaves open some possibility that the parties might agree that a different attorney can

adequately represent the insured’s expectations. By contrast, when the insured wholly


                                             25
rejects coverage, without regard to a specific quarrel with specific counsel, that election

compels the withdrawal of any defense offered to that point.

         The relationship between the insured and counsel retained to represent him or her

is undoubtedly an attorney-client relationship in nature, entailing compliance with all of

the duties that exist in any other such relationship.7 See Traver, 980 S.W.2d at 627-28;

Employers Cas. Co. v. Tilley, 496 S.W.2d 552, 558 (Tex. 1973)); see also Charles Silver

and Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45

DUKE L. J. 255, 278 (1995)(“The insured must be a client because a lawyer cannot

ordinarily speak in court on behalf of a person the lawyer does not represent. Usually, a

lawyer can appear only on behalf of a client.                        The existence of an attorney-client

relationship between defense counsel and the insured is therefore a predicate for the

defense of the liability suit.”). Absent a heretofore unrecognized exception -- one that

would only be applicable to insurance cases and would further muddy the already-murky

ethical bog of insurance coverage litigation8 -- an insured represented by counsel retained

by the insurer has the same rights as any other represented litigant.                                    See, e.g.,

Davalos, 140 S.W.3d at 690. Clearly, any represented litigant is possessed of the right to

terminate the attorney-client relationship at any time and for any reason. See In re Users
7
   Whether there is such a relationship between the insurer and defense counsel is irrelevant here. But even if there
might be a similarly-defined relationship between the insurer and defense counsel, there can be little dispute that any
ethical dilemmas must be resolved in the insured’s favor. See Davalos, 140 S.W.3d at 690 (quoting Traver, 980
S.W.2d at 628)(lawyer retained by insurer “owes unqualified loyalty to the insured . . . [and] must at all times
protect the interests of the insured if those interests would be compromised by the insurer’s instructions.”).
8
   “This so-called tripartite relationship has been well documented as a source of unending ethical, legal, and
economic tension.” Traver, 980 S.W.2d at 633 (Gonzalez, J., concurring in part and dissenting in part); see also,
e.g., Michael D. Morrison & James R. Old, Jr., Economics, Exigencies and Ethics: Whose Choice? Emerging Trends
and Issues in Texas Insurance Defense Practice, 53 BAYLOR L. REV. 349, 356 & n. 30 (2001); Charles Silver, Does
Insurance Defense Counsel Represent the Company or the Insured?, 72 TEX. L. REV. 1583, 1587 (1994)(describing
the tripartite relationship as “deeply and unavoidably vexing.”).


                                                         26
Sys. Servs., 22 S.W.3d 331, 335 (Tex. 1999)(orig. proceeding); see also TEX. DISCIP. R.

PROF’L COND. 1.15(a)(3) & cmt. 4. So, too, must be an insured. See Davalos, 140

S.W.3d at 690.

        Once discharged, an attorney loses any authority to act on the client’s behalf and

may not participate as counsel for the client in the litigation. See TEX. R. CIV. P. 12; In re

Users Sys. Servs., 22 S.W.3d at 335 (where attorney-client relationship terminated by the

client, attorney lacks any authority to represent client); see also RESTATEMENT (THIRD)

OF THE    LAW GOVERNING LAWYERS § 31(2)(a)(2000); cf. Perez v. Kleinert, 211 S.W.3d

468, 474 (Tex. App.--Corpus Christi 2006, no pet. h.)(trial court erred in permitting

attorney retained by insurer to appear on behalf of insured following withdrawal

occasioned by coverage dispute).                  When the attorney-client relationship has been

terminated by the client, it is incumbent upon the attorney to withdraw from the

representation.9 See, e.g., RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS §

32(2)(c) (2000)(“a lawyer may not represent a client, or, where the representation has

commenced, must withdraw from the representation of a client if . . . . (c) the client

discharges the lawyer.”). Alvarado’s statement rejected coverage and, as demonstrated,

absolved Progressive of its duty to defend. By his express rejection of coverage through

his wife’s statement -- a fact amplified by Progressive’s knowledge of Alvarado’s express

demand in the declaratory judgment proceeding for the withdrawal of any attorney

9
   Progressive’s retained counsel remained in the case for a short period of time following Alvarado’s rejection of
coverage, but did so only until Progressive prudently obtained a declaration confirming the no coverage from the
District Court in Real County on September 12, 2003. The following day, Progressive requested that retained
counsel withdraw from the defense. Pursuant to his obligations under the Texas Disciplinary Rules of Professional
Conduct, retained counsel waited more than 30 days to file a formal motion to withdraw in the trial court. See, e.g.,
Villegas v. Carter, 711 S.W.2d 624, 626 (Tex. 1986).


                                                        27
representing him in the litigation instituted by Petitioners -- Alvarado terminated the

attorney-client relationship with counsel retained by Progressive and compelled his

withdrawal from the case on that basis.

       Liability insurance regimes create significant incentives for insureds to cooperate

with their insurers by, among other things, accepting the representation afforded them

under the terms of the insurance policy. See Silver & Syverud, 45 DUKE L. J. at 264-66

(noting multiple incentives to insureds for seeking defense against claims); see also Ellen

S. Pryor, Mapping the Changing Boundaries of the Duty to Defend in Texas, 31 TEX.

TECH L. REV. 869, 892 (2000)(contending that “a rational insured would desire defense

insurance with respect to most litigation that might be filed against him or her, even if the

claim lacks substantive merit.”). As the reasoning in Davalos makes clear, though, an

insured maintains the right to act irrationally by ignoring those incentives and rejecting

coverage. See Davalos, 140 S.W.3d at 690. In so doing, however, the insured assumes

personal responsibility for the defense and liability issues that would otherwise be within

the policy’s ambit. See id. (insured lost the right to recover the costs of his defense

because he had the right to reject the representation afforded to him by the insurer, even

if the rejection was wrongful). That is precisely what Alvarado did here: he precluded

Progressive from continuing its representation and, in so doing, assumed personal

liability for the damages proximately caused by the accident.

       While urging the narrowest possible construction of the cooperation clause,

Petitioners contend that the transcript of the call from Carol Alvarado demonstrates that

Progressive “coerced a seriously ill, judgment-proof insured to accede to [a] desire to


                                             28
deny coverage.” See Pet. Br. at 18. The message, however, proves none of those things,

even under the most forgiving standard for reviewing that soliloquy. In fact, the express

language of Ms. Alvarado’s message offers no basis for any inference that Progressive

was in any way involved in Alvarado’s decision to reject coverage. Nothing in Ms.

Alvarado’s statement supports an inference that her husband’s complete rejection of

coverage was in any way coerced. Had Petitioners wished to pursue a coercion theory as

a means to meet their evidentiary burden, that was certainly their prerogative. But they

failed to adduce any evidence whatsoever to support such a claim and they cannot now

claim that the standard of review compels the indulgence of a wholly untenable and

completely unreasonable inference of coercion from a statement devoid of any suggestion

of such conduct.10

        Similarly, Petitioners’ attempts to ascribe a reasonableness to Alvarado’s non-

cooperation seek to do so by ignoring the indisputable effect of Alvarado’s rejection of

coverage. Because Progressive was precluded from defending Alvarado in any way

during the trial of this matter, it is irrelevant that Progressive had been unable to depose

him.11 Whether Alvarado had been deposed or not, Progressive was precluded from

representing him and, as such, could not have made any use of whatever testimony it

might have obtained from a deposition. Petitioners also claim that Progressive adduced

no evidence that Alvarado had received any correspondence concerning the need to

10
    The equally unsupported and unreasonable suggestion that Progressive urged Alvarado to reject coverage out of
frustration with the settlement process cannot resuscitate the trial court’s unsubstantiated finding.
11
    To support this notion, Petitioners cite the Court to “DX-8.” The record in this matter, however, apparently does
not contain an exhibit corresponding to that designation. In fact, the record does not contain any exhibits that were
introduced in the trial court.


                                                        29
cooperate, but Ms. Alvarado’s statement explicitly refers to correspondence received

from Progressive.    (I CR 153).     That acknowledgment must necessarily defeat any

inference that Alvarado’s non-cooperation was somehow made reasonable by the lack of

communication from Progressive or its agents.

       Thus, even if Progressive bore the burden to establish Alvarado’s non-cooperation

in this matter -- and clearly, it did not -- the evidence and the reasonable inferences to be

drawn from that evidence conclusively establish that he failed to cooperate and that such

a failure was not reasonable. Whether reviewed from a no-evidence or a conclusive

negation standpoint, the trial court’s finding cannot stand. Accordingly, the unanimous

Court of Appeals correctly disregarded that finding and concluded that Alvarado failed to

cooperate with Progressive.

III.   Alvarado’s Breach of the Cooperation Condition Resulted in Prejudice to
       Progressive Because It Was Unable to Defend in the Underlying Litigation
       and Could Not Prevent or Contest the Resulting Default Judgment

       Proof of Alvarado’s non-cooperation does not absolve Progressive of its burden to

prove that it suffered prejudice resulting from that breach. The Court of Appeals’ panel

split on the question of prejudice to Progressive arising from Alvarado’s breach of the

cooperation condition. See Progressive, 202 S.W.3d at 816-18, 820. Writing alone in

dissent, Justice Marion misapplied a distinct (and inapplicable) principle of equity to

argue that Progressive could not have been prejudiced by occurrences beyond its

withdrawal of the representation. Id. at 820. By contrast, Justice Angelini (joined by

Justice Duncan) followed a long line of authority to conclude that Alvarado’s non-

cooperation was prejudicial to Progressive as a matter of law because it precluded


                                             30
Progressive from mounting any defense to Petitioners’ claims or from attacking the

default judgment rendered in Petitioners’ favor. See id. at 816-18.

         An insurer seeking to raise defenses based on the non-occurrence of policy

conditions must demonstrate that it was prejudiced by the insured’s inaction.                                    See

Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691, 693 (Tex. 1994). This prejudice

requirement applies to the conditions created by a notice of suit provision like that found

in Progressive’s policy. See Harwell, 896 S.W.2d at 174 (citing Cruz, 883 S.W.2d at

165)(“The insured’s failure to notify the insurer of a suit against her does not relieve the

insurer from liability for the underlying judgment unless the lack of notice prejudices the

insurer.”). An insurer is materially prejudiced by the breach of a condition when the

breach deprives the insurer of a valuable right or benefit. Hernandez, 875 S.W.2d at 693.

         Applying those principles, this Court has concluded that an insurer is prejudiced as

a matter of law by its insured’s breach of a condition where the breach leaves the insurer

powerless to prevent the entry of a default judgment or powerless to attack the judgment,

once rendered. See Harwell, 896 S.W.2d at 174; Cruz, 883 S.W.2d at 166.12 In such

cases, the prejudice stems from the complete deprivation of the insurer’s bargained-for


12
    Among the authority cited by Petitioners is a passage from a decision of the United States District Court for the
Northern District of Texas. See Pet. Br. at 10 (citing St. Paul Guardian Ins. Co. v. Centrum G.S. Ltd., 383
F.Supp.2d 891, 902-03 (N.D. Tex. 2003)). That passage would certainly appear to support Progressive’s argument
that an insurer is prejudiced as a matter of law by the rendition of a default judgment against the insured if the
insurer is prevented from mounting a defense in the action. See id. An evident typographical error in the opinion,
however, might suggest a conflict. Judge Lindsay’s opinion explains that “all the cases that the court has found
explaining what constitutes sufficient prejudice to relieve an insurer of its obligations describe situations whereby
there has been a default judgment entered which resulted in an insured’s inability to defend against the default
judgment.” Id. at 903 (emphasis added). Clearly, under no circumstances would an insured’s inability to defend
against a default judgment result in prejudice to the insurer. Instead, the cases cited by the federal court in the
paragraph preceding the foregoing language all set forth a very clear rule that an insurer is prejudiced by a default
judgment against the insured if the insurer was unable to defend in the litigation resulting in that judgment. See id.
at 902. (citing, e.g., Harwell,, 896 S.W.2d at 174; Cruz, 883 S.W.2d at 165; Weaver, 570 S.W.2d at 370).


                                                         31
right to defend the action. See Harwell, 896 S.W.2d at 174. That rationale stakes out a

vivid line of demarcation, which Texas courts have consistently used to distinguish cases

in which an insurer suffers prejudice as a matter of law from those in which the prejudice

is not as severe.

       Thus, in notice-of-suit cases, if there is no defense to the underlying litigation only

because the insurer demands technical compliance with the terms of the policy, even

though it is aware of all facts necessary for it to vindicate the right to defend, the insurer

is largely responsible for its predicament and, understandably, should not escape liability

on the policy. See, e.g., Struna v. Concord Ins. Servs., Inc., 11 S.W.3d 355, 360 (Tex.

App.--Houston [1st Dist.] 2000, no pet.)(uncontroverted evidence of insurer’s actual

notice of suit was sufficient as a matter of law to preclude finding of prejudice); Ohio

Cas. Group v. Risinger, 960 S.W.2d 708, 711-12 (Tex. App.--Tyler 1997, writ

denied)(evidence that insured had actual knowledge of suit was sufficient to support trial

court’s finding of no prejudice). If, on the other hand, the insurer is completely prevented

from presenting a liability defense solely because of the insured’s failure to comply with

the policy, the prejudice attaches as a matter of law. See Harwell, 896 S.W.2d at 174;

Cruz, 883 S.W.2d at 166; see also Ratcliff, 735 S.W.2d at 958-59.

       The cases cited by Petitioners reinforce the conclusion that the rule articulated in

Harwell and Cruz can be applied in non-cooperation cases to achieve the same consistent

and predictable results found in notice cases. For instance, in Griffin, the Fifth Circuit

found that there was no prejudice to the insurer from the insured’s lack of cooperation.

See Griffin v. Fidelity & Cas. Co. of New York, 273 F.2d 45, 48 (5th Cir. 1959). The


                                             32
court broadly concluded, without elaboration, that the record demonstrated no actual

prejudice to the insurer; but that conclusion was undoubtedly informed by the fact that

the insured’s non-cooperation had not interfered with the insurer’s participation in

defending the underlying suit. See id. at 47 (noting that the insurer had continued to

defend the claims despite its knowledge of the insured’s breaches of the policy terms).

Similarly, in Schlein, the Fifth Circuit held that an insurer was not prejudiced where it

elected to withdraw the defense after learning that the insured’s initial statements about

an accident had been damagingly false. See United States Cas. Co v. Schlein, 338 F.2d

169, 175 (5th Cir. 1964). Dispositive to that conclusion was the fact that there was “no

indication whatsoever” that the insured’s recantation “put the Insurer in a predicament of

being unable to work out that disposition of the case which its own intrinsic merits -- then

sufficiently known -- reasonably dictated.” Id. Indeed, had the insurer continued in the

defense -- a possibility that was not precluded by the insured’s non-cooperation -- and

undertaken good faith negotiations to settle the case, it could have reached precisely the

same result. Id.13 Thus, in neither instance was the insurer prohibited from defending

the action against its insured, and in neither instance was the insurer prejudiced by the

insured’s non-cooperation.

         While obviously quite different from a factual standpoint, there is virtually no

practical distinction between the consequences stemming from a breach of the condition


13
     In a third case cited by Petitioners, Frazier, the Fort Worth Court of Civil Appeals, did not conclude, as
Petitioners suggest, that the insured’s acts were insufficient to prejudice the insurer; instead, the Court of Civil
Appeals held that there was a fact question concerning the breach itself and on that basis, reversed the trial court’s
summary judgment for the insurer. See Frazier v. Glens Falls Indem. Co., 278 S.W.2d 388, 392 (Tex. Civ. App.--
Fort Worth 1955, writ ref’d n.r.e.).


                                                         33
that the insured forward suit papers to the insurer and a breach of the cooperation

condition by refusing to permit a defense.14 In each case, the insurer faces liability for a

judgment rendered against its insured that it had no meaningful opportunity to prevent.

And in each case, the condition in question is intended to protect against precisely that

result by providing the insurer with, among other things, the opportunity to supply a

defense to the allegations against the insured and minimize, to the extent possible, its

ultimate exposure. See Weaver, 570 S.W.2d at 369 (“It is undoubtedly true, as some

cases hold, that one purpose of the [notice of suit] provision is to enable the insurer to

control the litigation and interpose a defense.”). Given that there is no difference, in

terms of consequences to the insurer, between the two breaches, there is no reason to

conclude that a judgment rendered after one breach is prejudicial while a judgment

rendered after the other is not. See Harwell, 896 S.W.2d at 174 (refusing to distinguish

the prejudice that arises from a default judgment from the prejudice stemming from a

case in which the insured appears at trial but offers no defense). Here, while Progressive

had notice of the lawsuit, it was prevented from defending against the ultimate judgment

(or attacking that judgment) by Alvarado’s affirmative choice to reject coverage.

Following the rationale used to decide both Harwell and Cruz, and the consistent



14
     While it might “be difficult to imagine more prejudice to an insurer, who had no knowledge of the lawsuit, and
was given none by claimants’ then attorney until the time for appeal had expired,” this case might present just such
an unimaginable circumstance. See Cruz, 883 S.W.2d at 166 (quoting Wheeler v. Allstate Ins. Co., 592 S.W.2d 2, 3
(Tex. Civ. App.--Beaumont 1979, no writ)). In no-notice cases, the insurer’s lack of notice is the only impediment
to its presentation of a defense. See, e.g., Ratcliff, 735 S.W.2d at 959 (“Had [the insurer] known of the suit, it might
have chosen to answer for [the insured] and to present evidence before the court. Even without [the insured’s]
cooperation, [the insurer] would have had the opportunity to cross-examine [the claimant] as to his damage
claims.”). But here, unlike the defense hypothesized in Ratcliff, the insurer was wholly prevented from defending
against the allegations of the claimants because of the affirmative acts of its insured.


                                                          34
application of that rule by other Texas courts, the majority below concluded that

Progressive suffered prejudice as a matter of law. That conclusion also should be upheld.

      The Court of Appeals’ dissent, which Petitioners rely upon heavily in their brief,

attempts to needlessly limit that well-established rule by seeking to impose a concept of

equitable estoppel in a context in which that concept is wholly inapplicable.        See

Progressive, 202 S.W.3d at 820; see also Pet. Br. at 12, 19. That dissent suggested that

Progressive could have permissibly maintained the defense of the action despite

Alvarado’s insistence that the representation be terminated and argued that it could not

rely upon events occurring after its withdrawal to show prejudice. See Progressive, 202

S.W.3d at 820. According to Petitioners, the dissent’s rationale is in keeping with a

“widely acknowledged” notion that “once the insurer has denied coverage, it may no

longer rely on the insured’s compliance with any of the conditions of the policy.” See

Pet. Br. at 19 (citing Enserch Corp. v. Shand Morahan & Co., Inc., 952 F.2d 1485, 1496

n.17 (5th Cir. 1992); Gulf Ins. Co. v. Parker Products, Inc., 498 S.W.2d 676, 679 (Tex.

1973)). That idea, however, completely misstates this Court’s holding in Gulf Insurance.

      In Gulf Insurance, the Court expressly limited the application of that proposition

to cases in which an insurer has wrongfully denied coverage: “The insurance company

may ordinarily insist upon compliance with [a] condition for its own protection, but it

may not do so after it is given the opportunity to defend the suit or to agree to the

settlement and refuses to do either on the erroneous ground that it has no responsibility

under the policy.” Gulf Ins. Co. , 498 S.W.2d at 679 (emphasis added). Courts relying

on the Gulf Insurance holding to any degree, including the Fifth Circuit in Enserch, have


                                           35
understood that its reasoning applies only to cases in which coverage is wrongfully

denied. See, e.g., Enserch, 952 F.2d at 1496 n. 17. Specifically, in Enserch, the Fifth

Circuit noted this Court’s conclusions that “an insurer who wrongfully denies a defense

cannot complain about the insured’s failure to comply with conditions precedent to

recovery against the insurer” and that a “no action” clause in an insurance policy cannot

be enforced “where the insurer has wrongfully refused to defend the insured.”                                     Id.

(emphasis added). After all, “an insurer should not benefit from breaching its duty to

defend.” Id. at 1494. Thus, “[i]nsurers who wrongfully refuse to defend their insureds

lose the benefit of their policies’ procedural requirements.” Id. at 1496 n. 17 (emphasis

added). But, where the insurer has been relieved of its duty to defend, it is not estopped

from asserting a breach of the policy as a bar to its liability because “[e]stoppel can arise

only when a party has refused to do that which he or she has a duty to do.” See Harwell,

896 S.W.2d at 175 (citing Vrazel v. Skrabanek, 725 S.W.2d 709, 711 (Tex. 1987)).15

         Given those constraints on its application, it is clear that the Gulf Insurance rule is

inapplicable here. The Court of Appeals’ majority was correct to ignore that principle in

15
    Rather than creating conflict, as Petitioners unavailingly contend, this Court’s decision in Womack is wholly
inapposite here because it is factually more like the situation that occurred in Gulf Insurance than it is like the
present case. See Womack, 296 S.W.2d at 237. In Womack, an appeal from a summary judgment rendered in the
insurer’s favor, the insurer claimed, among other things, that it was not liable to the claimant because the insured
had not complied with the notice of suit condition. Id. at 236. Allstate also claimed, however, that it had no
obligation to defend the insured in that action because it had previously cancelled the policy and had unconditionally
denied liability to the insured before the suit against the insured was commenced. Id. at 237. This Court,
foreshadowing the rationale it would apply in Gulf Insurance, explained that the unconditional denial of liability by
Allstate would amount to a waiver of any right that it had to demand compliance with the policy conditions. Id.
(“An insurance company cannot deny all liability under a contract of insurance and then be heard to say, after it has
repudiated the contract, that assured should have given it notice when the action was instituted so that it could have
defended the action in accordance with the terms of the contract.”). To the extent that the Court’s comment on the
insufficiency of the evidence to support summary judgment for the insurer can amount to a holding applicable to
other cases, that conclusion is supported by equitable principles of estoppel, which preclude the insurer from taking
contrary positions concerning its obligations to the insured. Here, however, there is no such concern because, again,
there is no evidence that Progressive’s withdrawal of the defense was in any way wrongful.


                                                         36
concluding that Progressive suffered prejudice as a matter of law. See Progressive, 202

S.W.3d at 817-18. There is simply no evidence that Progressive acted wrongfully in

withdrawing the defense and denying coverage following Alvarado’s demand to that

effect. See Harwell, 896 S.W.2d at 174-75 (where insurer was under no duty to defend

the lawsuit, the estoppel principle articulated in Gulf Insurance has no application).

Accordingly, Petitioners’ suggestion that the Gulf Insurance rule apply to this

circumstance should be rejected.

       In light of the controlling authority, the Court of Appeals’ majority correctly

concluded that Progressive was prejudiced as a matter of law by Alvarado’s non-

cooperation. That conclusion, too, should remain undisturbed.

IV.    Texas’ Compulsory Automobile Insurance Statute Does Not Preclude
       Insurers from Demanding Material Compliance with the Terms of Policies

       Seeking an alternative means to achieve coverage in this circumstance, Petitioners

challenge the manner in which the Court of Appeals construed section 601.073 of the

Texas Transportation Code. See Pet. Br. at 20-26. The Court of Appeals unanimously

rejected Petitioners’ argument, concluding that Section 601.073 of the Texas

Transportation Code, as part of the Texas Motor Vehicle Safety Responsibility Act, does

not preclude insurers from insisting upon compliance with policy terms. See Progressive,

202 S.W.3d at 818-20. That conclusion comports with the express language of the

policy, the applicable canons of statutory construction, and the long-held jurisprudential

view that insurers may be relieved of liability to cover particular occurrences by the

insured’s prejudicial failure to comply with policy conditions.



                                            37
       A.     Standard of Review

       The construction of any statute is an effort to ascertain and give effect to the

Legislature’s intent. See McIntyre v. Ramirez, 109 S.W.3d 741, 745 (Tex. 2003). The

truest manifestation of legislative intent is the literal text of the statute. See City of San

Antonio v. City of Boerne, 111 S.W.3d 22, 25 (Tex. 2003). Accordingly, in examining

the statute’s language, the Court’s objective is to determine the Legislature’s intent from

the words used. See id. When a statute’s words are unambiguous, they should be

interpreted to effectuate their plain and common meaning, given their context. See id.;

see also Blue Cross Blue Shield of Tex. v. Duenez, 201 S.W.3d 674, 676 (Tex. 2006).

The Court may also consider other matters in ascertaining legislative intent, including the

objective of the law, its history, and the consequences of a particular construction. See

TEX. GOV’T CODE ANN. § 311.023(1), (3), (5)(Vernon 2005). A Court may not adopt a

construction of the statute’s plain language that would lead to absurd results. See Texas

Dep’t of Protective & Regulatory Servs. v. Mega Child Care, Inc., 145 S.W.3d 170, 177

(Tex. 2004). Statutory construction presents a question of law which is reviewed de

novo. See In re Forlenza, 140 S.W.3d 373, 376 (Tex. 2004).

       B.     By Its Plain Meaning, Section 601.073(c) Is Inapplicable to This Case

       The plain meaning of the words used in Section 601.073 readily demonstrates that

the Court of Appeals’ panel construed the statute correctly and that Petitioners’ contrary

contention is meritless.   By its express language, the first clause of Section 601.073(c)

provides that the insurer’s liability “becomes absolute at the time bodily injury, death, or

damage covered by the policy occurs.” Id. (emphasis added) Read for its plain meaning,


                                             38
the statutory language conclusively demonstrates the Legislature’s understanding that

insurers are not compelled to provide indemnification for occurrences that are beyond the

purview of the insurance policy.16 As noted above, coverage under the policy for a

particular claim depends, among other things, on the insured’s compliance with the

conditions imposed by the policy. Indeed, if those conditions are materially breached,

there is no coverage. See Maldonado, 963 S.W.2d at 40; Harwell, 896 S.W.2d at 174.

Nothing in the express language of the statute prohibits an insurer from denying coverage

by insisting that policy conditions are met by the insured.                          Undisputedly, if the

occurrence is one that is not covered because a condition precedent to coverage was

materially breached, the statute is inapplicable.

        The further language of the provision confirms that construction of the statute’s

express language. The statute simply prohibits an insurer from raising defenses claiming

that the policy has been cancelled or is otherwise void by virtue of some misfeasance of

the insured:

        The policy may not be canceled as to this liability by an agreement between
        the insurance company and the insured that is entered into after the
        occurrence of the injury or damage. A statement made by or on behalf of
        the insured or a violation of the policy does not void the policy.

TEX. TRANSP. CODE ANN. § 601.073(c). Even if it could somehow be said that an

occurrence is within the coverage of the policy following the insured’s material breach of

a condition precedent to coverage, it is clear that the insurer’s insistence upon compliance

16
     The House sponsor of HB 197, which was enacted and became the amendment to Article 6701 by which
automobile insurance became mandatory, Representative Gene Green, acknowledged during the House debate on
the bill’s passage that the bill could not prevent exceptions to coverage, but was intended to raise the level of
coverage from something less than 66% of Texas drivers to something more than 80% of Texas drivers. See House
Floor Debate, March 25, 1981.


                                                       39
with its policy conditions is not prohibited by the statute -- an insurer claiming that a

condition of the policy was breached is not seeking to cancel or void an existing policy.

        Though frequently conflated in Petitioners’ brief, there is a fundamental difference

between the cancellation of coverage or the voiding of a policy, on the one hand, and the

conclusion that an insurer owes neither a duty to defend nor a duty to indemnify under its

policy for a particular accident on the other.17 When the basis for denying coverage for a

particular accident is the insured’s failure to satisfy conditions precedent delineated in the

policy, the insurer “is ‘not seeking to rescind the contract sued upon; it is standing upon

the contract, and insisting that under its terms there is no liability.’” 14 WILLISTON ON

CONTRACTS, 4TH ED. § 41:3 (4th ed.); cf. National Ins. Ass’n v. Peach, 926 S.W.2d 859,

861-62 (Ky. App. 1996)(cataloging decisions precluding insurers from post-accident

rescission of policies based on misrepresentations in an insured’s application). Thus, an

insurer seeking to enforce conditions precedent does not disclaim any liability on the

policy for subsequent occurrences; instead, the insurer merely contends that the

occurrence is not within the coverage afforded by the policy because the condition was

not satisfied. See, e.g., New Amsterdam Cas. Co., 144 Tex. at 310, 190 S.W.2d at

58 (“failure to give notice of an accident or suit as soon as reasonably possible invalidates

the claim. . . . ”).


17
     In considering the extent of “coverage” under a policy, one court has explained that “Whether an insurance
policy ‘covers’ a particular incident depends initially upon whether the contract is in force (e.g., whether premiums
have been paid), whether the conditions precedent have been met (e.g., whether the insured notified the insurer of
the accident), and whether the incident falls within a specific exclusion of the policy (e.g., where the driver of an
automobile was not legally authorized to drive a car). If there is no ‘coverage’ in the sense used here, the Court
never reaches the problem of determining the duty to defend or duty to pay under the contract since the contract
does not even apply in such a situation.” All-Star Ins. Corp. v. Steel Bar, Inc., 324 F.Supp. 160, 162 (N.D. Ind.
1971)(emphasis added).


                                                        40
       In simplest terms, the statute in question prohibits an insurer from avoiding

liability for the accident by disclaiming its liability through post-accident efforts to

repudiate the policy by voiding or canceling it. Thus, as the plain meaning of its express

terms indicates, section 601.073(c) precludes an insurer from agreeing with its insured to

cancel an insurance policy after an event giving rise to coverage has occurred, as well as

prohibiting an insurer from voiding a policy based on statements made by the insured or

other violations by the insured. See TEX. TRANSP. CODE ANN. § 601.073(c). Since

Progressive has not attempted to cancel or void the policy covering Alvarado, the Court

of Appeals correctly determined that Section 601.073(c) did not apply to this case.

       C.     The Legislature Did Not Intend Any Substantive Change in the Law by
              Its 1995 Codification of the Statute; the Prior Law Clearly Did Not
              Prohibit Insurers from Insisting Upon Material Compliance With
              Policy Conditions

       The clear expressions of legislative intent, evident in the legislative history of the

provision, further demonstrate that the Court of Appeals correctly construed the statute.

              1.     The Safety Responsibility Act, Even Following Its
                     Transformation into a Compulsory Automobile Insurance
                     Scheme, Permitted An Insurer to Demand Compliance with
                     Policy Conditions

       In 1951, the Legislature enacted the Safety Responsibility Act, which was

designated as Article 6701h of the Texas Revised Civil Statutes. See Act of June 28,

1951, 52nd Leg., R.S., ch. 498, § 1 et seq., 1951 Tex. Gen Laws 1210. Among the

provisions of Article 6701 was section 21(f). Id. at 1220-21. Between 1951 and 1981,




                                             41
Article 6701h was amended on at least seven occasions,18 but none of those amendments

altered the language or effect of section 21(f).

         In 1981, the Legislature again amended Article 6701h, adding Section 1A to the

existing statute. See Act of June 17, 1981, 67th Leg., R.S., ch. 800, § 1 et seq., 1981 Tex.

Gen. Laws 3053.              That section created a compulsory liability insurance scheme

applicable to all Texas drivers. Id.               Again, however, the amendment did not alter the

language or effect of section 21(f). Id. Between the time of the 1981 amendment and the

1995 codification, the Legislature enacted numerous amendments to the statutory

language.19 None of those amendments modified the language of section 21(f), and

Texas courts continued to enforce conditions precedent in policies. See, e.g., Harwell,

18
    See Act of June 19, 1975, 64th Leg., R.S., ch. 347, § 1 et seq., 1975 Tex. Gen. Laws 931 (requiring deposit of
security and proof of financial responsibility from driver after determination of reasonable probability of liability);
Act of June 15, 1971, 62nd Leg., R.S., ch. 944, § 1 et seq., 1971 Tex. Gen. Laws 2866 (allowing deductible to
exclude certain sums from insurer’s liability after injury or damage); Act of June 8, 1971, 62nd Leg., R.S., ch. 744, §
1 et seq., 1971 Tex. Gen. Laws 2389 (requiring that residents of foreign countries operating vehicles involved in
accidents in Texas be taken immediately before a magistrate to present proof of financial responsibility); Act of June
4, 1969, 61st Leg., R.S., ch. 433, § 1 et seq., 1969 Tex. Gen. Laws 1467 (allowing punishment of Texas residents
who violate safety responsibility laws of other states); Act of June 18, 1965, 59th Leg., R.S., ch. 703, § 1 et seq.,
1965 Tex. Gen. Laws 1636 (providing for surrender of license and registration for refusal to show proof of financial
responsibility); Act of May 6, 1965, 59th Leg., R.S., ch. 131, § 1 et seq., 1965 Tex. Gen. Laws 298 (exempting
federal, state, and local officials from compliance with Safety Responsibility Act); Act of June 11, 1963, 58th Leg.,
R.S., ch. 506, § 1 et seq., 1963 Tex. Gen. Laws 1320 (increasing amounts of minimum liability insurance and
modifying certain procedural components of the Safety Responsibility Act).
19
   See Act of June 17, 1993, 73rd Leg., R.S., ch. 685, § 14.01, 1993 Tex. Gen. Laws 2559, 2671 (modifying rules
pertaining to how person may prove financial responsibility); Act of August 30, 1991, 72nd Leg., 2nd C.S., ch. 12, §
15.01, 1991 Tex. Spec. Laws 252, 334-36 (adding requirements for proving financial responsibility and providing
for suspension of driver’s license and registration in some cases); Act of June 16, 1991, 72nd Leg., R.S., ch. 806, § 1
et seq., 1991 Tex. Gen. Laws 2821 (exempting certain vehicles more than 25 years old from compulsory insurance
law); Act of June 14, 1989, 71st Leg., R.S., ch. 499, § 1 et seq., 1989 Tex. Gen. Laws 1610 (modifying penalties for
violation of law and making a grammatical change); Act of June 18, 1987, 70th Leg., R.S., ch. 580, § 1 et seq., 1987
Tex. Gen. Laws 2284 (modifying requirements for proof of financial responsibility); Act of June 11, 1987, 70th
Leg., R.S., ch. 289, § 1 et seq., 1987 Tex. Gen. Laws 1649 (excepting certain vehicles from compulsory insurance
law); Act of May 18, 1987, 70th Leg., R.S., ch. 104, § 4, 1987 Tex. Gen. Laws 248 (exempting golf carts from
compulsory insurance law); Act of June 3, 1985, 69th Leg., R.S., ch. 239, § 17, 1985 Tex. Gen. Laws 1181
(modifying the means for disposing of collected fees); Act of June 19, 1983, 68th Leg., R.S., ch. 797, § 1 et seq.,
1983 Tex. Gen. Laws 3122 (incrementally increasing the amount of minimum liability insurance required after
January 1, 1984 and January 1, 1986); Act of June 17, 1983, 68th Leg., R.S., ch. 436, § 1 et seq., 1983 Tex. Gen.
Laws 2496 (exempting fire department vehicles from compulsory insurance requirement).


                                                         42
896 S.W.2d at 175; Cruz, 883 S.W.2d at 166; Filley, 805 S.W.2d at 847; Members Ins.

Co. v. Branscum, 803 S.W.2d 462, 465-66 (Tex. App.--Dallas 1991, no writ); Ratcliff,

735 S.W.2d at 957-58.

             2.     The Legislature Expressly Disclaimed Any Intent to Change the
                    Law Substantively with the Statute’s 1995 Codification

      Petitioners’ primary contention in favor of their proposed construction is an

argument that the 1995 codification of the Transportation Code resulted in a modification

of the governing statutory language and implied a legislative intent to abolish policy

defenses as to all motor vehicle insurance policies. See Pet. Br. at 24. Two facts,

however, conclusively disprove Petitioners’ theory: (1) the Legislature’s codification of

Section 601.073(c) of the Transportation Code did not materially modify the existing

statutory language, which had never been understood to negate conditions precedent to

coverage; and (2) the statements of legislative intent expressly disclaimed any intent to

change the existing substantive law.

      As a result of the 1995 codification, Section 21(f) of Article 6701h became

Section 601.073(c) of the Transportation Code.          See TEX. TRANSP. CODE ANN.

§601.073(c)(Vernon 1999). Even a cursory comparison reveals that the language used in

the 1995 codification is materially unchanged from the language previously used.

Compare id. with Act of June 28, 1951, 52nd Leg., R.S., ch. 498, § 21(f), 1951 Tex. Gen.

Laws 1220-21.     Examined closely, the only changes in the codified version of the law

are, at best, insignificant. The codified version of the language eliminates the semicolons

and incorporates periods to break the provision into three separate, simplified sentences.



                                            43
In the first sentence of Section 601.073(c), the Legislature: used the word “for” to replace

the previously-used phrase “with respect to;” substituted “this Chapter” for “this Act;”

and inserted the phrase “at the time bodily injury, death or damage” to replace “whenever

injury or damage.”            In the second sentence of Section 601.073(c), the Legislature

eliminated the word “annulled;” substituted “the policy” for “said policy;” and exchanged

“this liability” for “such liability.”20 Finally, in the third sentence of Section 601.073(c),

the Legislature reworded the statute’s language to state the proposition affirmatively,

using “a statement” rather than “no statement,” simplifying and making the first

prepositional phrase gender-neutral (“by or on behalf of the insured,” rather than “by the

insured or on his behalf”), and substituting “a violation of the policy does not void the

policy” to replace “no violation of said policy shall defeat or void said policy.”21 Clearly,

then, the statutory language did not change with the codification.

         Moreover, even if the language of the statute may have been materially changed,

the contemporaneous expressions of legislative intent demonstrate that such a substantive

change in the law was never contemplated. The Legislature undertook the codification of

the Transportation Code, including the Texas Motor Vehicle Safety Responsibility Act

(“TMVSRA”), as part of its broad effort to “clarify and simplify the statutes [of Texas]

and to make the statutes more accessible, understandable, and usable.” TEX. GOV’T

CODE ANN. § 323.007(a)(Vernon 2005); see also TEX. CONST. art. III, § 43 (mandating

20
    The revisor’s note appended to Section 601.073 explains that “The reference to ‘annulled’ is omitted from the
revised law because ‘annulled’ is included within the meaning of ‘canceled.’” TEX. TRANSP. CODE ANN. § 601.073
(Vernon 1999)(Revisor’s Note (2)).
21
   The revisor’s note explains “The reference to ‘defeat’ is omitted from the revised law because ‘defeat’ is included
within the meaning of ‘void.’” TEX. TRANSP. CODE ANN. § 601.073 (Vernon 1999)(Revisor’s Note (3)).


                                                         44
decennial legislative revision of Texas laws). To effectuate those goals, the Legislature

enacted Chapter 323 of the Texas Government Code, which empowered the Texas

Legislative Council to “plan and execute a permanent statutory revision program.” Id. In

revising the statutes, the Legislative Council was expressly prohibited from offering

amendments that would “alter the sense, meaning, or effect of the statute.” TEX. GOV’T

CODE ANN. § 323.007 (Vernon 2005).

      In 1995, the Legislative Council undertook the statutory revision of transportation

laws, resulting in the proposal and enactment of the Texas Transportation Code. See

TEX. TRANSP. CODE ANN. § 1.001(a)(Vernon 1999). The resulting Code itself notes that

the revision by the Council “contemplates a topic-by-topic revision of the state’s general

and permanent statute law without substantive change.” Id. (emphasis added). Not

surprisingly, the Legislative Council’s Report, which now serves as a Foreword to the

Transportation Code, explains that “the Texas Legislative Council is required by law to

carry out a complete nonsubstantive revision of the Texas statutes,” and that Title 6 is “a

nonsubstantive revision of Texas statutes relating to transportation.”       Foreword to

Proposed Transportation Code at ¶¶ 1, 3 (emphasis added). Adopting the Council’s

proposed revisions, the Legislature expressly acknowledged that it likewise did not intend

to substantively change existing law:

      SECTION 25. LEGISLATIVE INTENT OF NO SUBSTANTIVE
      CHANGE. This Act is enacted under Section 43, Article III, Texas
      Constitution. This Act is intended as a recodification only, and no
      substantitive change in the law is intended by this Act.




                                            45
Act of May 1, 1995, 74th Leg., R.S. ch. 165, § 25, 1995 Tex. Gen. Laws 1025, 1871

(emphasis added). That disclaimer is incorporated in the Transportation Code. See TEX.

TRANSP. CODE ANN. § 1.001(a)(Vernon 1999).            Given that unequivocal expression,

which the Court of Appeals recognized, Petitioners’ argument is indisputably defiant of

Legislative intent. On that basis, too, Petitioners’ argument should be rejected.

       D.     Petitioners’ Argument Would Produce Absurd Results

       Aside from the prudential concerns associated with a judicial determination that

the Legislature meant more than it said, there are other considerations that defeat

Petitioners’ argument. Again, one significant canon of statutory construction permits the

Court to consider the consequences of any particular instruction, which has compelled the

avoidance of absurd results. See TEX. GOV’T CODE ANN. § 311.023(5); Texas Dep’t of

Transp. v. City of Sunset Valley, 146 S.W.3d 637, 642 (Tex. 2004). On that basis, it is

not insignificant that in at least some cases -- particularly those where the claimants’

damages are less than the statutorily-mandated minimum coverage -- Petitioners’

construction of the statute would create a perverse incentive for claimants and insureds to

collude, which would effectively defeat the very purpose that the cooperation clause is

meant to serve.

       If an insurer cannot insist that coverage under the policy depends upon the

insured’s satisfaction of policy conditions, then claimants with dubious claims might

actually be encouraged to enter into collusive agreements with insureds.             Such

agreements, in simplest form, might ask the insured to withhold notice and cooperation

from the insurer, knowing that the failure to provide either will not preclude coverage


                                            46
under the policy, because (if Petitioners’ construction prevails) the insurer would be

prohibited from raising either as a basis to deny coverage. That contingency would

deprive the insurer of any ability to contest the insured’s liability and assure the claimant,

in many cases, of a recovery equal to the statutory minimum policy limits. In that sense,

the construction urged defies the very reason for insisting upon cooperation clauses in the

first place. See McGuire, 431 S.W.2d at 351-52. Such a result is absurd, but would

nevertheless follow from the construction that Petitioners urge here. For that reason, too,

the Court of Appeals’ reasoning should be upheld.

       E.     Petitioners’ Construction Would Adversely Impact the Entire State
              Without Any Clear Expression of Legislative Intent to Reach That
              Result

       Finally, even if the language could be construed in the fashion that Petitioners

urge, their argument is burdened by its lack of pragmatic mooring because it ignores the

long-standing principle that substantive changes in the law affecting large numbers of

people should not be inferred from silence. As explained above, to the extent that the

statute can be understood to have created a substantive change in Texas law, it is clear

from the legislative history of the 1995 codification of the Transportation Code that the

Legislature never considered the possibility that the law would have the effect that

Petitioners now ascribe to it. In matters involving the relationship between insurers and

their insureds, this Court has deferred to the Legislature with respect to substantive policy

choices articulated through statutory law. See Cutaia, 476 S.W.2d at 281 (noting Court’s

refusal to imply prejudice requirement into insurance polices, deferring that decision to




                                             47
the Department of Insurance and the Legislature); see also Ratcliff, 735 S.W.2d at 958

(noting preference for express Legislative action on policy matters).

       The adoption of Petitioners’ view of the statute would “have far-reaching effects.”

Ratcliff, 735 S.W.2d at 957. As the Dallas Court of Appeals noted in Ratcliff, Petitioners’

view that the statute would preclude insurers from insisting upon compliance with

conditions precedent in the policy “would transform the insurer’s obligation from that of

an indemnitor to that of a surety and deprive it of the right to have the opportunity to

contest the fact and extent” of any liability. Id. at 957-58 (citing Baker v. Guaranty Nat’l

Ins. Co., 615 S.W.2d 303, 305 (Tex. Civ. App.--Austin 1981, writ ref’d n.r.e.)(noting

distinctions between indemnitors and sureties)). Such a substantial and fundamental

change in the insurer’s obligation to an insured would necessitate costs that “would fall

upon the entire State” in the form of increased premiums for coverage that is mandated

for all drivers, including those who are least able to sustain that increase. Id. at 958. For

good reason, courts should be circumspect in accepting constructions of statutes that arise

entirely from implication and seek to impose burdens upon a large portion of the

population. Id. (“The Legislature can be expected to express any such decision clearly,

rather than leaving it to be implied.”). The decision that Petitioners urge on this issue

“would in effect regulate the insurance industry in this State, not just determine the rights

of the parties to this case.” Id. Such decisions belong to the Legislature. Id.

        Given the tension between the Legislature’s expressly noted desire to avoid

substantive change via the 1995 codification and the Petitioners’ contention that the

codification actually created a substantive change, the separation of powers doctrine


                                             48
would suggest that if neither the express language of the statute nor the clear expressions

of Legislative intent do not defeat the argument presented here, the affirmative decision

to change the law is a matter that should be left to the Legislature. Even if Petitioners’

urged construction is not undone as a matter of law, this Court’s understandable

deference to Legislative processes should prohibit the result that Petitioners urge.

                             CONCLUSION AND PRAYER

       The Court of Appeals’ opinion in this matter is a textbook example of the

application of controlling precedent to a unique factual situation. There is no need for

review of that opinion, because the existing opinion goes a significant distance toward

ensuring that circumstances like these are unlikely to find repetition anytime soon. The

Court of Appeals’ application of governing legal principles to each of the legal questions

presented by this unique situation strikes an equitable balance of rights in a third-party

insurance context that this Court has routinely enforced.         Likewise, sustaining the

Legislature’s intent with respect to Section 601.073(c) of the Transportation Code

protects that balance. There is nothing about the facts of this case that mandates a wide-

ranging change in principles that have found a comfortable equilibrium.

       WHEREFORE, PREMISES CONSIDERED, Respondent Progressive County

Mutual Insurance Company respectfully requests that the Petition for Review be denied.

In the alternative, Progressive respectfully requests that the Court of Appeals’ judgment

be affirmed in all things. Progressive also respectfully requests such other and further

relief, at law or in equity, to which it may be entitled.




                                              49
                                                      Respectfully submitted,

CROFTS & CALLAWAY                                                ADAMI, GOLDMAN & SHUFFIELD, INC.
A Professional Corporation                                       Larry J. Goldman
Michael J. Murray                                                State Bar No. 08093450
State Bar No. 24007721                                           Michelle M. Copeland
Sharon E. Callaway                                               State Bar No. 24007036
State Bar No. 05900200                                           Nowlin Building
4040 Broadway, Suite 525                                         9311 San Pedro Avenue, Suite 900
San Antonio, Texas 78209                                         San Antonio, Texas 78216
(210) 225-5551                                                   (210) 349-0500
(210) 225-7110 (telecopier)                                      (210) 349-7228 (telecopier)




                                  By:____________________________________
                                              Michael J. Murray

                            ATTORNEYS FOR RESPONDENT
                  PROGRESSIVE COUNTY MUTUAL INSURANCE COMPANY



                                              CERTIFICATE OF SERVICE

       I do hereby certify that a true and correct copy of the foregoing Respondent’s
Brief on the Merits was on this the 28th day of March, 2007, sent by United States Mail,
postage prepaid, to the following counsel of record:

          Mr. Eugene D. Stewart
          Knickerbocker, Heredia, Jasso & Stewart, P.C.
          468 Main Street
          Eagle Pass, Texas 78852-6598


                                                                  ____________________________________
                                                                  Michael J. Murray




G:\064-005\briefs\respondent's brief on the merits - final.doc



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