The underlying fight traces back to a car accident on October 12, 2011, involving Robert Reyna, who filed a UM/UIM claim with Redwood under his automobile policy. The Reynas eventually settled with the underinsured motorist — a commercial truck company — for $950,000 on a $1,000,000 policy, but did not notify Redwood until nine months after the settlement. Redwood filed this declaratory judgment action in September 2024, after the Reynas sent a new UM/UIM demand letter in July 2024, six years after their prior counsel had gone silent.
Redwood argued that the Reynas' failure to exhaust the other driver's policy limits and their failure to give pre-settlement notice triggered policy exclusions barring coverage. Under Texas law, however, an insurer must show not just a breach of those requirements but also that the breach caused actual prejudice. Magistrate Judge Dena Hanovice Palermo, sitting in the Southern District of Texas by consent of the parties, held that Redwood's sole prejudice evidence — a single sentence in a claims adjuster's letter speculating that the commercial truck company might have had additional assets — was too conclusory to carry its summary judgment burden. The court noted Redwood made no showing that limitations had run on any subrogation claim, that it had been barred from pursuing the truck company, or that it had even tried.
On the consent-to-settle exclusion, the court held that under Texas law an insurer prevails on that ground only by showing a final judgment against the other driver obtained without the insurer's consent. Redwood produced only settlement documents showing the Reynas dismissed their suit with prejudice — insufficient as a matter of law.
The limitations issue turned on when the Reynas' cause of action against Redwood accrued. Redwood argued accrual occurred when the Reynas settled with the other driver; the Reynas countered that the claim never accrued because Redwood never denied it. The court agreed there was no outright denial and no objectively verifiable event — such as a file closure — that unambiguously demonstrated Redwood's intent not to pay. The court noted that when Redwood's third-party adjuster, Barbara Rankin, closed her file in April 2016, she simultaneously referred the matter to Redwood's in-house claims examiner, Jon Deacon, for continued handling, and Redwood was still requesting medical records and evaluating the claim as late as November 2018. Whether and when any constructive denial occurred, the court held, is a fact question that precludes summary judgment.
The case, docketed as 4:24-CV-03588, proceeds in the Houston Division.