McFarling v. Mayfield

510 S.W.2d 108, 1974 Tex. App. LEXIS 2344

• Court: Court of Appeals of Texas
• Decided: May 9, 1974
• Docket: 7571
• Status: Published

Opinions

DIES, Chief Justice.

Appellees were injured in an automobile collision and subsequently recovered judgment against Spiller Butane Co. Spiller’s truck was covered by a policy of liability insurance issued by Dealers National Insurance Company. At the time of the accident Dealers had an excess of loss reinsurance agreement with Transport Insurance Company wherein the latter agreed to indemnify Dealers for its net loss in excess of $50,000 on any one occurrence covered by its outstanding automobile bodily injury liability and automobile property damage liability insurance policies.

In October, 1970, Dealers, by court order, was placed in permanent receivership, and Tom I. McFarling, appellant, was named receiver. Appellees’ judgment against Spiller Butane was filed with appellant and approved in the amount of $99,425 as a priority loss claim for pro rata participation in the assets of the trust. Thereafter, appellant filed his claim with Transport as provided in the Reinsurance Agreement (Art. XVII), and Transport paid $52,005 to appellant. Appellees filed the suit we review against appellant and Transport, contending they were entitled to the full amount of the claim approved by appellant without regard to any pro rata participation in any assets of the receivership trust.

This stipulation presents the only issue presented:

“ ‘Are plaintiffs entitled to the direct payment of the proceeds of the reinsurance contract paid to the receiver as a result of plaintiffs’ claim or should these proceeds be held by the receiver for distribution to all creditors as directed by this court ? ’ ”

The District Court awarded ap-pellees (plaintiffs) the $52,005; Transport paid appellant and thus decided they (plaintiffs) were entitled to the direct payment of the proceeds of Transport’s reinsurance agreement. We disagree with the trial court and reverse the judgment.

Although a reinsurance agreement could by its language assume direct liability to the original insured or “guarantee the integrity of the policies of the reinsured company” as argued by appellees, the ordinary agreement creates no privity between the original insured and the reinsurer, and the former has no cause of action against the latter. Morrow v. Burlington Basket Co., 66 S.W.2d 746 (Tex.Civ.App., Waco, 1933, error ref.). See Southwestern Surety Ins. Co. v. Stein Double Cushion T. Co., 180 S.W. 1165 (Tex.Civ.App., Dallas, 1915, error ref.).

We have carefully examined the contract of reinsurance here involved, and we find no language to take it out of this general rule.

Generally, all creditors of an insolvent insurance company are entitled to share equally. 44 C.J.S. 733, Insurance § 134 (1945); 75 C.J.S. 919, Receivers § 283 (1952).

Art. 21.28-B, V.A.T.S., the “Loss Claimant’s Priorities Act” (60th Leg. 1967) gives appellees a preferred claim, but no statutory authority is given for the preference granted by the trial court’s judgment.

Reversed and rendered.