Everything is bigger in Texas except the rights of judgment creditors trying to collect insurance proceeds. A recent Texas appellate decision, Rincon v. Lexington Insurance Company, 1 demonstrates just how difficult it can be for policyholders and third-party claimants to directly pursue insurance proceeds under commercial property policies. The policies expressly contained “Bailee Coverage” and language covering liability for property belonging to others. This result was surprising to me because the “others” could not enforce the coverage.

The Rincon family stored hundreds of thousands of dollars of fine wine in lockers at the prestigious Club at Carlton Woods near The Woodlands. The club marketed the program as a secure way for members to maintain a “perpetual wine inventory.” Years later, more than 200 bottles disappeared. An arbitrator later found that Carlton Woods Holdings had become a bailee of the wine and breached its bailment obligations. The Rincons obtained a judgment exceeding $1.1 million, including attorneys’ fees and costs.

Carlton Woods apparently became judgment proof or asset-depleted after the arbitration. So, the Rincons pursued the insurers directly, arguing that the commercial property policies issued by Lexington and others covered the loss and that they had standing to enforce those policies as judgment creditors and third-party beneficiaries.

The policies themselves contained language that gave the Rincons a legitimate basis for believing coverage existed. The policies provided $1 million in “Bailee Coverage” and extended coverage to “property of others in the Insured’s care, custody or control, including the Insured’s liability for such property.” The policies also contemplated defense costs for lawsuits involving damage to property belonging to others.

From a practical insurance standpoint, the policyholders’ argument made sense. Why buy bailee coverage if not to protect claims by bailors whose property disappears while entrusted to the insured? The Rincons’ lawyers advanced an argument that these policies were not merely first-party property forms but hybrid contracts containing liability coverage features. They pointed out that the policies expressly contemplated legal liability to third parties, valuation based upon contractual liability, and defense obligations relating to third-party claims.

The appellate court rejected those arguments. The court took a strict contractual approach and concluded that the policies remained first-party property policies designed solely to protect “the interest of the insured.” Because the Rincons were neither named insureds nor assignees of the insured’s contractual rights when the lawsuit was filed, the court held they lacked standing to sue Lexington directly.

The opinion repeatedly emphasized that only the insured possessed the contractual right to submit claims, select valuation methods, receive payment, and sue under the policies. The court also distinguished earlier Texas cases involving liability insurance and direct-action rights, reasoning that those doctrines do not automatically apply to first-party commercial property policies.

In my view, the policyholders had a much stronger argument than the short memorandum opinion suggests. The court’s reasoning largely depended on maintaining a rigid distinction between first-party property insurance and liability insurance despite policy language expressly covering “the Insured’s liability” for property belonging to others.

Still, I believe the Rincons made one critical strategic mistake. They should have secured an assignment of rights from Carlton Woods before or during the litigation against the insurers. That assignment likely would have changed the entire case. Why? Because once an assignment occurs, the claimant no longer stands merely as a third-party judgment creditor attempting a direct action. Instead, the claimant steps into the shoes of the insured and acquires the insured’s own contractual rights under the policy.

Ironically, this issue was highlighted by the insurer in its appellate briefing. Lexington informed the court that, after the appeal was already underway, the Rincons finally sought a turnover order and obtained an assignment from Carlton Woods. But by then it was too late. Texas standing law generally evaluates standing at the time suit is filed. The appellate court accepted that principle and refused to allow the later assignment to cure the original standing defect. That procedural timing issue probably determined the outcome more than the substantive coverage arguments.

The lesson for policyholders, public adjusters, and policyholder lawyers is significant. Whenever an insured faces insolvency, asset transfers, or potential judgment-proof status, counsel should immediately evaluate whether assignment rights, turnover remedies, or receivership procedures should be pursued before coverage litigation begins.

Many commercial property forms now contain liability-like provisions that blur traditional doctrinal lines. Courts, however, remain reluctant to expand direct-action rights beyond conventional liability insurance. Whether that formalistic approach fairly reflects the commercial realities of bailee coverage is another question entirely.

Thought For The Day

“Texas has yet to learn submission to any oppression, come from what source it may.”
— Sam Houston

Rincon v. Lexington Ins. Co., No. 14-25-00063-CV, 2026 WL 1223101 (Tex. App. May 5, 2026).