A federal court dismissed Fort Stockton Independent School District’s lawsuit against Liberty Mutual Fire Insurance Company because the court found that Liberty Mutual was not the insurer. It was the reinsurer. The court held that the policy was issued by the Political Subdivision Alliance of Texas, commonly called PSAT, and that Texas Insurance Code section 493.055 barred Fort Stockton ISD from suing Liberty Mutual unless the reinsurance contract or a separate agreement gave the school district a direct right of action against Liberty Mutual. The court found no such agreement and dismissed the case without prejudice. 1
The court’s ruling is textually strong. The policy declarations state that the policy was “Issued By: Political Subdivision Alliance of Texas.” The definitions then provide that “we, us and our(s)” mean “the company issuing this policy, as shown on the DECLARATIONS, Form RM1000.” Those words matter. They may be buried deep in the policy papers, surrounded by Liberty Mutual logos, Liberty Mutual forms, Liberty Mutual complaint information, and Liberty Mutual branding, but they are still words in the contract.
The court also found that PAT was not an unauthorized insurer masquerading in Texas. It held that PSAT’s authority came through Texas Government Code provisions allowing political subdivisions to form self-insurance arrangements, not through the ordinary certificate-of-authority process applicable to commercial insurers. On that point, the court ruled that PSAT was a valid issuer of the coverage and that the reinsurance agreement with Liberty Mutual was not void.
Liberty Mutual has not been proven to have broken any law. It has not been proven to have acted in bad faith. It has not been proven to have created this insurance program or sold it to Fort Stockton ISD. The school district voluntarily entered into the program. Those points matter because fairness matters, even when the structure of the transaction deserves hard scrutiny.
Many governmental entities are solicited by brokers, consultants, or producers to join insurance pools or purchasing programs that promise efficiencies, economies of scale, and access to coverage. McGriff was listed as the producer of record on this policy. That does not mean McGriff did anything wrong. It does mean that public entities need to understand exactly what they are buying, who is issuing the policy, who is handling the claim, and who can be sued if the claim goes sideways.
Traditional reinsurance is not usually sold or experienced this way. In the traditional model, a primary insurer writes the coverage, issues the policy, adjusts the claim, makes the coverage decision, pays or denies the policyholder, and then seeks reimbursement from its reinsurer. The reinsurer generally follows the fortunes or follows the settlements of the ceding insurer. That doctrine presupposes a real primary insurer making real claim decisions and bearing the direct relationship with the insured.
Here, the court itself noted that Liberty Mutual handled the claim, hired the adjuster, and made payments on behalf of PSAT. It also noted that Liberty Mutual declined to pay some of the claimed damage based on the cosmetic-loss exclusion. That is not the usual picture of a quiet reinsurer sitting behind the curtain. Liberty is the entity at the table, writing the insurance, handling the claim, making the calls, and telling the policyholder what will and will not be paid.
Is this truly reinsurance, or is it a way to dress up a company acting like an insurer as something other than a direct-writing insurer?
If a commercial insurance company can agree with a governmental pool that the pool is the “issuer,” while the commercial company reinsures 100 percent of the risk and effectively handles the claim, the practical reality may be very different from the paper reality. The policyholder sees Liberty Mutual. The claim is adjusted through Liberty Mutual. The payment decision comes through Liberty Mutual. But when suit is filed, Liberty Mutual points to the definitions and says, “Not us.”
That may be legally correct. It is still troubling.
Should governmental property insurance be sold and operated in this manner? Maybe the arrangement is cheaper on the front end. But how cheap is insurance if, after a major property loss, the public entity learns that the company controlling the adjustment is not the company it can sue? Taxpayers do not buy insurance to win a law school exam about privity, reinsurance, and governmental pooling. They buy it so their schools, buildings, and public property can be repaired after a covered loss.
The court gave heavy weight to Texas Insurance Code section 493.055, which says a person has no right against a reinsurer unless that right is created in the reinsurance contract or a specific agreement with that person. The court applied that rule not only to the breach of contract claim, but also to the extra-contractual claims under Chapters 541 and 542 of the Texas Insurance Code. In other words, even if Liberty Mutual performed the claim handling, the court concluded that the statutory no-right-against-a-reinsurer language barred the claim.
That is the most troubling part of the decision. Chapter 541 is supposed to address unfair insurance practices. If the entity that actually investigates the loss, hires the experts, communicates the claim decision, and controls the payment is insulated because it is called a reinsurer, policyholders should pay very close attention. A label should not become a liability shield for claim conduct.
This is also why I have deep concerns about governmental property insurance pools. In my experience, these arrangements often work reasonably well for liability claims. Governmental entities may share common interests, defense costs can be managed, and the pool model may create efficiencies. But first-party property claims are different. When a school district, city, county, or other governmental entity suffers a major property loss, the entity needs a fair, prompt, and accountable adjustment. It needs somebody who can be sued if the claim is wrongfully underpaid. It needs transparency, not an insurance shell game. I have written about this issue before in The Governmental Insurance Risk Pool Problem.
Fort Stockton ISD says it suffered massive hail damage and that Liberty Mutual’s own consultants found millions of dollars in damage, while the payment was a fraction of that amount. Those allegations have not been proven. But the case was dismissed before those issues were tried because the entity allegedly making the claim decisions was not the party that technically issued the policy.
One lesson from this case is that public entities should not assume that familiar insurance company branding gives them a direct claim against that company. They must demand to see whether there is a cut-through clause, assumption agreement, claims-handling agreement, or other document giving them a direct right against the company actually controlling the claim. If the company controlling the adjustment and making the payment decisions cannot be sued by the policyholder, the public entity should know that before the loss.
This decision may be right under the words of the policy and Texas reinsurance law. But insurance should not be a costume party where the company acting like the insurer can take off the insurer mask once litigation starts.
Thought For The Day
“You may all go to hell and I will go to Texas.”
— David Crockett
1 Fort Stockton Independent School District v. Liberty Mut. Fire Ins. Co., No. 4:24-cv-00043 (W.D. Tex. July 8, 2026). See Fort Stockton’s Response to Motion for Summary Judgment and Liberty Mutual’s Supplemental Motion for Summary Judgment.