INSURANCE LAW
SPRING 2020
Richards v. State Farm Lloyds, 2020 W.L. 1313782; Lexis 236 (Tex. 2020)
Liability Insurance; Duty to Defend;
“EIGHT-CORNERS RULE”: A homeowner’s
insurer brought a declaratory judgment action against its insureds, whose grandson was fatally injured in
all-terrain vehicle accident, that insurer owed no duty to defend or indemnify
insureds. The United States District Court entered summary judgment in favor of
the insurer based on extrinsic evidence. The mother (insured) appealed and the
Fifth Circuit Court of Appeals certified the question of whether Texas law
allowed policy-language exception to eight-corners rule to the Texas Supreme
Court, noting that “[a]ccording to one federal
district court applying Texas law, the eight-corners rule does not apply unless
the policy includes language requiring the insurer to defend “all actions
against its insured no matter if the allegations of the suit are groundless,
false or fraudulent.” Held: “We agree with the appellants. State
Farm did not contract away the eight-corners rule altogether merely by omitting
from its policy an express agreement to defend claims that are ‘groundless,
false or fraudulent.’ The varied circumstances
under which such arguments for the consideration of evidence may arise are beyond
imagination. We do not purport to resolve any matters or foreclose any
arguments not directly raised in this certified question. We answer only that
the ‘policy-language exception’ to the eight-corners rule articulated by the
federal district court in B. Hall Contracting - under which the eight-corners
rule does not apply unless the policy contains a groundless-claims clause - is
not a permissible exception under Texas law.” Note: The certified question asked about the “eight-corners rule,”
under which an insurer’s “duty to defend is determined by the claims alleged in
the petition and the coverage provided in the policy.” See, e.g., Pine Oak
Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650, 654
(Tex. 2009). The “four corners” of the petition and the “four corners” of the
policy together comprise the “eight corners” that give the rule its name.
“Courts applying the eight-corners rule determine ‘the insurer’s duty to defend
by the third-party plaintiff’s pleadings, considered in light of the policy
provisions, without regard to the truth or falsity of those allegations.” GuideOne Elite Ins. Co. v. Fielder Rd. Baptist
Church, 197 S.W.3d 305, 308 (Tex. 2006).
In
Re State Farm Mut. Auto Ins. Company, 2020 W.L. 1264184, Lexis 2214 (Tex.
App.—Houston [1st Dist.] 2020, no pet.)
Uninsured Motorist Coverage; Extra-Contractual Claims; Severance and Abatement: Relator, State Farm, sought mandamus relief in connection with the trial court’s refusal to abate extra-contractual claims brought by the plaintiff, a personal injury claimant/insured in her suit to seek uninsured/underinsured motorist (“UIM”) benefits. Garza alleged that she was injured in the accident, the a third-party caused the accident, and that this third-party was uninsured. Garza made a claim for UIM benefits on her State Farm auto policy, and the parties disagrees as to whether State Farm made an offer to Garza to settle the claim, so Garza sued State Farm seeking a declaratory judgment that she is entitled to UIM benefits; also asserting claims for breach of the duty of good faith and fair dealing, for violations of chapters 541 and 542 of the Texas Insurance Code, and for violations of the “DTPA.” State Farm filed an opposed motion for severance and abatement of Garza’s extra-contractual claims. In its motion, State Farm asserted that severance was required because Garza had not established her entitlement to UIM benefits; that severance was mandatory because State Farm had made an offer to settle the entire claim; and that abatement was warranted in order to prevent State Farm from “having to conduct discovery and prepare for trial on claims which are not ripe until the jury has determined whether UIM benefits are owed.” “The trial court granted State Farm's motion in part, severing the extra-contractual claims but refusing to abate them State Farm filed a motion for reconsideration, which the trial court denied. In its petition for mandamus relief, State Farm assert[ed that] the trial court abused its discretion in refusing to abate the extra-contractual claims until such time as the declaratory action has been adjudicated. Garza assert[ed] that because her statutory claims stem from State Farm’s failure to respond to the claim – as opposed to its failure to satisfactorily respond to the claim – no such adjudication is required in order for her extra-contractual claims to be ripe and, therefore, abatement was not warranted.”
Held: After determining that, consistent with several other Texas appellate courts, declaratory relief was acceptable, the Court rejected Garza’s assertion that Texas Insurance Code claims were not dependent on the determination of her entitlement to UIM benefits and, therefore, the trial court properly refused to abate those claims. Further, the insured conceded her statutory claims were “not premised on an independent-injury theory… In this case, Garza was covered under the policy, so the independent-injury rule does not apply.” The court noted that “although Garza assert[ed] a declaratory judgment claim rather than a breach-of-contract claim to determine her entitlement to UIM benefits, the reasoning in Colonial County and in the other cases involving UIM benefits and extra-contractual claims is applicable here. Given that Garza’s extra-contractual claims may be rendered moot depending on the adjudication of her declaratory action, State Farm should not be required to litigate them or answer discovery about other claims before the declaratory action is resolved. Therefore, we conclude that the trial court should have abated Garza’s extra-contractual claims and abused its discretion in declining to do so.” The mandamus relief sought by State Farm was, thus, conditionally granted.
State
Farm Lloyds v. Fuentes, 2020 W.L. 897401; Lexis 1556 (Tex. App.—Houston
[14th Dist.] 2020, no pet.)
Property Insurance; Menchaca; “Independent Injury Rule”; Mental Anguish: This case
came to the appellate court on remand from the Texas Supreme Court that for
consideration of how its Menchaca opinion affected the appellate court’s
previous determination of the appeal. While the entire opinion is worth reading
in view of the unusual facts, jury charge and verdict, and procedural aspects
of the appeal (and presentation of the court’s errors or lack thereof, the
focus of this case ultimately should be on the Court’s discussion of mental
anguish, the independent-injury rule discussed in Menchaca and damages to be
awarded in regard to extra-contractual causes of action in post-Menchaca
legal environment. “The Menchaca court stated that it had ‘yet to encounter’
a successful independent-injury claim and it did not ‘have ... occasion to
speculate what would constitute a recoverable independent injury’; however, it
noted its previous decision in Twin
City Fire Insurance ‘identif[ied] mental anguish as an
example’ of actual, separate damages that an insured could recover when caused
by the insurer’s tortious conduct. In other words, Menchaca
did not foreclose the possibility of recovery for mental-anguish damages as an
independent injury. Nor does any provision within the Insurance Code preclude
recovery for mental-anguish damages. At least one Texas appellate court has
since indicated that mental-anguish damages could qualify as an independent
injury in an Insurance Code claim under the right circumstances. See State Farm Lloyds v. Webb, 2017 WL 1739763, Lexis 4025 (Tex.
App. - Beaumont May 4, 2017, pet. denied) (mem. op.) ... As indicated, the
circumstances in Menchaca
did not involve any allegation of mental anguish, and the Menchaca
jury did not award the insured mental-anguish damages. In contrast, here the Fuenteses alleged that they were entitled to actual damages
for State Farm’s ‘noncompliance with the Insurance Code,’ which included both
‘the loss of the benefits that should have been paid pursuant to the policy’
and their ‘mental anguish.’ The Fuenteses sought
damages for their independent injuries: their benefit of the bargain of the
policy and for their mental anguish.” Held:“State Farm does not challenge that it engaged
in tortious conduct—unfair or deceptive acts and practices - which damaged the Fuenteses. What State Farm essentially argue[d] is the
evidence was legally insufficient to support that State Farm committed an
‘extreme’ enough act to qualify as an independent injury and that the Fuenteses suffered compensable mental anguish. . . .Under
the particular circumstances in this case, we therefore conclude Menchaca’s fourth rule is met as to the Fuenteses’ mental-anguish damages. Note: In this case, the jury found that State Farm breached the
contract and violated the Texas Insurance Code. So, when attempting to apply
the holding in this case, be mindful that the opinion does not pertain
to a situation where the insurer was determined to be liable for mental anguish
and statutory damages in the absence of a breach (of contract). I.e., the
appellate court’s broad statements regarding an award of damages for mental
anguish damages as an independent injury may be fact specific, e.g., a
situation where a jury finds that the insurer breach the contract and violated
the Texas Insurance Code.
Allstate
Ins. Co. v. Inclan, 2020 W.L. 373061; Lexis 568 (Tex. App.—Corpus
Christi 2020, no pet.)
Uninsured Motorist Coverage; Declaratory Judgment:
For almost 15 years, it has been beyond dispute that a policyholder who is in an
auto accident must prove entitlement to recover damages from an adverse driver
before recovery can be had pursuant to underinsured motorist coverage from
his/her own auto insurer. Brainard v. Trinity Universal Ins.,
216 S.W.3d 809 (Tex. 2006). In this case,
the Corpus Christi Court of Appeals joined two other Texas appellate courts
(San Antonio and Texarkana) in allowing that determination to be made in a
declaratory judgment action directly against the insurer, as compared to a tort
suit resulting in a money judgment against the adverse driver. In this case,
rather than proceeding against the adverse driver, the insured filed a
declaratory judgment against his own auto insurer seeking to declare that his damages
were recoverable from the other driver, thus he was entitled to UIM benefits
from his insurer. Allstate argued in this case, as it had done unsuccessfully
in the two prior cases that the plaintiff’s decision to use a declaratory
judgment was merely a stratagem to add attorney fees to the judgment, which
would not be recoverable in a tort suit against the driver but are recoverable
under the Texas Declaratory Judgment Act.
And that a declaratory judgment is not a proper vehicle to try what was
basically an auto accident case involving issues of the underlying tortfeasor’s
liability and plaintiff’s damages. Held: The appellate court observed
that while Brainard set
out the prerequisites for recovery of UIM benefits, it did not specify how the
insured must determine them. Note: The
court herein really defers to the two prior appellate decisions, without much
discussion, in determining that Brainard
did not involve a declaratory judgment action (so did not preclude such an
action) and in regard to propriety of awarding attorney’s fees under Tex. Civ. Prac. & Rem. Code Chapter 37; noting that Chapter 38
(applicable to breach of contract) did not apply.
Ironwood
Building II, Ltd. v. Axis Surplus Insurance Company, 2020 W.L.
1234641; LEXIS 43753 (W.D. Tex. 2020)
Property Insurance; Concurrent Causation; Segregation of Damages; Independent Causes:
In this case, the Court denied competing motions for summary filed by the insured and insurer. The opinion is worth reading because of its simple, yet helpful discussion of the doctrine of concurrent causes and the doctrine of independent causes. Here, there was a genuine dispute as to whether there were two concurrent or independent causes. The insurer’s position was that a covered (2017 tornado) and uncovered (2016 hailstorm) peril combined to create a loss and, as such, the insured, must segregate those costs to afford a reasonable basis for estimating the proportion of damage caused by the 2017 tornado. Held: “In sum, if the 2016 hailstorm and 2017 tornado combined to cause the damage such that they are concurrent causes, it is Plaintiffs’ burden to segregate those damages. They have not done so. But if the damage resulting from the 2017 tornado would have happened regardless of the 2016 hailstorm, such that the two are independent, the concurrent-cause doctrine would not bar Plaintiffs from recovering the full contractual amount: the replacement cost. The record before the Court provides a genuine issue of material fact as to whether what damage, if any, was concurrent and what was independent.”
Blakeley
Turner et. al. v. The Cincinnati Ins. Co., 2020 W.L. 1216419; Lexis 42884 (W.D. Tex.
2020 (memo. op.)
Liability Coverage; Direct Action; Standing; Fully Adversarial Trial: Plaintiffs were students of a Waco trade school operated by ATI Acquisition Company. Plaintiffs sued ATI alleging violations of the “DTPA,” breach of contract, and breach of warranty, complaining that ATI misrepresented the quality of its program. ATI was insured by the Cincinnati Insurance Company (“CIC”), but CIC denied ATI a defense and indemnity. Then, ATI filed for bankruptcy and was defunct by the date of trial, thus it provided no defense and a default judgment was entered against it, in favor of Plaintiffs. Thereafter, Plaintiffs sued CIC for wrongful denial of coverage to ATI and CIC asserted, among other things, that Plaintiffs that had no standing to bring the coverage suit, seeking summary judgment. Discussion: The parties disputed the proper interpretation of Great American Ins. Co. v. Hamel and its application to these facts.
“In Hamel, the Texas Supreme Court
delineated the circumstances where an insurance company that wrongfully fail[ed]
to defend an insured may be bound by a judgment against the insured in a
subsequent suit brought by an underlying plaintiff as an insured's assignee.”
... The court stated that, even with an otherwise valid assignment, a judgment
would be unenforceable if it did not result from a ‘fully adversarial trial.
... Defendant argues that the assignment is what gave the Hamel claimant
standing, and without the assignment or judgment from an adversarial trial, the
possibility of a coverage suit is foreclosed. To bolster that point, Defendant
emphasizes that the Hamel court analyzed the validity of the assignment to the
claimants. ... Defendant also points out that Hamel was a clarification of State Farm Fire & Casualty Co. v. Gandy.
... Gandy narrowed the scope of the general rule that an insurer that
wrongfully refuses to defend its insured is barred from collaterally attacking
a judgment or settlement between the insured and the plaintiff, ‘under certain
circumstances in which the plaintiff seeks to enforce the judgment against the
insurer as the insured’s assignee.” “Conversely, Plaintiffs contend that Hamel provides an alternative procedure
for when a judgment has been obtained from a non-adversarial trial. According
to Plaintiffs, Hamel provides an opportunity for an
adversarial trial to pursue a judgment debtor's insurance. ... Plaintiffs
further assert that the distinction between judgment creditors and assignees is
‘senseless.’” Held: The Court agreed with Defendant on the issue of
standing. “Hamel defined the circumstances in which an
insurance company could be bound in a subsequent suit brought by the plaintiff
as the insured's assignee, explicitly. The Hamel opinion expressed that a claimant against an insurer
obtains standing to litigate a coverage trial through either a judgment
resulting from a fully adversarial trial or a valid assignment. Here, Plaintiffs
satisfy neither requirement to confer standing in this coverage action.
Moreover, case law before the Texas Supreme Court's decision in Hamel does not
indicate otherwise.”
Alvarez
v. State Farm Lloyds, 2020 W.L. 1033657; Lexis 35921 (W.D. Tex. 2020)
Property Insurance; Extra-Contractual Damages: Bona Fide Dispute: Alvarez sued against State Farm alleging breach of contract and extra-contractual claims arising out of an insurance coverage dispute Alvarez claimed that the clay tile roof of his home was damaged by hail and windstorms in the area. State Farm concluded that the damage its adjuster observed to the roof tiles was “caused by inherent vice and/or latent defect of the tile.” The denial letter stated that the inspection “revealed no accidental direct physical damage to the clay tile roof,” but did reveal “rusted fastners [sic] and wear, tear and/or deterioration of the roof” as well as “evidence of inherent vice and/or latent defect of the tile.” The denial letter concluded that “[b]ecause this loss falls within the insurance policy's exclusionary language, [State Farm is] unable to make payment” for any of the damage described therein, citing the relevant provisions of the policy. “Other than a check for $370.00 to replace a tile that was damaged by a State Farm representative during the inspection, State Farm made no payments to the Alvarezes as a result of their claim.
Held: “For a plaintiff to prevail on a bad faith claim, ‘the insured must establish the absence of a reasonable basis for denying or delaying payment of the claim and that the insurer knew, or should have known, that there was no reasonable basis for denying or delaying payment of the claim.’ ... Put another way, the ‘insured must prove that there were no facts before the insurer which, if believed, would justify denial of the claim.’.” Texas courts have consistently held that a bona fide coverage dispute is not evidence of an insurer's unreasonableness; to the contrary, a “bona fide controversy is sufficient reason for failure of an insurer to make a prompt payment of a loss claim.” “As long as the insurer has a reasonable basis to deny or delay payment of a claim, even if that basis is eventually determined by the fact finder to be erroneous, the insurer is not liable for the tort of bad faith.”
Note: I thought that what follows was worth citing verbatim as it, fairly comprehensively, sets out why the Court believe nothing more than a bona fide dispute existed as to coverage: “State Farm has pointed to undisputed facts in the record to establish a reasonable basis to deny Plaintiff's claim, which State Farm relied on in denying the claim, creating a bona fide coverage dispute. State Farm promptly responded to the Alvarezes’ claim by sending Santos – an experienced adjuster – to inspect their roof. The adjuster met and conducted the investigation with the third-party roofing installer, Mendoza, who was not affiliated with State Farm in any way, as requested by Plaintiff. Based on the March 1 inspection and report, Santos concluded that the damage to the roof was not covered by the policy, and accordingly denied the claim. When, over a month later, State Farm received the McGraw estimate, Santos called him and discovered that he thought the damage was caused by hail and wind. Because of this, Santos hired an engineer to conduct yet another inspection of the roof and give his opinion on causation.
The ProNet engineer, Selva, also concluded there was no hail or wind damage to the Alvarez roof, except for the four damaged roof vent caps. Unlike Santos, Selva thought the roof vent cap damage was caused by hail. After Selva issued his report on May 25, 2018, State Farm produced an estimate for replacing the roof vent caps, and that estimate ($460.93) was below Plaintiff's policy deductible ($25,324). Based on these findings, State Farm issued a second denial letter on June 5, 2018. These facts establish a reasonable basis for State Farm's denial of Plaintiff's insurance claim, and as in Higginbotham, Plaintiff does not dispute them. Instead, Plaintiff merely points to facts that constitute a bona fide coverage dispute. Plaintiff claims that State Farm was unreasonable in sending Santos to adjust their claim because he was not qualified to evaluate their particular type of roofing system, and because he ‘fully denied Plaintiff's claim without seeing all the damages on Plaintiff's roof and then [drove] away.’ The undisputed record evidence shows otherwise: that Santos is an experienced adjuster who regularly inspects residential properties for covered damage (including weather-related tile damage); that he complied with the Alvarezes' request to contact Mendoza, who originally installed the tile roof; that he conducted the inspection with both Mendoza and Mrs. Alvarez present; and that he took the time to discuss his findings with Mrs. Alvarez before she had to leave the property.
Plaintiff's
contention that Santos ‘had no idea what caused the damages he had no
experience with’ is a mere conclusory statement and does not undermine State
Farm's reliance on Santos's inspection to deny coverage. Plaintiff also takes
issue with Santos ‘leav[ing]
covered hail damage’ (meaning the damage to four roof vent caps) ‘unaddressed
in his March 1, 2018 denial letter.’ (citation omitted). But the record again
belies this claim, because Santos believed that the damage to the roof vent
caps – like the damage to the roof tiles – was not caused by hail, and accordingly
advised that there was no covered damage in his denial letter. It was not until
State Farm hired ProNet to conduct an additional
inspection, and Selva concluded that the roof vent
cap damage was caused by hail, that State Farm was aware of any hail damage to
the Alvarez roof. At that point, after Selva
delivered his report to State Farm on May 25, 2018, State Farm promptly
estimated the cost of replacing the roof vent caps, concluded it was below
Plaintiff's deductible, and notified the Alvarezes of
the same in a second denial letter dated June 5, 2018. The undisputed facts
establish that State Farm conducted a reasonable investigation into Plaintiff's
claim. The fact that qualified experts on each side of this case disagree about
whether the damage to the Alvarez roof was caused by hail and wind is further
evidence that this case is, at heart, a bona fide coverage dispute, not one of
bad faith. Even if a jury eventually sides with Plaintiff and finds the damage
was caused by hail, ‘the insurer is not liable for the tort of bad faith’ so
long as the insurer had a reasonable basis for denying the claim at the time of
the denial. Plaintiff's and Mrs.
Alvarez's own testimony also illustrates that this case does not rise above a
bona fide coverage dispute: both Alvarezes testified
that, other than disagreeing with State Farm's coverage decision, they have no
reason to believe State Farm acted unreasonably.”
Cavazos
v. Sias, 2020 W.L. 883223; Lexis 32004 (S.D.
Tex. 2020) (slip op.)
Liability Insurance; Judgment Creditor; Admissibility of Evidence: After obtaining a default judgment against Insured arising out of an auto accident, Claimant sued Carrier to recover the judgment under Insured’s auto liability policy. This opinion addresses the importance of admissible evidence when attempting to enforce policy exclusions.is a suit for coverage under an auto liability insurance policy. Simply, the insurer’s argument that an insured’s statement was attributable to the claimant and admissible as a statement against interest by a party-opponent was not admissible when offered by a judgment creditor when suing the insurer to recover the judgment. Note: Even though a judgment creditor (as to the insured) “steps into the shoes” of the insured, does not mean, as an evidentiary matter, that statements against interest made by the insured, which would be hearsay as to another party, become admissible against the judgment creditor.
TEXAS UNINSURED MOTORIST COVERAGE -
Changes Coming Soon To An Appellate Court Near
You ... Or Have Changes Already Arrived?
By Charles L. Levy[1]
I. INTRODUCTION
“The Texas M/UIM statutes are designed to compensate insured persons who are legally entitled to recover damages from uninsured persons who cause motor vehicle accidents.”[2] Texas requires automobile insurance providers to include in their policies “uninsured or underinsured motorist coverage” (hereinafter “UM or UIM”), which is defined as coverage that “protects insureds who are legally entitled to recover from owners or operators of uninsured or underinsured motor vehicles ....” TEX. INS. CODE § 1952.101.[3] Further, Texas law provides for the means of recovery under UM/UIM coverage.[4],[5]
Several fairly recent UM/UIM cases address the propriety of an insured’s seeking declaratory relief, the award of attorney’s fee related thereto, discovery in UM/UIM cases, along with the “ripeness” of extra-contractual causes of action and relief. It may be, at least in regard to some of the above issues, a change is coming, or perhaps (in some appellate courts or Texas federal courts) the change has already arrived.
This article identifies some changes (or continuing development of changes) in UM/UIM law, in an effort to keep practitioners abreast of what has, for the most part, been a fairly stable area of insurance law at least since the Brainard decision years ago. The article should also serve as a refresher in regard to various existing and still unchanged UM/UIM law, which will hopefully assist those involved with UM/UIM claims in Texas.[6]
II. UM/UIM COVERAGE - THE
BASICS
A. Recovery of UM/UIM
Benefits
Suits to recover UM/UIM benefits can be procedurally unique in that they often require “a suit within a suit.”[7] UM/UIM benefits are available to an insured after the insured shows (1) his/her auto policy includes UM/UIM coverage; (2) an uninsured or underinsured motorist’s negligence caused the accident that resulted in covered damages; (3) the amount of the insured’s damages; and (4) the insurance coverage available from the uninsured/underinsured motorist’s insurance coverage is deficient.[8]
B. Burden of Proof
The long established Texas law is that a plaintiff seeking recovery against an insurance company for injuries resulting from the negligence of an uninsured motorist must plead and prove that, at the time of the accident, the plaintiff was protected by uninsured motorist coverage.[9]
However, the Texas Insurance Code (“TIC”), states that, “[t]he insurer has the burden of proof in a dispute as to whether a motor vehicle is uninsured. TIC §1952.109.[10]
C. Consent to Settle
UM/UIM coverage language typically reads (something like) the following: “Any judgment for damages arising out of a suit brought without [the insurer’s] written consent is not binding on [the insurer].”[11] An insured seeking the benefits UM/UIM coverage can sue the insurer directly, can obtain the written consent from the insurer and then sue the uninsured motorist alone (and the judgment obtained then would be binding on the insurer), or without the consent of the insurer, can proceed against the uninsured motorist.[12] But, a judgment obtained against the uninsured/underinsured motorist will not be binding on the insurer; liability and damages will have to be re-litigated.[13]
D. Physical Contact Rule
The Texas Supreme Court has expressly held that “there must be actal physical contact between the insured’s vehicle and the unidentified tortfeasor, as required by statute, to trigger the [UM/]UIM coverage.[14] E. Underinsured Status - Exhaustion of Limits
An insured is not required to exhaust the tortfeasor’s liability policy limits in order to make a UIM claim, but, an insurer may claim an offset for the full amount of the tortfeasor's policy limits.[15]
F. Statute of Limitations
“[A]n insured’s cause of action for uninsured motorist coverage accrues and the statute of limitations begins to run on the date the insurance company denies the claim.”[16]
G. Discovery in UM/UIM Case
The scope of discovery in UM/UIM cases “differs from other insurance disputes because, unlike most first-party cases in which the terms of the policy alone dictate the outcome, uninsured motorist coverage hinges on the liability of the alleged uninsured, at-fault third-party motorist, under applicable tort law.”[17] UM/UIM extra-contractual claims can be rendered moot if the insured does not obtain a judgment against the uninsured or underinsured motorist.[18]
The scope of discovery, including depositions of claim adjusters and an insurer’s corporate representative is subject to the trial court’s discretion, subject to an appellate courts’ review through a mandamus proceeding for abuse of discretion.
Further exploration of this fact sensitive subject area is beyond the scope of this article.[19]
III. “LEGALLY ENTITLED TO
RECOVER”
In Brainard v. Trinity Universal Ins. Co.[20], the Texas Supreme Court explained that an uninsured motorist insurer “is under no contractual duty to pay benefits until the insured obtains a judgment establishing the liability and underinsured status of the other motorist.”[21] Thus, to determine the liability of the uninsured motorist and the resulting damages, the insured may obtain a judgment against the tortfeasor.[22] Alternatively, the insured “may settle with the tortfeasor ... and then litigate [UM/UIM] coverage with the insurer. But neither a settlement nor an admission of liability from the tortfeasor establishes [UM/UIM] coverage, because a jury could find that the other motorist was not at fault or award damages that do not exceed the tortfeasor's liability insurance.”[23]
Brainard has, perhaps as expected, given rise to considerable litigation in regard to a multitude of issues that arise in the context of UM/UIM litigation. These issues include, but are not necessarily limited to, recovery of attorney’s fees in UM/UIM disputes, use of declaratory judgment relief in the context of UM/UIM claims, recovery of extra-contractual damages, applicability of the prompt payment statute in the Texas Insurance Code, and abatement and severance of extra-contractual causes of action.
The issues identified above are addressed below.
IV. DECLARATORY RELIEF
Several courts in Texas, applying Texas law, have held that The Uniform Declaratory Judgments Act (“UDJA”) “creates an appropriate claim under which an insured may obtain the legal determination required to recover under his UM/UIM policy.”[24] Conversely, these courts have found that “a declaratory judgment is an appropriate method of establishing the prerequisites to recovery in a UIM benefits case.”[25]
Of interest, Texas courts have rejected numerous attempts to trigger an insurer's contractual duty to pay benefits in other ways.[26] And, to date the Texas Supreme Court has not approved an alternative to Brainard’s requirement of one lawsuit against the tortfeasor and a second claim against the UIM insurer. “However, in Brainard itself, the court seemed to suggest that such an alternative may exist when it wrote, ‘[o]f course, the insured is not required to obtain a judgment against the tortfeasor. The insured may settle with the tortfeasor, as Brainard did, and then litigate [UM]/UIM coverage with the insurer.”[27]
In Jordan, Texas appellate court specifically rejected Allstate’s argument that Brainard precluded the use of the UDJA in litigating UIM claims,[28] as did the appellate court in Irwin, which observed that the UDJA was not specifically at issue in Brainard, concluding that “an insured may use the UDJA to establish the prerequisites to recovery in a UM/UIM claim,” observing that in Jordan the court stated: “[N]othing in Brainard precludes the use of a declaratory judgment when establishing prerequisites to recovery in a UIM benefits case.”[29] Based, at least in part, in reliance on the above, the court in agreed that an insured can use the UDJA to establish the prerequisites to recovery in a UM/UIM case, finding that the the trial court did not err in awarding declaratory relief in the present case.[30]
Note too, that Texas federal courts have, in some instances, allowed claimant’s to seek declaratory relief,
“due to the unique terms of UM/UIM coverage,” stating that a declaratory judgment action, not a suit for breach of contract, is the proper avenue to bring a UM/UIM claim.[31]
V. ATTORNEY’S FEES
A. Chapter 38, Tex. Civ.
Prac. & Rem. Code
Chapter 38 of the Civil Practice & Remedies Code permits an insured to recover attorney’s fees incurred in a successful breach of contract suit against the insurer unless the insurer is liable for the fees under a different statutory scheme.[32] Because no other statutory scheme applied, Brainard sought to recover attorney’s fees under Chapter 38. Under section 38.002, Brainard was required to show that: (1) she was represented by counsel; (2) she presented the claim to Trinity; and (3) Trinity failed to pay the just amount owed within thirty days of presentment. TEX. CIV. PRAC. & REM.CODE § 38.002.
As set forth by the Texas Supreme Court in Brainard, this issue turns on the language in Chapter 38 requiring that “payment for the just amount owed must not have been tendered before the expiration of the 30th day after the claim is presented.” TEX. CIV. PRAC. & REM. CODE § 38.002(3). Where there is no contractual duty to pay, there is no just amount owed. Thus, under Chapter 38, a claim for UIM benefits is not presented until the trial court signs a judgment establishing the negligence and underinsured status of the other motorist.[33]
Simply, with a few (rare) exceptions, Brainard and its progeny to date would eliminate the recovery of attorney fees from a UM/UIM insurer under Chapter 38, as long as any judgment is paid within 30 days of entry.
B. Chapter 37, Tex. Civ. Prac. & Rem. Code
In Allstate Fire and Casualty Insurance Company v. Inclan[34], Allstate argued that the “UDJA” was “not a valid basis for recovering underinsured motorist benefits.” Allstate cited Brainard to support this contention. According to Allstate’s interpretation of Brainard, Inclan was not seeking to construe or determine the validity of his policy with Allstate.[35] Rather, Allstate asserted that the only real question in the case was the amount of tort damages Inclan was legally entitled to recover, if any, as a result of the tortfeasor’s negligence. In Allstate's view, Inclan was simply attempting to recast his immature contract claim as a claim for declaratory relief for the sole purpose of justifying the award of attorney's fees.
The appellate court, having noted that two other courts (in Irwin and Jordan) had already concluded that the UDJA was a proper avenue for litigating UM/UIM claims[36], see supra, and noted that Brainard concerned attorney’s fees under Chapter 38 (for breach of contract) and, in regard to Irwin, noted that Irwin only pleaded a declaratory judgment action under Chapter 37.[37]
Further, taking note of what the court said in Irwin, the Inclan court stated: “The court in Irwin further noted that ‘unlike Chapter 38 of the Code upon which the plaintiffs in Brainard and Jordan relied, nothing in the UDJA requires a matured breach of contract claim. And under Chapter 37, the trial court has discretion to award attorney’s fees as are equitable and just. TEX. CIV. PRAC. & REM. CODE ANN. § 37.009. Therefore, the trial court did not err in awarding Inclan attorney’s fees in connection with its UIM/UM claim. We overrule Allstate's second issue.”
Until such time as the Texas Supreme Court rejects use of Chapter 37 in regard to UM/UIM claims, including in regard to attorney’s fees, attorney’s representing claimant’s would be well-advised to seek relief in UM/UIM cases by using (or including) declaratory relief in there UM/UIM suits.[38]
VI. EXTRA-CONTRACTUAL CAUSES
OF ACTION
This is a developing area of the law in the post-Menchaca era, and a thorough discussion is beyond the scope of this article.
However, and simply, consider that: Insurers argue that just like an insurer’s contractual duty to pay does not arise until a judgment is entered establishing the negligence and uninsured status of the other motorist, an insurer's liability cannot be “reasonably clear,” an insurer can not unreasonably delay paying an insured until after the insured obtains a judgment establishing the liability of and damages caused by the uninsured motorist, and the issue of “bad faith” is not pre-judgment “ripe” for consideration.[39]
The insured’s position is set out fairly well in several cases, one of which held: “Once a legal proceeding establishes that the insured is entitled to UM/UIM coverage and resolves the damages amounts, the bad-faith claim is ripe for consideration,” citing federal precedent in this regard.[40] According to the appellate court in Cook: “To hold that a UM/UIM claim is not ‘reasonably clear’ until the conclusion of the legal proceeding “would effectively eliminate the [bad faith] cause of action, with no indication that such a result was intended.”[41] Thus, an insurer can act in bad faith by failing to reasonably investigate or delaying payment on a claim for uninsured motorist benefits until after the insured obtains a judgment establishing the liability and uninsured status of the other motorist.[42]
Accompanying an insurer’s assertion that “bad faith” causes of action are pre-mature/not ripe, is typically a motion to abate and sever the extra-contractual causes of action. Court’s are receptive to, if not compelled to in a proper circumstance, find in favor of the insurer in this regard.[43]
Note too, that it appears that to date, as concerns “bad faith” causes of action in UM/UIM cases and abatement thereof, Menchaca has not altered the landscape much, if at all.[44]
What about violation of the prompt payment statute (found in Chapter 542 of the TIC? Can a UM insured sustain a prompt payment claim against a UM insurer that timely pays UM benefits after such a judgment is obtained? The San Antonio court of appeals has answered this question “no,” agreeing with the insurer’s argument that its “liability to pay the claim did not arise until the date the judgment was obtained, and its payment of the claim nine business days after the judgment was entered conclusively established prompt payment as a matter of law.”[45]
VI. CONCLUSION
Practitioners that handle UM/UIM cases need to carefully watch how the Texas Supreme Court responds to the petitions for review (filed or anticipated) in regard to declaratory judgment actions, attorney’s fees awards in regard to declaratory judgment actions, and how the courts, including the federal district courts in Texas, address extra-contractual issues, including prompt payment of claims issues in the future.
Much remains the same in regard to UM/UIM law, dating back to and before Brainard, but at least in some appellate courts in Texas, changes have already arrived.
[1]. Charles L. Levy is a former insurance company executive and adjunct insurance professor at Baylor Law School, who has spent almost 35 years assisting claimants, insurers, agencies and agents, and attorneys in the field of insurance. Additional information regarding Levy’s background, publications, and practice can be found at linkedin.com/in/charles-levy-b1b6602a.
[2]. Old Am. Co. Mut. Fire Ins. Co. v. Sanchez, 149 S.W.3d 111, 115 (Tex. 2004) (citation omitted).
[3]. However, the coverage required “does not apply if any insured named in the insurance policy rejects the coverage in writing.” TEX. INS. CODE § 1952.101(c). See also Ortiz v. State Farm Mut. Auto. Ins. Co., 955 S.W.2d 353 (Tex. App. - San Antonio 1997, pet. denied)(no special procedure required for rejection); Howard v. INA Cty. Mut. Ins. Co., 933 S.W.2d 212, 218 (Tex. App. 1996), writ denied (June 12, 1997)(citation to prior case omitted)(ineffective rejection results in inclusion of UIM coverage by operation of law).
[4]. Id. at § 1952.106 (“Underinsured motorist coverage must provide for payment to the insured of all amounts that the insured is legally entitled to recover as damages from owners or operators of underinsured motor vehicles because of bodily injury ....”) (emphasis added). In regard to UM/UIM treatment in the Texas Insurance Code, See also Texas Insurance Code, Title 10. Property and Casualty Insurance, Subtitle C. Automobile Insurance, Chapter 1952. Policy Provisions and Forms for Automobile Insurance, Subchapter C., Uninsured or Underinsured Motorist Coverage.
[5]. Note that, this article uses the term “UIM” to to refer to an underinsured motorist. A motorist is underinsured if his or her liability insurance is insufficient to pay for the injured party’s actual damage. See also Stracener v. United Servs. Auto. Ass’n, 777 S.W.2d 378, 380 (Tex.1989).
[6]. For a pretty good overview of UM/UIM coverage/cases in Texas, see “Underinsured Motorist Coverage: Nuts and Bolts of Making the Claim and Trying the Case,” Moore, H and Bomben, J, presented at the State Bar of Texas, Prosecuting & Defending Truck and Auto Collision Cases (November 21-22, 2019, San Antonio).
[7]. Allstate Ins. v. Jordan, 503 S.W.3d 450, 453 (Tex. App. - Texarkana 2016, no pet.).
[8]. In re Liberty Cty. Mut. Ins. Co., 537 S.W.3d 214, 220 (Tex. App. - Houston [1st Dist.] 2017, orig. proceeding).
[9]. See, e.g., Blevins v. State Farm Mut. Auto. Ins., No. 02-17-00276-CV, 2018 WL 5993445, at *14 (Tex. App. - Fort Worth Nov. 15, 2018, no pet. h.) (mem. op.), citing, Members Mut. Ins. Co. v. Olguin, 462 S.W.2d 348, 350 (Tex. Civ. App. - El Paso 1970, no writ). Note however, that it is only after an insured has obtained findings that the other motorist was negligent (or more negligent than the insured) and that he sustained damages that the trial court needs to take up the UIM issue. See Mid-Century Ins. Co. of Tex. v. McLain, No. 11-08-00097-CV, 2010 WL 851407, at *1, *3 (Tex. App. - Eastland Mar. 11, 2010, no pet.) (memo. op.).
[10]. See also Bryant v. Progressive Cty. Mut. Ins. Co., No. 05-17-01023, 2018 WL 6521853 at *8 (Tex. App. - Dallas Dec. 12, 2018, no pet.) (mem. op.)
[11]. U.S. Fire Ins. Co. v. Millard, 847 S.W.2d 668 (Tex. App. - Houston [1st Dist.] 1993, no writ.
[12]. Criterion Ins. Co. v. Brown, 469 S.W.2d 484, 485 (Tex.Civ.App.- Austin, writ ref’d n.r.e.).
[13]. Texas courts have held that consent to settle/consent to sue includes protecting the insurer from default judgment liability even though the express language in the policy provision refers only to damages. See, e.g., State Farm Mut. Auto. Ins. Co. v. Azima, 896 S.W.2d 177, 178 (Tex.1995); see also, e.g. U.S. Fire Ins. Co. v. Millard, 847 S.W.2d 668, 674 (Tex. App. - Houston [14tDist.] 1993, no writ)(general denial not a waiver by insurer).
[14]. Franks v. Liberty County Mut. Ins. Co., 582 S.W.3d 648, 651 (Tex. App. - Houston [14th Dist.] 2019, no pet.), citing Nationwide Ins. Co. v. Elchehimi, 249 S.W..3d 430, 432 (Tex. 2008).
[15]. Olivas v. State Farm Mut. Auto. Ins. Co., 850 S.W.2d 564, 565 (Tex. App. - El Paso 1993, writ denied); see also Leal v. Northwestern Nat'l County Mut. Ins. Co., 846 S.W.2d 576, 579 (Tex. App. - Austin 1993, no writ); Mid–Century Insurance Company of Texas v. Kidd, Mid–Century Ins. Co. v. Kidd, 997 S.W.2d 265, 270-74 (Tex.1999) (Personal Injury Protection offset allowed to prevent double recovery).
[16]. See Allstate Ins. Co. v. Jordan, 503 S.W.3d 450, 455 (Tex. App. - Texarkana 2016, no pet.); see also De Bell v. Ohio Cas. Grp. of Ins. Cos., No. 14–96–00337–CV, 1996 WL 671258, at *2 (Tex. App. – Houston [14th Dist.] Nov. 21, 1996, no writ) (not designated for publication); see also Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 828 (Tex. 1990) (absent policy provision to contrary, cause of action under insurance policy accrues when insurer denies liability).
[17]. In re State Farm Mut. Auto. Ins. Co., 553 S.W.3d 557, 564–65 (Tex. App. - San Antonio 2018, orig. proceeding) (quoting In re Allstate Fire & Cas. Ins. Co., No. 12-17-00266-CV, 2017 WL 5167350, at *3 (Tex. App. - Tyler Nov. 8, 2017, orig. proceeding) (memo. op.).
[18]. In re State Farm Mut. Auto. Ins. Co., 553 S.W.3d at 564–65; see also In re Allstate Fire & Cas. Ins. Co., 2017 WL 5167350, at *4.
[19]. But see, e.g., In re Luna, No. 13–16–00467–CV, 2016 WL 6576879, at *7 a (quashing deposition was abuse of discretion by the trial court); In re Garcia, No. 04-07-00173-CV, 2007 WL 1481897, at *2 (Tex. App. - San Antonio May 23, 2007, orig. proceeding) (per curiam) (mem. op.) (quashing deposition was abuse of discretion by trial court). Note that, as set forth in In re Perry, No.13-18-00676-CV, 2019 WL 1723509, at *6-7 (April 18, 2019)(orig. proceeding) “both cases arose after liability of the third-party driver had been determined and the coverage dispute had ripened.”. Cf In re Liberty Cty. Mut. Ins. Co., 557 S.W.3d 851, 856 (Tex. App. - Houston [14th Dist.] 2018, orig. proceeding)(Court of Appeals quashed the deposition of an insurer’s corporate representative).
[20]. 216 S.W.3d 809, 818 (Tex. 2006). “In Brainard, the Texas Supreme Court was confronted with the issue of whether an insured could recover attorney's fees on a breach of contract claim against her insurer. 216 S.W.3d at 817. In order to be entitled to recover attorney's fees, the court first noted the insured was required to show that: (1) she was represented by counsel; (2) she presented her claim to the insurer; and (3) the insurer failed to pay the just amount owed within thirty days of presentment. Id. The court further noted a “UIM insurer is under no contractual duty to pay benefits until the insured obtains a judgment establishing the liability and underinsured status of the other motorist.” *681 Id. at 818. (citing Henson v. S. Farm Bureau Cas. Ins. Co., 17 S.W.3d 652, 653-54 (Tex. 2000)).” See also State Farm Mut. Auto. Ass’n v. Cook, No. 04-18-00729-CV, 2019 WL 4453763, at *10, 5 (Tex. App. - San Antonio Sept. 18, 2019, no pet.
[21]. See Brainard, 216 S.W.3d at 818.
[22]. Id.
[23]. Id.
[24]. See, e.g., Allstate Ins. Co. v. Irwin, No. 04-18-00293-CV, 2019 WL 3937281, at *4 (Tex. App - San Antonio Aug. 21, 2019, pet. filed)(using the UDJA to establish the prerequisites to recovery in a UM/UIM case, when Allstate stipulated to coverage, so only issue here was whether Irwin’s damages caused by the tortfeasor’s negligence actually exceeded the limits of the tortfeasoer’s policy is exactly the type of “relief from uncertainty” the UDJA was designed to provide.”)
[25]. See, e.g., In re State Farm Mutual Automobile Insurance Company, 2020 WL 1264184 01-19-00821-CV ( Tex. App. - Houston [1st Dist.] March 17, 2020, orig. proceeding)(memo. op.)
[26]. For example, the Texas Supreme Court has: rejected attempts to use certain settlement agreements, Elbaor v. Smith, 845 S.W.2d 240, 240 (Tex. 1992); refused to enforce an agreed judgment between a plaintiff and a defendant against the defendant's insurer, State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696, 719 (Tex. 1996); and, held that a settlement or admission of liability from the tortfeasor fails to establish UM/UIM coverage, Brainard, 216 S.W.3d at 818.
[27]. Irwin, 2019 WL 3937281 at *3.
[28]. Inclan, 2020 WL 373061 at *3.
[30]. Id.
[31]. See, e.g., Accardo v. Am. First Lloyds Ins. Co., No. H–11–0008, 2012 WL 1576022, at *2 (S.D. Tex. May 3, 2012); Borg v. Metro. Lloyd’s of Texas, No. 12–CV–256, 2013 WL 12091651, at *2 (W.D. Tex. Feb. 21, 2013); Woods v. Argonaut Midwest Insurance Co., 2016 WL 3653518 (E.D. Tex. March 18, 2016) at *4-5.
[32]. TEX. CIV. PRAC. & REM.CODE §§ 38.001(8), 38.006; Grapevine Excavation, Inc. v. Maryland Lloyds, 35 S.W.3d 1, 5 (Tex.2000),
[33]. Brainard, 216 S.W.3d at 818 (citations omitted). Section 38.002 not only requires presentment, it requires that there be a failure to timely tender the “just amount owed.” A case may arise where the underinsured’s motorist’s liability may be so clear that a summary judgment could be possible. This would not establish damages in the absence of agreement, or if damages clearly were in excess of a policy limit. As well, it might be possible that money damages were so clearly established that the motorist’s underinsured status of could be deemed to have been found. That this would happen is, of course, going to be a rare occurrence (in order for a court to be willing to grant a summary judgment).
[34]. No. 13-19-00026-CV, 2020 WL 373061 (Tex. App. - Corpus Christi January 23, 2020, no pet.). But, the insurer has, on request, been granted an extension to file a petition for review, which was granted.
[35]. Id. at *2.
[36]. Id.
[37]. Id.
[38]. But see In re Allstate Fire & Cas. Ins. Co, No. 12-17-00266-CV, 2017 WL 5167350 at *3 (Tex. App. - Tyler November 8, 2017, no pet.)
[39]. See, e.g, Cook, 2019 WL 4453763, at *11.
[40]. Cook, 591 S.W.3d at 683, citing Accardo, 2013 WL 4829252, at *5.
[41]. Id.
[42]. Id. See also Hamburger v. State Farm Mut. Auto. Ins. Co., 361 F.3d 875 (5th Cir. 2004)
[43]. See, e.g., Woods, 2016 WL 3653518, at *2 (E.D. Tex. Mar. 18, 2016) (dismissing claims for breach of contract, violations of the Insurance Code, fraud and negligent misrepresentation as premature, given that tortfeasor’s liability had yet to be established, and abating claims for bad faith and DTPA violations pending adjudication of tortfeasor’s liability); In re Allstate Prop. & Cas. Ins. Co., No. 14-12-00867-CV, 2012 WL 5987580, at *2 (Tex. App. - Houston [14th Dist.] Nov. 29, 2012, orig. proceeding) (trial court abused its discretion denying motion to sever and abate extra-contractual claims, stating, “The supreme court has determined ... that until the insured prevails in his [UIM] contractual claim he cannot require the insurance company to defend the bad faith claim.”) (citation omitted); In re Am. Nat. County Mut. Ins. Co., 384 S.W.3d 429, 439 (Tex. App - Austin 2012, orig. proceeding) (holding trial court abused its discretion denying motion to sever and abate extra-contractual claims from UIM contractual claims).
[44].To wit, from the court’s opinion in In re State Farm Mutual Automobile Insurance Company, 2020 WL 1264184 01-19-00821-CV at *5: “To the extent Garza relies on Menchaca, she is mistaken. The supreme court in Menchaca was asked ‘whether the insured can recover policy benefits based on the insurer’s violation of the Texas Insurance Code even though the jury failed to find that the insurer failed to comply with its obligations under the policy.’ 545 S.W.3d at 484. In Colonial County, this Court noted Menchaca ‘did not involve a UIM claim or whether contractual and extra-contractual claims should be severed and abated. Instead, it involved a first-party claim by the insured against her insurer for storm damage to the insured's claim.” Colonial Cty., 2019 WL 5699735, at *3 (citing Menchaca, 545 S.W.3d at 484). We stated, ‘even assuming, arguendo, that Menchaca applies to UIM claims, the decision does not support the trial court’s denying abatement of the Statutory Extra-contractual Claims ... the [Menchaca] Court ‘clarif[ied] and affirm[ed] the general rule that an insured cannot recover policy benefits as actual damages for an insurer's statutory violation if the insured has no right to those benefits under the policy.’” 2019 WL 5699735, at *3 (quoting Menchaca, 545 S.W.3d at 495); see also In re: Allstate Fire and Cas. Ins. Co., 04-18-00676-CV, 2018 WL 6624885 at *3 (Tex. App. - San Antonio December 19, 2018, orig. proceeding)(memo. op.) (rejecting the insured’s Menchaca argument, the court held that Allstate “is under no contractual duty to pay benefits until [plaintiff] obtains a judgment establishing the liability and underinsured status of the other motorist,” citing Brainard, 216 S.W.3d at 818; United Fire Lloyds, 327 S.W.3d at 256. Here, liability for the UIM claim has not been judicially determined in plaintiff's breach of contract case, the extra-contractual claims are not yet ripe, and the extra-contractual claims could be rendered moot by the underlying liability determination in the breach of contract case”).
[45]. See Cook, 591 S.W.3d at 684. See also Accardo, 2012 WL 1576022 at *6, wherein the court stated: “Until the Accardos obtain such a judgment, America First is not liable for the UM benefits claim and, consequently, cannot be liable for statutory penalties for delaying payment. The prompt-payment claim is dismissed, without prejudice, for lack of subject-matter jurisdiction. Cf. Owen, 2008 WL 833086, at *3 (stating that when the insureds ‘failed to establish [that] they are legally entitled to recover for a UIM claim’, the insurer “could not have violated a duty for prompt payment under the insurance code when such a duty was never triggered”); Schober, 2007 WL 2089435, at *3 (stating that ‘absent [the insurer's] prior liability for the claimed damages, [the plaintiffs’] Prompt Payment of Claims Act claim fails for legal insufficiency’ because the plaintiffs cannot show that the insurer is liable for the claim); Borg v. Metropolitan Lloyd's of Texas, Civil Action No. 12-CV-256 (W.D. Tex February 21, 2013)(Order)(Smith, J, presiding) (“The Court is not persuaded that Plaintiff's claims for breach of contract and violation of the Prompt Payment Act are ripe. Because the claims are not ripe, the Court lacks subject matter jurisdiction.”)
Website designed and developed by Daniel Hofheinz