Last Friday, the Texas Supreme Court issued a decision that will substantially impact how underinsured motorist (UIM) claims will now be litigated in Texas. In Allstate Ins. Co. v. Irwin, Case No. 19-0885, a sharply divided court (5-4) held that an insurance carrier’s liability for UIM benefits may now be established in a declaratory judgment action. The Court’s ruling signals a departure from the traditional manner in which these claims have typically been litigated, and will likely have a drastic impact on how they are litigated in the future.
In Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809 (Tex. 2006), the Court held that an insurance carrier has no legal obligation to pay UIM benefits until the insured obtains a judgment establishing the liability and underinsured status of the other motorist. These are conditions precedent to recovery of contractual UIM benefits. Until those determinations are made, the Court explained, “no contractual duty to pay” arises and “no just amount [is] owed.” Id. at 818. Simply put, there can be no breach of the policy until these conditions have been satisfied.
In Allstate v. Irwin, the Court gave plaintiff attorneys a new procedural remedy for having UIM claims decided. Noting that UIM claims are contractual in nature, the Court held that the Declaratory Judgment Act can be used to determine the prerequisites for, and existence of, a valid UIM claim. The Court reasoned that the issues to be decided were about coverage, rather than breach of the policy contract, and thus were proper subjects for declaratory relief.
The Court’s decision in Allstate v. Irwin signals a sea change in how UIM claims will likely now be litigated in Texas. One major impact that the Court’s decision will have is on the recovery of attorneys’ fees. In a typical breach of contract action, recovery of attorneys’ fees is not authorized unless there has been a breach of the contract. Therefore, in a UIM context, those fees ordinarily would not be recoverable until there has been a refusal by the carrier to pay UIM benefits after liability and damages have been established. Under the Declaratory Judgment Act, however, fees are discretionary with the court, but are typically awarded to the prevailing party. Consequently, counsel representing claimants in these cases will likely be able to recover their fees before there has even been a breach or refusal by the carrier to pay policy benefits. The potential ability to recover fees before there has been a breach will no doubt be the driving force behind the initiation of new UIM suits under the Declaratory Judgment Act.
Alex Beard has 30 years of experience representing individuals and businesses, with a practice focusing on liability insurance coverage, property damage insurance, and civil appeals. He has extensive experience with liability insurance claims, and enjoys analyzing coverage issues under numerous types of insurance, including commercial general liability, commercial auto and life. Read more about Alex and his insurance-related practice here: https://saunderswalsh.com/insurance-related-disputes/.
