In 2021, the Texas Supreme Court issued several opinions regarding procedural issues related to recovering underinsured motorist insurance, or UIM, benefits. Under the Texas Insurance Code and typical policy language, a UIM “insurer is obligated to pay damages which the insured is ‘legally entitled to recover’ from the underinsured motorist,” and an “insurer’s contractual obligation to pay benefits does not arise until liability and damages are determined.”1 Generally, an insured seeking UIM benefits has several options:
(1) sue the insurer directly to establish the motorist’s fault and the insured’s damages without suing the motorist; (2) sue the underinsured motorist with the insurer’s written consent, making the negligence judgment binding against the insurer for purposes of the insurer’s liability under the UIM policy; or (3) sue the underinsured motorist without the insurer’s written consent and then relitigate the issues of liability and damages in a suit for benefits under the UIM policy.2
In Allstate Insurance Co. v. Irwin, the court held that an insured may also establish an insurer’s liability to pay UIM benefits in a declaratory judgment action.3 In particular, the court recognized that a declaratory judgment action seeking UIM benefits is distinct from a breach of contract action because the UIM insurer is under no contractual obligation to pay benefits until the insured obtains a judgment establishing liability and underinsured status of the other motorist.4 Moreover, there is no breach of contract claim until the court issues a judgment recognizing the insured is entitled to UIM benefits.5 The court recognized that a declaratory judgment is a remedy to resolve a contractual dispute about coverage where resolution of the dispute requires a judgment determining that certain conditions have been met.6 Furthermore, as a remedy distinct from a breach of contract claim, a successful litigant may recover “reasonable and necessary attorney’s fees as are equitable and just.”7
As to an insurer’s rights in a lawsuit for recovery of UIM benefits, the court clarified that an insurer is entitled to bifurcated trials to determine (1) the underinsured motorist’s liability and, therefore, whether the insurer is liable to pay UIM benefits; and (2) whether the insurer is liable for statutory extra-contractual claims.8 The court explained that bifurcation preserves judicial resources because a
determination of no liability precludes the need to determine whether the insurer is liable for violations of the Insurance Code.9 The court also explained that bifurcation allows an insurer to avoid deciding between offering evidence of a settlement offer, which may suggest that the insurer has admitted liability, and declining to offer evidence of a settlement offer, which may suggest a lack of good faith in resolving the claim.10 The court further held that bifurcation is available to an insurer even if the insured only asserts claims for violations of the Insurance Code, which would typically be severed from breach of contract claims and abated.11
By issuing opinions on these issues, the Texas Supreme Court has provided clarification that will shape UIM litigation for years to come.
1. In re State Farm Mut. Auto. Ins. Co., 629 S.W.3d 866, 875 (Tex. 2021) (quoting Tex.
Ins. Code § 1952.106; Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809, 812
2. In re USAA Gen. Indem. Co., 629 S.W.3d 878, 880-81 (Tex. 2021).
3. 627 S.W.3d 263, 265-66 (Tex. 2021).
4. Id. at 269.
6. Id. at 270.
7. Tex. Civ. Prac. & Rem. Code § 37.009.
8. Supra n.1 at 875-76.
9. Id. at 876.
10. Id. at 876-77.
11. Id. at 877.