Uninsured/Undersinsured (UIM) coverage has its own rules. It is sometimes hard to understand the distinction between UIM coverage claims and other tort claims and how this works with the Texas Insurance Code. However, this discussed in a January 2020, opinion from the United States Northern District Dallas Division. The opinion is styled, Detavia Wilson v. State Farm Mutual Automobile Insurance Company, Robert Nash, and Yulonda Jones.
Detavia was injured in an automobile accident wherein she incurred past medical bills of $21,259.00 and future medical expenses of $231,500.00. Detavia settled with the 3rd party insurance company for policy limits, a settlement which State Farm approved. Detavia then claimed against her UIM coverage with State Farm. The adjuster asked for additional medical records and then Detavia sued State Farm and the adjuster for violating Texas Insurance Code, Sections 541.060(a)(2), (a)(3), and (a)(2).
State Farm claims that Detavia lawsuit for Insurance Code violations is not yet ripe because Detavia has not obtained the proper predicate adjudication of the tortfeasor’s liability to her. Only after doing so can she present a ripe UIM claim to State Farm. This Court agreed with State Farm.
UIM claims can be tricky because they are a hybrid of tort law and contract law. And here, there is the additional overlay of statutory duties on good faith handling of claims. Here is how the Texas Supreme Court has addressed this issue in the 2006, opinion styled, Brainard v. Trinity Universal Ins. Co.:
The [UIM]insurer is obligated to pay damages which the insured is “legally entitled to recover” from the underinsured motorist. As discussed above, we have determined that this language means the requesting [UIM] benefits nor filing suit against the insurer triggers a contractual duty to pay. Where there is no contractual duty to pay, there is no just amount owed.
So there needs to be a judgment establishing the tortfeasor’s liability to Detavia.
But how is that possible given that Detavia already settled with the tortfeasor for policy limits (which State Farm blessed)? The Texas Supreme Court answered that too:
Of course, the insured is not required to obtain a judgment against the tortfeasor. The insured may settle with the tortfeasor, as Brainard did in this case, and then litigate [UIM] coverage with the insurer. But neither a settlement nor an admission of liability from the tortfeasor establishes [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.
So if Wilson can’t litigate with the tortfeasor because they settled, Detavia can litigate with State Farm under a declaratory judgment claim based on the UIM policy. 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. Neither has occurred in this case.
As it stands now, there is no judgment establishing the tortfeasor’s liability to Detavia. As a result, any statutory bad-faith claim against State Farm and its adjusters is premature because neither requesting UIM benefits nor filing suit against the insurer triggers a contractual duty to pay.