Suing An Insurance Company For Uninsured / Underinsured Coverage

Most Mineral Wells insurance lawyers already know the rules governing uninsured / underinsured (UIM) cases. But a reminder is put forth in an Austin Court of Appeals decision. The style of the case is, In re Farmers Texas County Mutual Insurance Company.
The real party in interest is Guy Gimenez. He sued a third party and upon receiving written permission from Farmers, settled the third party case, then brought suit against Farmers for UIM. The UIM case was severed from the extra-contractual claims but the trial court refused to abate the extra-contractual claims. As a result, this mandamus action was filed.
Farmers argued that court abused it’s discretion by refusing to abate the extra-contractual claims which had not accrued and may be rendered moot by the outcome of the contract action.
Under Texas Insurance Code, Section 1952.106 and prior Texas Supreme Court rulings, Gimenez has to prove liability in the underlying case, which had not been done simply by settling with the third party. Farmers pointed out that the unique nature of UIM insurance in this case required abatement because the establishment of an insured’s legal entitlement to UIM benefits is a prerequisite to the prosecution of an insured’s extra-contractual claims.
In the context of a UIM claim, before an insurance company is contractually obligated to pay benefits, the insured must prove that he has coverage, “that the underinsured motorist negligently caused the accident that resulted in the insured’s covered damages, the amount of the insured’s damages, and that the underinsured motorist’s insurance coverage is deficient.” Thus, an insured generally must establish that the insurer is liable on the contract before the insured can recover on extra-contractual causes of action against an insurer for failing to promptly pay, failing to settle, or failing to investigate an underinsured motorist insurance claim. Further, prevailing on a breach of contract claim for UIM benefits does not establish an insurer’s bad faith.
This Austin Court of Appeals in an earlier opinion explained:
* “a UIM contract is unlike may first-party insurance contracts because, according to its terms, benefits are conditioned upon the insured’s legal entitlement to receive damages from a third party,”
* “any duty by an insurer to its insured, common law or statutory, necessarily arises from the contractual relationship between the parties,” and * an insured “must necessarily demonstrate that the insurer was contractually obligated to pay UIM claim” to prevail on extra-contractual claims.
As explained by this court and it’s sister courts, because an insurer is under no contractual duty to pay a claim brought under a UIM policy until liability is established, the insurer should not be required to put forth the effort and expense of conducting discovery and preparing for trial on severed extra-contractual claims that could be rendered moot – to require the insurer to do so would not promote justice or judicial economy or avoid prejudice.