Texas Supreme Ct. Holds Declaratory Action Appropriate for Underinsured Motorist Claim

A policyholder may file a lawsuit seeking a declaratory judgment to recover from…

Texas Supreme Ct

A policyholder may file a lawsuit seeking a declaratory judgment to recover from their auto insurer if their damages exceed the amount paid by the tortfeasor’s insurance carrier, a divided Texas Supreme Court ruled.

The 5-4 ruling requires Allstate Insurance Co. to pay $45,540 in attorney fees in addition to $50,000 in underinsured motorist benefits to policyholder Daniel Wes Irwin. Allstate had argued the 4th District Court of Appeals erred by deciding that Irwin was able to file a lawsuit under the Uniform Declaratory Judgments Act, which gives judges the discretion to award plaintiffs the cost of their attorney fees if they prevail.

“A declaratory judgment in this instance is simply the remedy for resolving this contractual dispute,” the majority opinion, written by Justice John P. Devine states.

Justices Jimmy Blacklock, Brett Busby, Debra Lehrmann and Jeffrey S. Boyd joined the majority ruling.

Irwin was injured on April 5, 2016 in a vehicle caused by Bertha Alonso. He said his medical bills from the crash totaled $53,240.66 and were continuing to mount.

Irwin settled with Alonso’s insurance carrier for the $30,000 policy limit. He then filed a lawsuit seeking a declaratory judgment that Allstate owed him the difference between the settlement amount and the $50,000 limit for underinsured motorist benefits under the terms of his own policy.

Allstate argued that a lawsuit seeking a declaratory judgment was inappropriate. The Supreme Court had ruled in 2006 (Brainard v. Trinity Universal Ins. Co.), that an insurer has no duty to pay uninsured or underinsured motorist benefits until liability and damages are determined by a court judgment.

So what happens if a case is settled for policy limits and no determination about the full extent of damages is ever made?

In the 15 years since the Brainard ruling, at least 20 Texas courts have allowed plaintiffs to seek uninsured motorists benefits by filing lawsuits under the Uniform Declaratory Judgments Act, Dallas attorney Thomas A. Crosley said during oral arguments. Crosley said policyholders have no other recourse.

But Texas appellate courts are split on the issue. The 4th District Court of Appeals in San Antonio favored Irwin’s argument that a declaratory judgment is allowed, while the 3rd District Court of Appeals in Texarkana ruled that the ruling in Brainard bars any suits seeking declaratory judgment for an underinsured motorist claim.

Four of the nine Supreme Court justices agreed with the 3rd District. Chief Justice Nathan L. Hecht wrote a dissenting opinion to Friday’s ruling, joined by Justices Eva Guzman, Jane Bland and Rebeca Aizpuru Huddle.

The dissenters said essentially the only question to be resolved in Irwin’s lawsuit was the amount of his damages, since the parties had already stipulated that Alonso was responsible for the accident and that underinsured motorist benefits were available. They said the law should not be used to resolve factual issues merely because it provides an opportunity for the plaintiff to collect an award for attorney fees.

“If the UDJA can be used that way. In one situation, there is nothing to limit its use in all tort cases,” the dissenting opinion says. “That would provide an avenue for attorney-fee awards not just in UIM cases, but in all tort cases.”

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