Insurance Law
The Texas Supreme Court Sheds Some Light on Underinsured Motorist Claims
Thursday, February 22, 2007
Contributed by: Dan L. Schaap
In a series of cases decided in December 2006, the principal one of which was Brainard v. Trinity Universal Insurance Company, No. 04-0537, --S.W.3d-- 2006 WL 3751572, (Tex. Dec. 22, 2006), the Supreme Court sought to clear up some confusion about the contractual remedies that are available to an insured when it comes to seeking compensation under the Uninsured/Underinsured ("UIM") coverage provided in a standard personal automobile insurance policy. The more important points decided by the Supreme Court are these:
1. An insurer's duty to pay a UIM claim to a policyholder under its insurance contract is not triggered by filing a claim for such benefits with the insurer, or even filing a suit against the insurer to seek the payment of such benefits. Rather, the UIM insurer's duty to pay must be established by a judgment that establishes both the liability of, and the uninsured or underinsured status of, the other negligent motorist for the insured's damages. Therefore, the right to seek and recover attorney's fees that would typically arise in a lawsuit brought to enforce a contract does not accrue on a UIM claim until 30 days after such a judgment is entered.
2. On the other hand, the Court also held that prejudgment interest does accrue on the damages that a UIM claimant is awarded under a judgment just as if the insured had sued the negligent motorist in a typical tort lawsuit, i.e., prejudgment interest begins accruing on the 180th day after written notice of the claim is received by the negligent party or the day suit is filed against the negligent party, whichever occurs first. In this regard, the Court found that the UIM policy effectively incorporates the rules concerning prejudgment interest by requiring the UIM insurer to pay its insured those damages he or she was "legally entitled to recover" from the negligent motorist. However, for purposes of calculating prejudgment interest, the Court also noted that any prior payments that the insured had received from the negligent motorist's liability insurer or via personal injury protection ("PIP") payments from his/her own insurer must be credited against the total judgment as of the time those prior payments were made. A related case which was decided by the Texas Supreme Court on the same day as Brainard, adds that when it comes to applying credits for such prior payments, the UIM insurer gets credit for the full amount that was available under the negligent party's liability policy, not the sum that its insured may have decided to accept in settlement of their underlying tort claim. State Farm Mut. Auto. Ins. Co. v. Norris, No. 04-0514, --S.W.3d-- 2006 WL 3751580 (Tex. Dec. 22, 2006).
Please note that as of the date of this article, the above cases had not yet been released for publication in the permanent law reports, and thus, may be subject to revision or withdrawal.
This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author's law firm or its individual partners.
