Uninsured/Underinsured Litigation

Lawsuits involving claims for uninsured/underinsured (UIM) benefits are in their own little category for the way the courts handle them.  This is illustrated in a 2016, Tyler Court of Appeals opinion titled, In Re: AAA Texas County Mutual Insurance Company.

Vehicles driven by Thomas Jackson and Patricia Tompkins collided.  Jackson filed a claim for UIM benefits with AAA.  He later filed a lawsuit against AAA for breach of the insurance contract, violations of the DTPA, the Texas Insurance Code, and breach of duty of good faith and fair dealing.  AAA filed a motion to sever and abate the extracontractual claims and the just denied the motion.  This Mandamus action resulted.

AAA argued the judge abused his discretion in not allowing the case to be severed and abated.

The law in this area under Texas Rules of Civil Procedure 41 states claims are properly severable if the controversy involves more than one cause of action, the severed claim is one that would be the proper subject of a lawsuit if independently asserted, and the severed claim is not so interwoven with the remaining action that it involves the same facts and issues.  The controlling reasons to allow a severance are to avoid prejudice, do justice, and promote convenience.

In the context of insurance cases, a breach of an insurance contract claim is separate and distinct from bad faith, Insurance Code, or DTPA causes of action and each might constitute a complete lawsuit within itself.  In most circumstances, an insured may not prevail on a bad faith claim without first showing that the insurer breached the contract.  In insurance cases involving bad faith claims, the Texas Supreme Court has recognized that severance may be necessary if the insurer has made a settlement offer on the disputed claim or if there are other compelling circumstances.

An insurer cannot generally be liable for failing to settle or investigate a claim that it has no contractual duty to pay.  In the context of UIM coverage, an insurer is under no contractual duty to pay UIM benefits until the insured proves that the insured has UIM coverage, that the other driver negligently caused the accident that resulted in covered damages, the amount of the insured’s damages, and that the other driver’s insurance coverage is deficient.  Thus, an insured generally must first establish that the insurer is liable on the contract before the insured can recover on extracontractual causes of action against the insurer for failing to promptly pay, failing to settle, or failing to investigate a UIM claim.  As a result, Texas case law establishes that severance and abatement of extracontractual claims is required in many instances in which an insured asserts a claim for UIM benefits.

This court then conducted an analysis of the facts of this case and applied it to the law.  This analysis is good reading for attorneys handling UIM cases.