Underinsured Claim And Consent

Garner and Brock insurance lawyers who handle underinsured claims need to read this opinion from the Fifth Circuit Court of Appeals.  The opinion is styled, Gaspar Gonzalez v. Philadelphia Indemnity Insurance Company.

Gonzalez sued Philadelphia for underinsured motorist benefits after Philadelphia refused to pay the benefits because Gonzalez failed to follow the requirements in an endorsement to his policy.  The endorsement expressly excluded “any claim settled without Philadelphia’s consent,” unless the “insured” gave Philadelphia “prompt written notice” of any “tentative settlement” and Philadephia “advanced payment to the ‘insured’ in an amount equal to the tentative settlement within 30 days after receipt of notification.”

Gonzalez had settled the case with the responsible third party for their limits of $25,000 prior to Gonzalez seeking underinsured benefits from Philadelphia.  Gonzalez filed suit against Philadelphia for breach of the insurance contract in State Court and Philadelphia removed the case to Federal Court.

Philadelphia eventually filed a motion for summary judgment based on Gonzalez not following the requirements of the endorsement.  This Court granted the motion in favor of Philadelphia.

On appeal Gonzalez argued that even if he failed to timely notify Philadelphia of the settlement, the lack of notice did not prejudice Philadelphia. Gonzalez argued that the third party was a “young low-wage earning driver” and thus, there was no chance for Philadelphia to pursue reimbursement from the third party driver.

Texas law requires a showing of prejudice in order to raise breach of a notice requirement as a defense against claims on automobile policies.  This court has ruled that there are situations where prejudice is shown as a matter of law.  The Court has stated that such notice provisions afford the insurer “valuable rights,” such as “the rights to ‘join in’ the investigation, to settle a case or claim, and to interpose and control the defense.”  After a case is “over” – after a verdict is rendered or a final settlement is reached – is not just late, but “wholly lacking,” and prejudices the insurer by depriving it of “a seat at the mediation table” and “the ability to do any investigation or conduct its own analysis of the case.”

The fact that the other motorist was allegedly a “young low-wage earning driver” does not necessarily diminish the value of the rights Philadelphia would have against the driver.

This case discusses the law regarding these “permission to settle” endorsements and is a must read for lawyers handling underinsured motorist claims.