Uninsured Claim And Extra-Contractual Damages

Most insurance lawyers already know the law regarding uninsured (UIM) claims and extra-contractual damages.  A Dallas Court of Appeals opinion restates it.  The opinion is, In Re Geico Advantage Insurance Company and Celia Stefl.

This is a mandamus proceeding wherein the real party in interest, Marion Thorpe, sued Geico and Stefl to recover uninsured motorist benefits and extra-contractual damages following a motor vehicle accident.  The trial court denied Geico’s request for a bifurcated trial and this mandamus action resulted.

Mandamus relief is appropriate when a trial court abuses its discretion in denying a motion to sever and abate extra-contractual claims in an UIM case.

An insurer generally cannot be liable for failing to settle or investigate a claim that has no contractual duty to pay.  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.  An insured must first 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 UIM insurance claim.  As a result, severance and abatement of extra-contractual claims are required in many instances in which an insured asserts a claim for UIM benefits.

For example, severance and abatement are required and separate bifurcated trials are improper in cases where the extra-contractual claims are not yet ripe and the extra-contractual could be rendered moot by the underlying liability determination.

Here, Geico disputes the UIM claim and made an offer of settlement.  Liability for the UIM claim has not been judicially determined, the extra-contractual claims are not yet ripe, and the extra-contractual claims could be rendered moot by the underlying liability determination.  The trial court was, therefore, required to sever the extra-contractual claims from the UIM liability claims and abate the extra-contractual claims.  The trial court abused its discretion by denying the motion, ordering a bifurcated trial, and requiring Geico to engage in discovery on the extra-contractual claims.