Underinsured Coerage

Insurance lawyers know to look at the Texas Insurance Code, starting at Section 1952.101, to see the requirement that insurance companies are required by the Texas Department of Insurance and by statute to provide underinsured (UIM) coverage in their automobile polices.

One of the steps an insurance lawyer is suppose to make when trying to collect UIM benefits is to get written permission from the UIM insurance carrier to settle with the responsible third party before actually settling the case with the responsible third party.  This is required so as to not prejudice the right of the insurance carrier to subrogate against the third party in the appropriate situation.

This issue is discussed in a 2019, opinion from the Dallas Court of Appeals.  It is styled, Curtis Davis v. State Farm Lloyds, Inc.

Davis settled with the UIM driver without first obtaining written consent from State Farm to do so.  When Davis made a claim for UIM benefits, the claim was denied due to Davis not obtaining written consent to settle from State Farm.  Davis sued State Farm and State Farm prevailed on a motion for summary judgment.  This appeal followed.

The questions in this type of case are: 1) was State Farm required to prove it was prejudiced by Davis’s settlement and, if so, 2) did State Farm conclusively prove prejudice.

State Farm had sent Davis a letter saying among other things that:

*Davis’s claim was transferred to State Farm’s Subrogation services and that State Farm would attempt to recover its payments to Davis from whoever was responsible for his loss.

*Davis should tell State Farm if he was represented by an attorney so it could communicate with that lawyer.

*Davis should not sign any release or accept any payments that might affect State Farm’s interests in recovering from responsible parties sums that State Farm paid Davis for his losses.

The evidence showed that Davis settled with the other driver without getting written approval from State Farm and signed a release with the other driver.

The Texas Supreme Court made clear in 1994, in the case styled, Hernandez v. Gulf Group Lloyds, that written permission to settle is a prerequisite to obtaining UIM benefits.

However –

In the record of this case, State Farm submitted no evidence that a subrogation right against the third party would have had some value or that Davis’s settlement prejudiced State Farm in any other way.  State Farm produced no evidence that it ever tried to locate the third party driver or investigate his assets, much less that Davis’ settlement cause State Farm actual difficulty in this regard.  Thus, even assuming that prejudice can take the form of difficulty in establishing that a lost subrogation right was valuable, State Farm has not shown such prejudice in this case.

The summary judgment ruling was reversed.