Uninsured Motorist Claims And Breach Of Contract

Uninsured motorist (UM) claims are in a category unto themselves.  This is illustrated in a 2019, opinion styled, Ali Duhaly v. The Cincinnati Insurance Company.  The opinion is from the Southern District of Texas, Houston Division.

Duhaly sued Cincinnati alleging breach of contract, among various other causes of action.  Duhaly worked for an employer who was insured by Cincinnati for (UM) coverage.  Duhaly was injured when a passenger in a vehicle owned by the employer.  The policy states that Cincinnati will “pay all sums the insured is legally entitled to recover as compensatory damages from the owner or operator of … an uninsured motor vehicle” to which ” no liability bond or policy applies at the time of the accident” or an underinsured motor vehicle to which the insurance coverage is insufficient to cover the damages.

Duhaly sued Cincinnati in State Court and Cincinnati timely removed the case to Federal Court.  Cincinnati filed a motion for summary judgment as to Duhaly’s breach of contract claim.

Cincinnati’s motion for summary judgment is based on its assertion that the court lacks subject-matter jurisdiction over the breach of contract claim because the claim is not yet ripe.  Cincinnati asserts that because the policy gave the employer UM coverage for “sums the ‘insured’ is legally entitled to recover,” and the employer has not received a judgment on the liability or uninsured status of the motorist who caused the accident, Duhaly’s breach-of-contract claim is not ripe.  Duhaly responds that Cincinnati’s argument “is specious and is an utter waste of time,” arguing that Cincinnati’s refusal to pay what Duhaly is allegedly owed is enough to survive summary judgment.

To determine ripeness, courts evaluate (1) the fitness of the issues for judicial resolution, and (2) the potential hardship to the parties caused by declining court consideration.   Ripeness separates those matters that are premature because the injury is speculative and may never occur from those that are appropriate for judicial review.  If the purported injury is contingent on future events that may not occur as anticipated, or indeed may not occur at all, the claim is not ripe for adjudication.

The policy says that in the event of an accident Cincinnati must:

pay all sums the “insured” is legally entitled to recover as compensatory damages from the owner or operator of:

a. An “uninsured motor vehicle”…because of “bodily injury” or “property damage”:

(1) Sustained by the “insured”; and

(2) Caused by an “accident[.”]

b. An “uninsured motor vehicle”…because of “bodily injury” or “property damage” sustained by an “insured.”

The Texas Supreme Court in interpreting the phrase “legally entitled to recover” has held that an insurer is under no legal obligation to pay benefits until the insured obtains a judgment establishing the liability and UM status of the other motorist.  The Court explained:

The UM contract is unique because, according to its terms, benefits are conditioned upon the insured’s legal entitlement to receive damages from a third party.  Unlike many first-party insurance contracts, in which the policy alone dictates coverage, UM insurance utilizes tort law to determine coverage. Consequently, the insurer’s contractual obligation to pay benefits does not arise until liability and damages are determined.

In determining the liability of the uninsured motorist and the resulting damages, the insured may obtain a judgment against the tortfeasor or may settle with the tortfeasor and then litigate UM coverage with the insurer.

Duhaly has offered no evidence that he has done either.

The Court dismissed the breach of contract claim due to the matter not being ripe for consideration.