COURT OF APPEALS CONCLUDES INSURER HAS NO LIABILITY TO INSURED FOR UIM COVERAGE WHEN SETTLEMENT AMOUNTS EXCEED DAMAGES

In Melancon v. State Farm Mut. Auto. Ins. Co., --- S.W.3d ----, 2011 WL 2448375 (Tex.App. – Houston [14th Dist.] June 21, 2011), the Fourteenth Court of Appeals in Houston recently affirmed a take-nothing judgment entered in favor of State Farm, concluding State Farm had no liability under the uninsured/underinsured motorists (“UIM”) coverage of an automobile insurance policy when the amount of the insured’s personal-injury damages were less than the total amount paid in settlements to the insured.

In this case, Chezaray Melancon was injured in an automobile accident involving multiple vehicles.  He brought suit against two other drivers involved in the accident, Noel Sholes and Miguel Garcia, and Garcia’s employer, Lane Freight, Inc.  Melancon also joined State Farm as a defendant, asserting a breach of contract claim on the basis that State Farm was liable to Melancon under the UIM Coverage of his policy.  Melancon and State Farm stipulated that (1) Melancon settled his claims against Garcia and Lane Freight for $170,000; (2) Melancon settled his claims against Sholes for $20,012; and (3) State Farm paid Melancon  $5,000  in  personal  injury  protection  benefits  under  the  policy.   The  total  of  these  three settlement amounts was $195,012.  Following a trial on the merits, the jury found Sholes’s negligence to be the sole proximate cause of the accident and that Melancon sustained various damages resulting from the accident which totaled $168,800.

The UIM coverage part in the State Farm policy provided that State Farm’s liability was limited to the lesser of the $100,000 limit or “[t]he difference between the amount of [Melancon’s] damages for bodily injury or property damage and the amount paid or payable to [Melancon] for such damages, by or on behalf of persons or organizations who may be legally responsible.”  Melancon sought judgment from State Farm awarding him $100,000 in UIM Coverage under the policy.  The trial court rendered a take- nothing judgment in favor of State Farm.  Relying on the unambiguous language of the policy, the court of appeals concluded State Farm had no liability and affirmed the trial court’s judgment.