TEXAS SUPREME COURT HOLDS THAT THE UNIFORM DECLARATORY JUDGMENT ACT CAN BE USED TO ESTABLISH A CARRIER’S LIABILITY FOR UM/UIM BENEFITS AND AN AWARD OF ATTORNEY’S FEES

Last week, the Texas Supreme Court settled a long-running dispute and upheld an appeals court’s ruling that claimants can use the Uniform Declaratory Judgments Act to establish a carrier’s liability for uninsured/underinsured (“UM/UIM”) motorist benefits under the claimant’s policy and obtain attorney’s fees as well. Allstate Ins. Co v. Daniel West Irwin, No. 19-0885, 2021 WL 2021447 (Tex. May 21, 2021).

In the underlying tort action, the claimant was injured in a motor vehicle accident and settled with the at-fault driver for the driver’s policy limits prior to trial. Subsequently, the claimant sent a letter to Allstate seeking his own UIM policy limits. Allstate responded with a counteroffer, which the claimant rejected. The claimant then sued Allstate and invoked the Uniform Declaratory Judgments Act (UDJA) to obtain a declaratory judgment from the court that he was entitled to recover under his UIM policy and attorney’s fees.

The Allstate responded by denied the claimant was entitled to UIM benefits and demanded a jury trial. Prior to trial, Allstate stipulated that the claimant had coverage under the UIM policy but contested the issues of causation and damages. The jury eventually awarded the claimant damages far in excess of his policy limits, so Allstate tendered the UIM policy limits and court costs to the claimant. However, Allstate objected to and appealed the award of attorney’s fees and the invocation of the UDJA.

The appeals court held the UDJA was properly invoked and served as a proper basis for an award of attorney’s fees. Allstate again appealed, arguing that the appeals court had defied Supreme Court precedent, as set out in the Brainard and MBM Financial Corp. decisions.

In Brainard, the Supreme Court held that a carrier has no contractual duty to pay UIM benefits until the claimant obtained a judgment establishing the liability and underinsured status of the other motorist and, because there was no liquidated amount due under the policy, no basis for attorney’s fees existed under the UDJA. Consequently, in this case, Allstate maintained that the claimant was not entitled to attorney’s fees because Allstate had not breached its contractual duty to pay UIM benefits and, indeed, had paid them immediately after the claimant obtained the judgment, which rendered the UDJA inapplicable and the award of attorney’s fees improper.

The claimant responded that, after Allstate failed to make a reasonable adjustment of his UIM claim, his only recourse was to bind Allstate to a judgment establishing the underlying conditions precedent to his UIM coverage. Because the claimant could not sue Allstate for underlying tort or breach of contract (since no breach had yet occurred), the claimant argued that the UDJA was the only remedy available, and he used it to determine the existence of conditions precedent to coverage under the policy and to declare his rights and status thereunder. The appeals court and the Supreme Court agreed.

Under MBM Financial Corp., a party cannot tack on a declaratory judgment action onto a matured breach-of-contract claim just to recover attorney’s fees, and the UDJA must be invoked to do “more than duplicate the issues” being litigated by claims for which attorney’s fees were unavailable, which is what Allstate argued the claimant was doing in this case.

The appeals court and Supreme Court again disagreed, holding that the claimant in this case was not making a breach-of-contract claim, he was seeking a declaration of rights under the UIM contract, so he was not merely duplicating a claim. Further, the plain terms of the UDJA, allowing for the construction of a contract before or after a breach and allowing a party to obtain attorneys’ fees it would otherwise not be entitled to recover, along with the UDJA’s purpose of settling disputes before substantial damages accrue and the legislature’s intent in having the UDJA “liberally construed and administered,” supported the claimant’s argument. That is, the UDJA’s application in this case—to determine whether the conditions precedent to recovery under the UIM policy had been met and to determine the parties’ status and responsibilities under the breach—was proper, and the trial court had discretion under the plain terms of the UDJA to award attorney’s fees.

Editor’s Note: Friday’s decision from the Texas Supreme Court is a significant change in Texas’ law regarding the litigation of UM/UIM claims and we can now expect to see more DJ actions filed by injured insureds against their own UM/UIM carriers as a means to get attorney fees in addition to the unpaid policy benefits in question.