COURT DENIES UIM INSURER’S MOTION TO DISMISS AND WARNS OF SANCTIONS

Last week, the United States District Court for the Western District of Texas denied Allstate’s motion to dismiss an insured’s declaratory judgment action for underinsured motorist benefits, and warned Allstate that further motions to dismiss based on the same losing position may be met with sanctions.  In Valdez v Allstate Fire and Casualty Ins. Co., No. SA-21-CV-00494-XR, 2021 WL 4340973 (W.D. Texas, Sept. 22, 2021, mem. op.), Alicia Valdez brought a declaratory judgment action against Allstate for underinsured motorist (“UIM”) benefits, and extra-contractual bad-faith claims, without having first obtained a prior judgment against the underinsured motorist.

Allstate filed a motion to dismiss, contending that its insureds may not pursue any court claim against it, including a declaratory judgment claim, unless they have first separately obtained a judgment against the underinsured tortfeasor.   

Addressing the declaratory judgment action, the Western District denied Allstate’s motion. The court began its analysis by noting that it had repeatedly rejected Allstate's position that a UIM insured must obtain a judgment against the tortfeasor before the insured can file suit against Allstate for UIM benefits.  Then, the court referenced the recent Texas Supreme Court decision in Allstate Insurance Co. v. Irwin, 627 S.W.3d 263 (Tex. 2021), which ruled that an insured may file a declaratory judgment action to simultaneously obtain a judgment against the tortfeasor and litigate UIM coverage.  Because the ruling in Irwin was issued four days before Allstate filed its motion, and more than two months before Allstate filed its reply brief, and Allstate nonetheless continued to argue that a judgment must be obtained prior to filing a declaratory judgment action, the court stated that further motions to dismiss by Allstate based on its losing position may be met with sanctions.  Further, “Allstate cannot claim ignorance of [Irwin], given that Allstate was the losing appellant in [Irwin].”

Addressing the extra-contractual bad-faith claims, the Western District rejected Allstate’s argument that liability cannot be reasonably clear until the plaintiff obtains a judgment against the uninsured/underinsured motorist. “When a reasonable investigation reveals overwhelming evidence of the UM/UIM's fault, the judicial determination that triggers the insurer's obligation to pay is no more than a formality. In such cases, an insurer may act in bad faith by delaying payment and insisting that the insured litigate liability and damages before paying benefits on a claim.”