Texas Supreme Court Clears Pathway For Attorneys’ Fees In UM/UIM Cases

The Texas Supreme Court has held that an insured can file a UM/UIM case as a declaratory judgment action, making it possible for the insured to recover attorneys’ fees. Previously, a UM/UIM case had to be filed as a breach of contract case, and, even if successful, did not guarantee recovery of attorneys’ fees, since the plaintiff had to prove damages in order to recover, meaning there was no breach prior to the proof of entitlement. Allstate Ins. Co. v. Irwin, No. 19-0885, 2021 Tex. LEXIS 415 (May 21, 2021).

The insured settled with the underinsured motorist for her policy limits and sought the UIM limits from his policy. That insurer counteroffered for less than limits, and the insured sued his insurer seeking a determination of his damages, a declaratory judgment that he was entitled to recover under the UIM policy and attorneys’ fees. The insured did not alternatively assert a breach of contract cause of action.

The insurer argued that a declaratory judgment to determine contractual rights and to seek attorneys’ fees impermissibly circumvented Brainard v. Trinity Universal Insurance Co., 216 S.W.3d 809 (Tex. 2006), in which the Supreme Court held that an insurer is under no legal obligation to pay UM/UIM benefits until the insured obtains a judgment establishing the other driver is uninsured/underinsured and liability of the uninsured/underinsured driver. Thus, without a liquidated amount due under the insurance contract, no basis existed for breach of contract to support an award for attorneys’ fees.

The Court held that a declaratory judgment action was properly invoked to determine the parties’ status and responsibilities under the UM/UIM policy (prior to its breach) served a useful purpose and terminated the controversy. The Court held that declaratory relief was not a disguised breach of contract claim or some preliminary phase of such a claim, but is a remedy unto itself which provides for the award of attorneys’ fees.