n a case that raises more questions about the effects of the Texas Supreme Court’s decision in Allstate Ins. Co. v. Irwin, 627 S.W.3d 263 (Tex. 2021), the San Antonio Court of Appeals has upheld a significant attorney’s fee award in a UDJA action for UIM benefits, even though the jury ultimately awarded less than the amount offered by the insurer.
State Farm Mutual Automobile Insurance Company v. Valdez (No. 04-22-00113-CV; January 31, 2024) arose from a car wreck in which State Farm’s insured, Valdez, was rear-ended by another driver. Valdez sued the driver and settled for $100,001, the driver’s policy limit. He then filed an declaratory judgment action against State Farm seeking to recover underinsured motorist (UIM) benefits, as well as attorney’s fees and costs. State Farm paid Valdez $2,500 in personal injury protection benefits under the policy and offered $5,135 to settle the UIM claim. Valdez declined the offer. The parties stipulated coverage, so the only issue for the jury was damages. The jury awarded Valdez $103,324, which, when offset by his settlement with the driver and the $2,500 in PIP benefits, left $823 to be paid by State Farm. Valdez sought more than $66,000 in attorney’s fees, which the trial court reduced to $20,000 in the judgment. State Farm appealed the attorney’s fee award.
The court of appeals affirmed. State Farm argued that since the jury awarded less in damages than State Farm offered, Valdez’s attorney’s fees were not “necessary.” The court rejected this argument, noting that under Irwin, a plaintiff may file a declaratory judgment action to establish the insurer’s liability for UIM benefits and recover reasonable and necessary attorney’s fees at the trial court’s discretion. Even though State Farm offered to settle before Valdez filed suit, courts may not penalize a party for choosing not to settle. The trial court thus acted properly in considering Valdez’s attorney’s fee claim, which, based on the lodestar method, was “reasonable” (in fact, as noted above, the trial court reduced from $66,000 to $20,000). As to whether the fees were “necessary,” the court held that they were because to rule otherwise would penalize Valdez for refusing the settlement offer, and, in any event, it could not be predicted in advance that the jury would award Valdez far less than half of the $250,000 in damages he asked for.
Though in our view there is nothing objectionable about the court of appeals’ analysis, there nevertheless remains the strong impression that pursuing this case wasted a lot of time and money. It seems to us that if we are going to use the UDJA and its attorney’s fee provision to resolve UIM claims, as Irwin authorized, perhaps we should add an offer of settlement feature that would trigger in a case like this. While we understand the court of appeals’ concern with “penalizing” the plaintiff for trying to do better at trial, we’re not sure that that concern should come at the expense of penalizing the insurer for (1) making a reasonable presuit offer and (2) essentially winning at trial when its offer was rebuffed. There are equities both ways.
