The Texas Supreme Court has denied rehearing in Allstate Insurance Company v. Irwin (No. 19-0885), clearing the way for the use of the Declaratory Judgment Act to adjudicate damages and attorney’s fees in cases involving uninsured or underinsured motorist claims. In a decision handed down in May, a deeply divided Texas Supreme Court permitted an insured to file a declaratory judgment action to adjudicate tort damages in an automobile accident involving an underinsured motorist and to recover attorney’s fees. The decision appears to vitiate SCOTX’s decision in Brainard v. Trinity Universal Insurance Co. (2006), which required the underlying tort claim in an accident between the insured and an underinsured driver to be adjudicated and the amount of damages established by judgment before the insured could proceed in a direct action against the insurer for breach of contract under the policy.

The case initially arose from an automobile accident that injured Allstate’s insured. The policy included $50,000 in underinsured motorist coverage. The insured settled with the underinsured driver for $30,000, her policy limits. He then notified Allstate, which offered $500. The insured sued Allstate under the Uniform  Declaratory Judgment Act (Ch. 37, CPRC) seeking a determination of his damages from the accident, a declaratory judgment entitling him to recover under his UIM policy, and attorney’s fees. A jury found the insured’s damages from the accident to be nearly $500,000. Allstate tendered the policy limits and paid the court costs. The trial court, however, awarded attorney’s fees to the insured under the UDJA. Allstate appealed the award of attorney’s fees. The San Antonio Court of Appeals affirmed that the UDJA was appropriately invoked to determine the insured’s entitlement to UIM benefits and affirmed, the fee award.

In a majority opinion authored by Justice Devine, joined by Justices Blacklock, Lehrmann, Boyd, and Busby, the Court affirmed the Court of Appeals’ decision. Citing a number of post-Brainard intermediate appellate decisions sanctioning the use of the UDJA in the UIM context, the Court held that because the insured did not have a mature breach of contract claim against Allstate (Allstate’s liability under the policy had not yet been determined), his UDJA claim did not duplicate issues already before the trial court, so a declaratory judgment was therefore appropriate to assign rights and obligations under the policy. Once the Court determined the appropriateness of the use of the UDJA, it had no trouble signing off on the attorney’s fee award. Because the UDJA gives the trial court the discretion to award fees that are equitable and just, absent evidence of an abuse of discretion the Court will not disturb such an award.

Chief Justice Hecht, joined by Justices Guzman, Bland, and Huddle, strenuously objected to the majority’s analysis. The dissent saw no distinction between this case and Brainard and pointed out that the insured could have simply sued Allstate for breach of the policy, just as Brainard did. In fact, Chief Justice Hecht reminded the majority, Brainard actually prevailed on the breach of contract claim. The issue there was whether Brainard could recover attorney’s fees under Chapter 38, CPRC, and the Chief Justice indicated in a footnote that he would now treat a UIM claim just like any other breach of contract claim under Chapter 38. By permitting the insured in this case to bring a tort action under the cover of the UDJA so that he could get his attorney’s fees, Justice Hecht argues, the Court has now in effect required insureds to sue their insurers in a direct action under the UDJA because they cannot recover under a standard breach of contract claim, as Brainard did. As Justice Hecht observes,

The Court mandates the use of a TDJA action to try the tort issues used to determine the extent of UIM coverage. Here, the parties stipulated to the underinsured motorist’s negligence, but in other cases, they might not. The UDJA action would then be, in every respect, indistinguishable from a simple tort suit. If the UDJA can be used that way in one situation, there is nothing to limit its use in all tort cases. That would provide an avenue for attorney-fee awards, not just in UIM cases, but in all tort cases.

If the Chief Justice is right, this decision could have very significant ramifications for tort litigation in Texas. We will closely monitor the impact of the decision as it works its way through the courts.

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