You are currently viewing Allstate Ins. Co. v. Irwin (Tex.App.—San Antonio, August 21, 2019)

Allstate Ins. Co. v. Irwin (Tex.App.—San Antonio, August 21, 2019)

In this underinsured motorist case, the San Antonio Court of Appeals affirmed that a Declaratory Judgment Action is a proper cause of action to bring a UM/UIM case.   More importantly, this case is the first case that has held that attorney’s fees are recoverable to a prevailing party in an underinsured motorist (UIM) case which is brought a declaratory judgment action.

In this case, the insured (Irwin) settled with the at-fault driver for the at-fault driver’s policy limits of $30,000.  Irwin then made a demand on Allstate to pay his policy limits of $50,000 on his UIM claim.  Allstate responded with an offer of only $500.   Irwin rejected the offer and then sued Allstate seeking a declaratory judgment of his entitlement to benefits under his insurance policy.  The jury agreed with Irwin and awarded him $498,968.36 in damages.   The court then reduced the jury’s award to Irwin’s policy limits of $50,000, but also awarded Irwin $45,540 in attorney’s fees.  Allstate appealed challenging both the applicability of the Uniform Declaratory Judgment Act (UDJA) under Chapter 37 of the Texas Civil Practice & Remedies Code and the award of attorney’s fees.

Allstate argued that under the Brainard v. Trinity Universal Insurance Co., 216 S.W.3d 809, (Tex. 2006) decision, an insured must first establish the amount he is legally entitled to recover before pursuing a breach of contract claim to recover UIM benefits, and that an insured cannot file a UM/UIM claim as a declaratory judgment action.  

The Court of Appeals agreed with the insured and with the decision in Allstate v. Jordan, 503 S.W.3d 450 (Tex.App.-Texarkana 2016, no pet.) that a declaratory judgment action is proper for pursuing a UIM claim and that nothing in the Brainard decision precludes its use. 

The court then addressed the recovery of attorney’s fees on a UIM case under the UDJA.  The Court disagreed with the holding in Allstate v. Jordan because the court felt that the court in Jordan was placing undue reliance on the holding in Brainard as a breach of contract case instead of as a declaratory judgment action.  The Court in Irwin expressly distinguished its holding from the holding in Brainard because in Brainard, the insured did not bring a claim as a declaratory judgment action. The Court noted that under the UDJA, a claim may be brought before there is a breach of the contract and found that the Texas legislature mandated that the Act is to be “liberally construed and administered.” Therefore, there is nothing preventing the award of reasonable attorney’s fees in a UM/UIM case.

Thomas A. Herald’s Editor’s Notes:

This case presents a significant positive new development for consumers and insureds in the decades old fight over whether attorney’s fees are recoverable on UM/UIM claims.  Allstate and other insurers have been using the decision in Brainard to shield themselves from the potential exposure to awards of attorney’s fees when insurance company fail to pay valid UM/UIM claims. 

Because of the ramifications of this case, it is anticipated that Allstate will likely appeal this decision.  However, as of the time of this post, there are no filings with the court of appeals or the Texas Supreme Court challenging this decision.

No Guarantee that the Winning Party Will Be Awarded Attorney’s Fees:

If you have an Uninsured Motorist or Underinsured Motorist case, this case does not guarantee you that you will be able to force the insurance company to pay your attorney’s fees even if you go to trial and win.   Under the Uniform Declaratory Judgment Act (UDJA), the award of attorney’s fees to the prevailing party is discretionary, not automatic.  The court, not the jury, decides whether the prevailing party is entitled to recover its attorney’s fees.  The decision to award attorney’s fees is left to the discretion of the judge.  In making the decision, the court not only must address whether the attorney’s fees are reasonable and necessary, but must also find that the award of attorney’s fees is “equitable and just.”  This decision did not expressly address the factors the trial court considered in deciding to award of attorney’s fees to find that the award of fees is “equitable and just.”  In addition, the opinion did not expressly address the factors the court of appeals considered in affirming that decision.  However, it would appear that the court gave consideration to the fact Allstate stipulated that the policy provided coverage for this claim, that liability was stipulated, and the amount of the pre-suit offer was only $500 in contrast to the jury’s finding of damages that greatly exceeded Irwin’s policy limits.

Both Sides Have Risk:

The Risk of A Judgment Against the Client for the Insurance Company’s Attorney’s Fees.

It should also be noted that there is risk to an insured who files a lawsuit for Uninsured/Underinsured Motorist benefits as a declaratory judgment action.  There are never any guarantees about what will happen when a case goes to trial.  That includes the risk that the insurance company might win the case if it goes to trial.  

If the insurance company wins (“prevails”), the judge could award the insurance company its attorney’s fees.  A judgment could be entered against the insured who filed the lawsuit for UM/UIM benefits.  Because of this risk, the client should be properly informed about this risk before the lawsuit is filed.  If the insurance company wins the court could enter a judgment against the client, not the attorney.  Therefore, the decision to file a UM/UIM claim as a declaratory judgment action is not a decision that should be taken lightly by the attorney or the client.  The attorney should consult with the client before the lawsuit is filed.  The attorney should disclose the risk of a judgment being entered against the insured.  The attorney should obtain consent from the client to proceed with filing this type of lawsuit, acknowledging the risk that a judgment could be entered against the client for the insurance company’s attorney’s fees and court costs.

Hire an Attorney That is Known for Handling Uninsured/Underinsured Motorist Cases

If you have been injured by an uninsured motorist or an underinsured motorist, you could be entitled to recover money damages.  However, you need to make sure that you have hired an attorney who is familiar with the complex nature of these lawsuits.  Thomas A. Herald is a frequent writer and speaker on handling Uninsured and Underinsured Motorist (UM/UIM) cases. 

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