The San Antonio Court of Appeals recently held that an automobile insurer can be held liable to its policyholder for attorney fees and extracontractual damages if it breaches its duty of good faith in failing to reasonably investigate or timely pay an uninsured motorist claim. State Farm Mut. Auto. Ass’n v. Cook, 04-18-00729-CV, 2019 WL 4453763 (Tex. App.—San Antonio Sept. 18, 2019, no pet. h.).
In Texas, an automobile insurance carrier must offer a policyholder uninsured/underinsured motorist (UM) coverage unless the policyholder rejects this coverage in writing. Let’s face it, all too often there are drivers operating vehicles who either have no or insufficient liability insurance coverage to pay all the damages they negligently cause to others. That’s where UM coverage comes into play. If you are injured in a car accident caused by a negligent driver who has insufficient liability insurance coverage, then your UM coverage will fill in the gap by covering damages you sustain in excess of the liability insurance policy limits.
So, assume you are injured in a car accident caused by a negligent driver who only has minimal liability coverage limits of $30,000. You need surgery and sustain a total of $100,000 in damages. Assume further that you have $100,000 in UM coverage for bodily injury. In that event, the liability insurance carrier should pay you the $30,000 in liability insurance coverage and your UM motorist carrier should pay you $70,000 in underinsured motorist proceeds, so that your total recovery is $100,000.
But when is your UM insurer contractually required to pay you the UM proceeds? The Texas Supreme Court has held that the UM carrier has no contractual duty to pay these proceeds to you until you go to court and get a judgment establishing the liability and underinsured status of the driver at fault. See Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809 (Tex. 2006). The result of this decision is that you are not entitled to recover attorney fees from the UM insurer under a breach of contract theory, unless the insurer fails to pay the amounts owed to you within 30 days of obtaining the judgment. This is all that the insurer is required to do under the terms of the automobile insurance policy. It makes one wonder whether you should even bother with obtaining this type of coverage. After all, isn’t the point of obtaining insurance to be able to responsibly and timely cover your losses in the event of an unexpected event?
However, the recent decision of the San Antonio Court of Appeals provides some relief for the insured consumer. In the Cook decision, the Court essentially held that a UM insurer has a statutory and common law duty of good faith to reasonably investigate and timely pay a UM claim once the insurer’s liability becomes reasonably clear. Thus, if a UM carrier withholds payment of UM proceeds until a judgment is obtained, even though a reasonably investigation by the insurer would have shown that the UM insurer’s liability for payment of the UM proceeds was reasonably clear, the insured consumer can hold the insurer accountable for attorney fees and extra-contractual damages.