How Much Underinsured Motorist Coverage Do You Really Have?
Texas law allows insurance companies to arbitrarily deny your underinsured motorist claim without fear of repercussion. Underinsured Motorist Coverage (UIM) is extra insurance you buy so that if you get seriously injured by someone carrying a policy that does not have sufficient limits to cover all of your damages, you can get additional benefits from your own insurance company. But what you may not know is that Texas law allows your own insurance company to arbitrarily deny these benefits and force you to spend tens of thousands of dollars to prove your damages at trial with no threat of any penalty when they lose. In fact, under Texas law, one can argue that it is simply a bad business decision for an insurance company to pay you your benefits voluntarily regardless of how bad you are injured.
The Texas UM/UIM Law Prior to 2006
Before 2006, when an underinsured motorist policy refused to pay benefits, attorneys would sue the company for violations of the Texas Insurance Code. The Insurance Code imposes duties on first-party insurance carriers to conduct reasonable investigations and respond promptly within set time frames to properly filed claims. Failure to do so can subject them to strict penalties such as treble damages, attorney fees for breach of contract, and/or 18% interest penalties. Thus, when a claimant made a claim and the carrier did not act promptly to resolve it fairly, they could wind up paying out much more in the long run. This threat kept them honest.
The Texas Supreme Court Exempts Underinsured Motorist Policies From Bad Faith Before a Judgment is Taken
In 2006, the Texas Supreme Court heard the case of Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809, 812 (Tex. 2006). In affirming a decision of a lower court of appeals to overturn an award of attorney fees on a UIM claim, they held “a claim for UIM benefits is not presented until the trial court signs a judgment establishing the negligence and underinsured status of the other motorist.” This is significant because all of the duties for which there can be liability under the Texas Insurance Code are predicated upon the “presentation of a claim.” If you cannot “present a claim” until an actual judgment is taken, then no duty to do anything on the part of the insurance company even exists until after a trial occurs and a judgment is entered for a specific amount that exceeds the underlying policy limits and falls within or above the underinsured motorist policy limits.
Thus, subsequent courts have affirmed this and restated the standard as follows: “as a prerequisite to establishing entitlement to UIM benefits, a plaintiff must first establish (1) that she is legally entitled to recover from an underinsured motorist and (2) that her damages exceed the policy limits of the underinsured motorist policy.” Allstate Insurance Co. v. Jordan, 503 S.W.3d 450 (Tex.App.—Texarkana.) This gives insurance companies the right to sit back and demand that you prove the full amount a jury would award before they have any obligation to offer you a dime.
In-House Counsel and Case Expenses
In Texas, insurance companies are permitted to have “in-house” or “captive” counsel. These are law firms that are actually employees of the insurance company. Because they are salaried employees, the insurance company does not have to pay attorney’s fees when defending these cases. So, an insurance company can order their attorneys to defend these cases on a budget and there is little risk for them to force the Plaintiffs to take the case to trial. Plaintiffs, on the other hand, because they carry the burden of proof, must spend thousands of dollars on attorney fees, expert witness fees, and deposition costs to prove their case. It can easily cost $10,000 to $20,000 to litigate the average case and there is always a risk of losing.
The end result of this is that when the choice is to pay the full policy limits or go to trial, the insurance company would be making a poor business decision by settling the case, regardless of whether they clearly owe it. For example, why would they voluntarily pay you all of a $100,000.00 policy when that is the worst they can do at trial when defending with a salaried defense lawyer? It costs them very little to gamble. If they get lucky and win on some technicality or confuse the jury, they saved themselves money. If they lose, they pay you exactly what you were demanding anyway and you cannot penalize them for forcing you to take the risk of losing. As a result, no matter what limits you buy, your insurance company would be making a poor business decision to offer you all of it. So if you are going to buy underinsured motorist coverage, keep in mind that the limits on the policy are what you pay for, but not what you get.