Texas Supreme Court Issues Opinion in UM/UIM Case

On March 19, 2021, the Texas Supreme Court issued an opinion in a consolidated case addressing whether insured’s could sue their insurance companies for Insurance Code violations without establishing the negligence of the uninsured/underinsured driver, as well as the damages resulting from that negligence. In re State Farm Mutual Automobile Insurance Company and Joseph Dauper, No. 19-0792-CV (Tex. March 19, 2021); In re State Farm Mutual Automobile Insurance Company and Terecina Shahan, No. 19-0791-CV (Tex. March 19, 2021).

In Dauper/Shahan, State Farm Insurance Company and its claims examiners were sued for violations of section 541 of the Texas Insurance Code. In both cases, Plaintiff’s counsel argued that 541 violations did not require the findings of liability and damages as detailed in Brainard and that Plaintiffs could proceed to trial on the 541 claims without those findings. The Texas Supreme Court disagreed. The Court held that the consensus among the Courts of Appeals was correct and requiring insurance companies to litigate its liability for UIM policy benefits alongside its liability for insurance code or extra contractual claims would unduly prejudice the insurer.

As a result, the trial courts erred in not granting State Farm’s Motion to Bifurcate the trial. The holding reaffirms prior case law requiring insureds to establish they are entitled to damages due to the actions of an uninsured/underinsured motorist before litigating claims related to the handling of their claim. The Court also held the procedure established by the majority of Texas Courts of Appeals which severs the insurance code and extracontractual claims from the underlying claim is proper and should be continued.