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recognizing that the UDJA action is neither legal nor equitable, but sui generis
Summary of this case from Griffis v. DidwayOpinion
No. 19-0885
05-21-2021
ALLSTATE INSURANCE COMPANY, Petitioner v. Daniel Wes IRWIN, Respondent
Lisa Ann Songy, Beth D. Bradley, Dallas, Matthew P. Rigney, for Amici Curiae American Property Casualty Insurance Association, Insurance Council of Texas, National Association of Mutual Insurance Companies. Scot Graves Doyen, Dale Wainwright, Charles R. ‘Skip’ Watson Jr., Austin, for Amicus Curiae Farmers Texas County Mutual Insurance Company. Michael DeNuccio, San Antonio, for Amicus Curiae Defense Counsel of San Antonio. Jim M. Perdue Jr., Houston, Steven R. Samples, for Amicus Curiae Texas Trial Lawyers Association. Melissa A. Lorber, Austin, for Amicus Curiae State Farm Mutual Automobile Insurance Company. Amber Winer-Gebhart, Thomas Andrew Crosley, San Antonio, Shawn Mechler, for Respondent. Jacquelyn Ann Chandler, Dallas, Wallace B. Jefferson, Austin, William J. Boyce, Rachel Anne Ekery, Houston, Roger Higgins, Dallas, Elizabeth Lee Thompson, Houston, John M. Causey, Conroe, for Petitioner.
Lisa Ann Songy, Beth D. Bradley, Dallas, Matthew P. Rigney, for Amici Curiae American Property Casualty Insurance Association, Insurance Council of Texas, National Association of Mutual Insurance Companies.
Scot Graves Doyen, Dale Wainwright, Charles R. ‘Skip’ Watson Jr., Austin, for Amicus Curiae Farmers Texas County Mutual Insurance Company.
Michael DeNuccio, San Antonio, for Amicus Curiae Defense Counsel of San Antonio.
Jim M. Perdue Jr., Houston, Steven R. Samples, for Amicus Curiae Texas Trial Lawyers Association.
Melissa A. Lorber, Austin, for Amicus Curiae State Farm Mutual Automobile Insurance Company.
Amber Winer-Gebhart, Thomas Andrew Crosley, San Antonio, Shawn Mechler, for Respondent.
Jacquelyn Ann Chandler, Dallas, Wallace B. Jefferson, Austin, William J. Boyce, Rachel Anne Ekery, Houston, Roger Higgins, Dallas, Elizabeth Lee Thompson, Houston, John M. Causey, Conroe, for Petitioner.
Justice Devine delivered the opinion of the Court, in which Justice Lehrmann, Justice Boyd, Justice Blacklock, and Justice Busby joined.
Underinsured motorists have liability insurance but not enough to pay for all the damage they have caused. Underinsured motorist coverage is insurance designed to fill the gap between the insured's damages from an accident and the other driver's ability to pay. Sounds simple enough, but presenting a claim to your insurance carrier for underinsured motorist benefits is not like other claims under an automobile liability insurance policy.
In Brainard v. Trinity Universal Insurance Co. , we held that an underinsured motorist (UIM) carrier "is under no contractual duty to pay benefits until the insured obtains a judgment establishing the liability and underinsured status of the other motorist." 216 S.W.3d 809, 818 (Tex. 2006). If not otherwise determined, however, a judgment establishing these prerequisites to coverage may be obtained in a direct action against the insurance carrier. See id. (citing State Farm Mut. Auto. Ins. Co. v. Matlock , 462 S.W.2d 277, 278 (Tex. 1970) ). The question here is whether an insurance carrier's liability for benefits under the UIM policy may be established in a declaratory judgment action. See TEX. CIV. PRAC. & REM. CODE §§ 37.001 –.011. The court of appeals determined that the Uniform Declaratory Judgments Act can be used for this purpose and affirmed the trial court's judgment to the same effect. 606 S.W.3d 774 (Tex. App.—San Antonio 2019). We agree and affirm as well.
I
On April 5, 2016, Daniel Irwin was injured in a vehicular accident with an underinsured motorist. At the time of the accident, Allstate Insurance Company insured Irwin's truck. Irwin's policy included UIM coverage up to $50,000. Irwin settled with the other driver for her $30,000 policy limits, and followed the settlement with a letter to Allstate, seeking his UIM policy limits of $50,000. Allstate offered to settle for $500. Believing Allstate's offer inadequate, Irwin sued. In this direct action against his UIM carrier, Irwin sought a determination of his damages from the accident, a declaratory judgment that he was entitled to recover under his UIM policy, and attorney's fees. Irwin's pleadings invoked the Uniform Declaratory Judgments Act (UDJA) for all relief.
Allstate's answer denied Irwin's claim to UIM benefits under the policy, both generally and specifically, and demanded a jury trial. Before trial commenced, the parties stipulated to Irwin's coverage under the UIM policy and to Allstate's entitlement to an offset from Irwin's $30,000 settlement with the other driver. The case was tried to a jury, with Allstate contesting Irwin's evidence of causation and damages.
The jury found Irwin's damages from the accident to be $498,960.36. This sum included his medical expenses, physical pain and mental anguish, physical impairment, and lost earnings. Irwin moved for entry of judgment. Allstate objected to Irwin's proposed judgment insofar as it awarded attorney's fees or invoked the UDJA, but otherwise agreed that it owed its UIM policy limits and court costs, both of which it tendered to Irwin. The trial court's judgment acknowledged Allstate's payment of its policy limits and court costs and awarded Irwin his attorney's fees.
Allstate appealed the award of attorney's fees. The court of appeals affirmed the award, holding that the UDJA was properly invoked to determine Irwin's entitlement to UIM benefits under the policy and a proper basis for the award of attorney's fees. 606 S.W.3d at 778–80. Allstate appeals, complaining that Irwin's use of the UDJA to determine his contractual rights and to seek attorney's fees in a UIM case impermissibly circumvents this Court's decision in Brainard.
II
Brainard was a vehicular accident case that involved a similar underinsured motorist claim. As in this case, the insured sought UIM benefits from his insurance carrier after settling for the other driver's policy limits. Brainard , 216 S.W.3d at 811. The insured settled his tort claim before obtaining a judgment against the third-party tortfeasor. Id. at 811–12. Because there had been no determination of liability and damages in the underlying tort case, the carrier declined to pay the UIM claim. Id. at 811. The insured sued for breach of contract. In the ensuing lawsuit, a jury determined liability and damages in the underlying tort case. Id. at 812. Based on the jury's findings as to the third-party tortfeasor's liability and the insured's damages, the trial court rendered judgment for the insured, awarding UIM benefits under the policy and attorney's fees under Chapter 38 of the Civil Practice and Remedies Code. Id. ; see TEX. CIV. PRAC. & REM. CODE § 38.001(8) (authorizing the recovery of attorney's fees in a successful breach-of-contract suit). In the appeal that followed, we reversed the award of attorney's fees, observing that the insurance carrier had not breached the policy by refusing to pay UIM benefits, absent the prerequisites for payment. Brainard , 216 S.W.3d at 818. We reasoned that the carrier was under no legal obligation to pay those benefits until the insured obtained a judgment establishing the liability and underinsured status of the other motorist. Id. Until those determinations are made, we explained, "no contractual duty to pay" arises and "no just amount [is] owed." Id. And, without a liquidated amount due under the contract, no basis existed for an award of attorney's fees under Chapter 38. Id. at 819. In passing, however, we noted that the insured is not required to litigate these issues against the third-party tortfeasor, but may instead settle the tort claim and litigate UIM coverage with the insurer. Id. at 818.
Brainard does not explain what form this litigation should take beyond commenting on the unique nature of the UIM contract, which conditions benefits "upon the insured's legal entitlement to receive damages from a third party." Id. UIM claims are, of course, "contractual in nature." Allstate Ins. Co. v. Bonner , 51 S.W.3d 289, 291 (Tex. 2001). "[A]lthough ultimate recovery in this type of action depends upon proof of damages due to the tort of an uninsured [or underinsured] third party, the cause of action against the insurer arises by reason of the written contract." Franco v. Allstate Ins. Co. , 505 S.W.2d 789, 791–92 (Tex. 1974). Thus, the litigation between the insured and his carrier is on the UIM contract but not for its breach, which cannot occur until the underlying conditions precedent of liability and damages are established. Brainard , 216 S.W.3d at 814–15.
Since our decision in Brainard , several courts have concluded that a declaratory judgment action is the appropriate remedy for determining the underlying tort issues that control the validity of an insured's UIM claim against his insurer. See, e.g., In re State Farm Mut. Auto. Ins. Co. , No. 01-19-00821-CV, 2020 WL 1264184, at *2 (Tex. App.—Houston [1st Dist.] Mar. 17, 2020, orig. proceeding) ; Allstate Fire & Cas. Ins. Co. v. Inclan , No. 13-19-00026-CV, 2020 WL 373061, at *2–3 (Tex. App.—Corpus Christi–Edinburg Jan. 23, 2020, pet. filed) (mem. op.); Allstate Ins. Co. v. Jordan , 503 S.W.3d 450, 455–56 (Tex. App.—Texarkana 2016, no pet.) ; Ochoa v. Allstate Fire & Cas. Ins. Co. , No. SA-20-CV-319-XR, 2020 WL 2129252, at *2 (W.D. Tex. May 5, 2020) ; Vasquez v. Liberty Mut. Fire Ins. Co. , No. 7:18-CV-44, 2018 WL 8805014, at *2–3 (S.D. Tex. Sept. 9, 2018) ; Woods v. Argonaut Midwest Ins. Co. , No. 6:15-CV-139, 2016 WL 3653518, at *5 (E.D. Tex. Mar. 18, 2016) ; Borg v. Metro. Lloyd's of Tex. , No. W:12-CV-256, 2013 WL 12091651, at *2 (W.D. Tex. Feb. 21, 2013).
III
Allstate contends that Irwin is not entitled to an award of attorney's fees in this case because it did not breach its contractual duty to pay UIM benefits. Allstate notes that "[n]either requesting UIM benefits nor filing suit against the insurer triggers a contractual duty to pay." Brainard , 216 S.W.3d at 818. Thus, Irwin did not establish his legal entitlement to policy benefits and trigger Allstate's duty to pay before proving the existence of liability and damages attributable to the underinsured motorist in the direct action. Because it promptly paid Irwin's UIM benefits after the jury verdict, Allstate maintains that it has satisfied its legal obligations and left no declaration for the court to pronounce. Allstate concludes that the UDJA therefore does not apply and that Irwin has improperly invoked it simply to collect his attorney's fees.
Irwin responds that, after Allstate failed to make a reasonable adjustment of his UIM claim, his only recourse was to sue and bind Allstate to a judgment that established the underlying conditions precedent to his UIM coverage. See id. (recognizing the unique character of the UIM contract, which conditions benefits on the "insured's legal entitlement to receive damages from a third party"). But Irwin could not sue Allstate directly for the underlying tort; it was not the tortfeasor. Further, he could not sue Allstate for breach of contract because no breach had occurred. Irwin submits that declaratory relief was the only remedy available to him. He concludes that his action on the contract was appropriately brought under the UDJA to determine the existence of conditions precedent to coverage in connection with the underlying tort and to declare his rights and status under the policy.
The court of appeals agreed. See 606 S.W.3d at 778 (concluding "that an insured can use the UDJA to establish the prerequisites to recovery in a UM/UIM case"). The court further rejected Allstate's contention that our decision in Brainard foreclosed the award of attorney's fees under the UDJA. Id. at 780.
Allstate complains, however, that the award of attorney's fees in connection with Irwin's UIM claim is not only contrary to Brainard , but also to our decision in MBM Financial Corp. v. Woodlands Operating Co. , 292 S.W.3d 660 (Tex. 2009). There, we said that a party could not simply tack a declaratory judgment action onto a matured breach-of-contract claim and recover attorney's fees under Chapter 37, when such fees were otherwise "not permitted under the specific common-law or statutory claims involved" in the suit. Id. at 670. Allstate argues that because Irwin cannot recover his Chapter 38 attorney's fees for breach of contract under Brainard , he likewise should not be able to recover his Chapter 37 attorney's fees per our ruling in MBM Financial. The rule Allstate invokes, however, does not match the circumstances here because Irwin seeks a declaration of rights under the UIM contract prior to the existence of any breach or claim for attorney's fees under Chapter 38.
The UDJA provides that "[a] contract may be construed either before or after there has been a breach." TEX. CIV. PRAC. & REM. CODE § 37.004(b). In MBM Financial , we recognized this provision as authorizing the joinder of claims for breach of contract and declaratory relief in the same suit. 292 S.W.3d at 669 ("[P]rohibiting declaratory judgments whenever a breach of contract claim is available would negate the Act's explicit terms covering such claims."). But we hastened to add that a party could not use the Act as a means to obtain attorney's fees it would not otherwise be entitled to recover. Id. at 670 ("But when a claim for declaratory relief is merely tacked onto a standard suit based on a matured breach of contract, allowing fees under Chapter 37 would frustrate the limits Chapter 38 imposes on such fee recoveries."). Thus, when a party has a claim for which fees are unavailable, in addition to a claim for declaratory relief, the declaratory relief claim must do "more than merely duplicate the issues" being litigated by the claims for which fees are unavailable. Id. If it does not, fees are also unavailable under Chapter 37. See Etan Indus., Inc. v. Lehmann , 359 S.W.3d 620, 624–25 (Tex. 2011) (per curiam) (holding fees unrecoverable under the UDJA when the declarations "add nothing to what would be implicit or express in a final judgment for the other remedies sought in the same action").
But here Irwin does not have a claim for breach of contract, so his request for declaratory relief does not merely duplicate that claim. Irwin has not merely tacked this request "onto a standard suit based on a matured breach of contract." MBM Fin. , 292 S.W.3d at 670. The circumstances here are different from those in MBM Financial because, according to Brainard , no breach-of-contract claim had matured on which to join a request for declaratory relief. Instead, what Irwin sought to establish through his request for declaratory relief were the prerequisites for, and existence of, a UIM claim under the policy. Irwin's declaratory judgment action therefore does not "merely duplicate[ ] issues already before the trial court." Id. at 671.
The Uniform Declaratory Judgments Act empowers Texas courts "to declare rights, status, and other legal relations whether or not further relief is or could be claimed." TEX. CIV. PRAC. & REM. CODE § 37.003(a). The Act's stated "purpose is to settle and to afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations; and it is to be liberally construed and administered." Id. § 37.002(b). Under its terms, any "person interested" under a written contract "may have determined any question of construction or validity" arising under that contract and "obtain a declaration of rights, status, or other legal relations thereunder." Id. § 37.004(a).
As we observed in MBM Financial , "declarations of non-liability under a contract have been among the most common suits filed under the Act." 292 S.W.3d at 668. But declarations under the Act can be both negative (non-liability) and affirmative (liability). See TEX. CIV. PRAC. & REM. CODE § 37.003(b) (stating that "[t]he declaration may be either affirmative or negative in form and effect"). Moreover, "the declaration has the force and effect of a final judgment or decree." Id. Either party to a written contract may seek declaratory relief if there is a question regarding rights, status, or other legal relations arising under it. Transp. Ins. Co. v. WH Cleaners, Inc. , 372 S.W.3d 223, 231 (Tex. App.—Dallas 2012, no pet.). "The inquiry is ‘essentially the same’ whether it is presented by the insured or the carrier." Id. (citing Aetna Life Ins. Co. v. Haworth , 300 U.S. 227, 244, 57 S.Ct. 461, 81 L.Ed. 617 (1937) (stating it is "the nature of the controversy, not the method of its presentation or the particular party who presents it, that is determinative")). A declaratory judgment is therefore appropriate when a real controversy exists between the parties, and the entire controversy may be determined by judicial declaration. Bd. of Water Eng'rs v. City of San Antonio , 155 Tex. 111, 283 S.W.2d 722, 724–25 (1955).
The UDJA is intended to provide an effective remedy for settling disputes before substantial damages accrue. See Etan Indus. , 359 S.W.3d at 624 (noting that "it is intended as a means of determining the parties’ rights when a controversy has arisen but before a wrong has been committed"). It is often preventative in nature. See Cobb v. Harrington , 144 Tex. 360, 190 S.W.2d 709, 713 (1945) (describing the Act as an instrumentality wielded "in the interest of preventative justice" and intended as a remedy "when a real controversy has arisen and even before the wrong has actually been committed"). Its purpose is remedial, not coercive. TEX. CIV. PRAC. & REM. CODE § 37.002(b). As a remedy, it has been described as "equitable in its nature" and as filling the gap between law and equity. See Cobb , 190 S.W.2d at 713 (collecting cases). We have described it as "neither legal nor equitable, but sui generis." Id. And, we have said that "[a] trial court has discretion to enter a declaratory judgment so long as it will serve a useful purpose or will terminate the controversy between the parties." Bonham State Bank v. Beadle , 907 S.W.2d 465, 468 (Tex. 1995). The Act's application here to determine the prerequisites for, and existence of, the insured's UIM claim not only served a useful purpose but also terminated the controversy between the parties. The UDJA was thus properly invoked to determine the parties’ status and responsibilities under the UM/UIM policy prior to its breach. TEX. CIV. PRAC. & REM. CODE § 37.003.
The dissent argues that a declaratory judgment action here is unnecessary because a "perfectly suitable" breach-of-contract claim exists to determine the UIM coverage issues. Post at ––––. We, of course, agree that this litigation is about the insurance contract. But it is not about a breach because "the UIM insurer is under no contractual duty to pay benefits until the insured obtains a judgment establishing the liability and underinsured status of the other motorist." Brainard , 216 S.W.3d at 818. A judgment establishing liability and the underinsured status of the other motorist are thus conditions precedent to UIM coverage under Brainard. Moreover, they are issues about coverage, rather than breach, because the UIM insured does "not present a [breach of] contract claim before the trial court render[s] its judgment [establishing these conditions]." See id. at 819 (holding that "Brainard did not present a contract claim before the trial court rendered its judgment").
"A condition precedent may be either a condition to the formation of a contract or to an obligation to perform an existing agreement." Dillon v. Lintz , 582 S.W.2d 394, 395 (Tex. 1979) (quoting 5 S. WILLISTON , A TREATISE ON THE LAW OF CONTRACTS , § 666 (3d ed. 1961)). "Conditions precedent to an obligation to perform are those acts or events, which occur subsequently to the making of a contract, that must occur before there is a right to immediate performance and before there is a breach of contractual duty." Hohenberg Bros. Co. v. George E. Gibbons & Co. , 537 S.W.2d 1, 3 (Tex. 1976). At issue here then is a contract dispute about coverage, which can only be resolved by a judgment that determines the existence of these conditions. Such coverage disputes are often resolved by a declaration of rights that may then avoid a future breach. See Etan Indus. , 359 S.W.3d at 624. A declaratory judgment in this instance is simply the remedy for resolving this contractual dispute.
IV
Finally, Allstate points out that our intermediate appellate courts have reached inconsistent decisions about whether attorney's fees may be recovered under the UDJA under these circumstances. The Texarkana Court of Appeals has concluded that, even though "a declaratory judgment is an appropriate method of establishing the prerequisites to recovery in a UIM benefits case," it is an abuse of discretion to award fees under the Act. Allstate Ins. Co. v. Jordan , 503 S.W.3d 450, 456 (Tex. App.—Texarkana 2016, no pet.). The courts of appeals in San Antonio and Corpus Christi–Edinburg disagree, concluding that attorney's fees are available under the Act. See 606 S.W.3d at 780 ; Inclan , 2020 WL 373061, at *3.
The Act provides that "the court may award costs and reasonable and necessary attorney's fees as are equitable and just." TEX. CIV. PRAC. & REM. CODE § 37.009. Such awards are committed to the trial court's sound discretion and reviewed for abuse. Oake v. Collin County , 692 S.W.2d 454, 455 (Tex. 1985). The Texarkana court reasons that because "the insurer has the right to make the plaintiff meet the liability and damages prerequisites to UIM recovery, through litigation or otherwise," requiring the insurer to pay its insured's attorney's fees when exercising that right "would be inequitable and unjust under the UDJA." Jordan , 503 S.W.3d at 457. Moreover, the court suggests that an award of attorney's fees at this stage of the litigation is premature because such fees may be awarded later under Chapter 38, if a breach occurs. Id.
The court of appeals in this case agreed with Jordan to the extent it recognized "that a declaratory judgment action is an appropriate vehicle to establish the elements of a UIM claim." 606 S.W.3d at 780. But it did not agree that an award of reasonable and just attorney's fees under Chapter 37 was precluded either by Chapter 38, "which requires a matured breach of contract claim," or by our decision in Brainard . Id. Again, we agree.
As we have explained, the request for declaratory relief here is not a disguised breach-of-contract claim or some preliminary phase of such a claim. Rather it is a remedy unto itself, "preventative in nature," that the Legislature has provided for the determination of "rights when a controversy has arisen but before a wrong has been committed." Etan Indus. , 359 S.W.3d at 624 (citing Cobb , 190 S.W.2d at 713 ). As part of that remedy, the Legislature has provided for the award of "reasonable and necessary attorney's fees as are equitable and just." TEX. CIV. PRAC. & REM. CODE § 37.009. Thus, when the Act applies, attorney's fees may be available. Unlike Chapter 38, Chapter 37's UDJA does not require an award of attorney's fees to anyone; rather, it "entrusts attorney fee awards to the trial court's sound discretion." Bocquet v. Herring , 972 S.W.2d 19, 21 (Tex. 1998). Because the UM/UIM contract provides for a unique first-party insurance claim, the insurance carrier's failure to pay is not an actionable breach of contract until the carrier is bound by an appropriate judgment. See Brainard , 216 S.W.3d at 818. But even though no breach has occurred, a justiciable controversy may arise as to the parties rights and status under the contract. When such a controversy exists, and a declaration of the parties’ rights will terminate the controversy between the parties or otherwise serve a useful purpose, the remedy is available to the court. See Bonham State Bank , 907 S.W.2d at 468. Chapter 37's stated purpose is "to settle and to afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations." TEX. CIV. PRAC. & REM. CODE § 37.002(b). Part of the remedy it affords is a discretionary award of reasonable attorney's fees when equitable and just. Id. § 37.009.
Allstate contends that the trial court erred in awarding attorney's fees to the insured because Allstate did not breach the UIM contract, and Chapter 38 therefore does not apply. See, e.g., Grapevine Excavation, Inc. v. Md. Lloyds , 35 S.W.3d 1, 5 (Tex. 2000) (noting Chapter 38's application "in a successful breach-of-contract action against an insurer unless attorney's fees are otherwise available"). While we agree that Irwin's suit is not for breach of contract and that Chapter 38 does not apply, we do not agree that the award here is erroneous or otherwise violates the American Rule. See Tony Gullo Motors I, L.P. v. Chapa , 212 S.W.3d 299, 310–11 (Tex. 2006) (discussing "the American Rule"). Texas courts have long required parties to bear their own attorney's fees under the American Rule by "prohibiting fee awards unless specifically provided by contract or statute." MBM Fin. , 292 S.W.3d at 669. Because Chapter 37 provides for the award of attorney's fees, and the UDJA has not been invoked simply to replicate issues already before the court that might implicate Chapter 38, the award here is not erroneous; nor does Allstate claim it to be an abuse of discretion.
* * *
The court of appeals did not err in affirming the trial court's judgment. Its judgment is accordingly affirmed.
Chief Justice Hecht filed a dissenting opinion, in which Justice Guzman, Justice Bland, and Justice Huddle joined.
Chief Justice Hecht, joined by Justice Guzman, Justice Bland, and Justice Huddle, dissenting.
The Texas Insurance Code requires that every automobile liability insurance policy delivered in the state provide uninsured and underinsured motorist (UIM) coverage for unpaid damages. That way the insured is "legally entitled to recover" something after a collision with a UIM. A vehicle is underinsured if its available liability coverage is less than the insured's UIM coverage. To recover in a suit against an insurer for UIM benefits, "the insured must be able to show fault on the part of the uninsured [or underinsured] motorist and the extent of the resulting damages". But while the insured's "ultimate recovery ... depends upon proof of damages due to the tort of an uninsured [or underinsured] third party, the cause of action against the insurer arises by reason of the written contract" —the policy. The insured may sue the other driver, but a favorable judgment or a settlement is not binding on a nonparty insurer without its consent. Thus, to obtain UIM benefits denied by his insurer, an insured must sue the insurer for breach of contract and prove the amount of damages caused by the tortious fault of the other driver. The Court holds that an insured's claim for UIM benefits cannot be for breach of contract because the amount he is "legally entitled to recover" from the other driver has not been adjudicated when the insurer denies the claim. But the same is true for almost every breach-of-contract cause of action: the plaintiff asserts a claim on which he cannot prevail until the amount he is legally entitled to recover from the defendant is adjudicated. The existence of a cause of action for breach of contract does not depend on its eventual success. A defendant's denial of a breach, including its dispute of any amount due, does not mean that the cause of action is premature, unripe, or nonexistent until the plaintiff's right to recover is determined. And a breach-of-contract claim for damages that is not proved is not premature, unripe, or nonexistent; it is merely unsuccessful. Suppose D agrees to pay P whatever X owes him. P claims X owes $Y, which D denies. Can P sue D for breach of contract, even though any amount owed by X remains to be proved? Of course. The manner of proving the amount of damages does not matter. P must prove what X owes using debt principles. An insured in a UIM suit must prove damages using tort principles of negligence and proximate cause. A plaintiff in another breach-of-contract case may be required to prove the benefit of the bargain. As in any breach-of-contract case, the insured claims he is due UIM benefits under his policy, which the insurer denies. The insured's claim is like any other for breach of contract when the amount of damages due is disputed and unliquidated. An insured who proves the amount of his damages caused by a negligent underinsured driver is not only entitled to assert a covered claim against his insurer for breach of its contract to pay UIM benefits; he is entitled to judgment.
Tex. Ins. Code § 1952.106. In more detail, Section 1952.101(b) provides that:
An insurer may not deliver or issue for delivery in this state an automobile liability insurance policy ... that covers liability arising out of the ownership, maintenance, or use of any motor vehicle unless the insurer provides uninsured or underinsured motorist coverage in the policy or supplemental to the policy.
Id. § 1952.101(b); see also id. § 1952.101(c) ("The coverage required by this subchapter does not apply if any insured named in the insurance policy rejects the coverage in writing...."). Section 1952.106 complements Section 1952.101's requirement for UIM coverage by providing that:
Underinsured motorist coverage must provide for payment to the insured of all amounts that the insured is legally entitled to recover as damages from owners or operators of underinsured motor vehicles because of bodily injury or property damage, not to exceed the limit specified in the insurance policy, and reduced by the amount recovered or recoverable from the insurer of the underinsured motor vehicle.
Id. § 1952.106.
Id. § 1952.103 (defining "underinsured motor vehicle" as "an insured motor vehicle on which there is collectible liability insurance coverage with limits of liability for the owner or operator that were originally lower than, or have been reduced by payment of claims arising from the same accident to, an amount less than the limit of liability stated in the underinsured coverage of the insured's policy").
Franco v. Allstate Ins. Co. , 505 S.W.2d 789, 792 (Tex. 1974).
Id. at 791–792.
See State Farm Mut. Auto. Ins. Co. v. Azima , 896 S.W.2d 177, 177–178 (Tex. 1995) (per curiam) ; see also In re Reynolds , 369 S.W.3d 638, 654 (Tex. App.—Tyler 2012, orig. proceeding) ("Unless the UIM insurer has consented in writing to the suit, the usual result of a consent provision is that the insurer is not bound by a judgment entered in an action prosecuted by its insured against a UIM.").
To reach the remarkable conclusion that a plaintiff has no cause of action for breach of contract until he proves damages, the Court misreads its decision in Brainard v. Trinity Universal Insurance Co. Chapter 38 of the Civil Practice and Remedies Code allows a person to "recover reasonable attorney's fees" on a claim for "an oral or written contract", but only if the opposing party does not tender "payment for the just amount owed" within 30 days "after the claim is presented." Brainard held that an insured cannot "present" a claim for UIM benefits to an insurer as a statutory prerequisite for recovering attorney fees until the amount of damages has been adjudicated. Brainard did not hold that an insured has no breach-of-contract cause of action against his insurer for refusing to pay UIM benefits until the amount of damages has been adjudicated. On the contrary, Brainard rendered judgment on the insured's breach-of-contract claim.
216 S.W.3d 809 (Tex. 2006).
Id. § 38.002(3).
Id.
The procedural circumstances in Brainard are typical of UIM claims. Brainard's husband died in a motor vehicle accident, and she sued the other vehicle owner, Premier, for wrongful death. She demanded that her insurer, Trinity, tender its $1 million UIM coverage limits. Trinity countered with an offer of $50,000. Brainard joined Trinity as a defendant in her lawsuit against Premier, asserting claims for breach of contract and extra-contractual liability. Brainard and Premier settled for Premier's $1 million policy limits. Since that settlement did not bind Trinity, Brainard and Trinity went to trial on her breach-of-contract claim to determine Premier's liability. The jury found that Premier's negligence caused the accident and awarded Brainard $1.01 million in damages and $100,000 in attorney fees. After crediting Trinity with the Premier settlement as well as other benefits Trinity had paid, the trial court rendered judgment against Trinity for $5,000 plus attorney fees.
Id. at 811.
Trinity appealed, arguing that it was not liable for attorney fees. The issue, we said, "turns on the language [of Section 38.002(3)] requiring that ‘payment for the just amount owed must not have been tendered before the expiration of the 30th day after the claim is presented.’ " The issue did not turn on whether Brainard had a contract claim—she did—but when she presented that claim to Trinity. Was it when she first demanded the $1 million UIM coverage limits? Or was it not until she obtained a judgment? We made it very clear that Brainard had an action for breach of contract. We said that "an essential element to recovery of attorney's fees ... in a suit based on contract is ‘the existence of a duty or obligation which the opposing party has failed to meet.’ " An unmet duty or obligation is essential to recovery based on contract, not to suing based on contract. You can sue to enforce a duty or obligation that turns out not to exist. You just cannot win .
Id. at 818.
Id. (emphasis added) (citation omitted).
We noted that "the UIM insurer is under no contractual duty to pay benefits until the insured obtains a judgment establishing the liability and underinsured status of the other motorist." That says two things. First, there is no contractual duty to pay until the right to payment is proved. That is, of course, true in every breach-of-contract action, not just in suits for UIM benefits. Second, the required proof is of the other driver's liability and damages. That is true because it is the statutory measure of coverage. We added: "Neither requesting UIM benefits nor filing suit against the insurer triggers a contractual duty to pay." Of course not. Claiming and suing do not trigger recovery under any contract.
Id.
Id.
As noted above, Chapter 38 allows recovery of attorney fees on a contract claim only if the person to whom the claim is presented fails to timely pay "the just amount owed". "Where there is no contractual duty to pay," we said in Brainard , "there is no just amount owed. Thus, under Chapter 38, 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." We continued:
Brainard , 216 S.W.3d at 818.
Brainard's contention that a UIM policy is to be treated like other contracts, for which damages are liquidated in a judicial proceeding and attorney's fees incurred are recoverable, misinterprets the nature of UIM insurance. The UIM contract is unique because, according to its terms, benefits are conditioned upon the insured's legal entitlement to receive damages from a third party. Unlike many first-party insurance contracts, in which the policy alone dictates coverage, UIM insurance utilizes tort law to determine coverage. Consequently, the insurer's contractual obligation to pay benefits
does not arise until liability and damages are determined.
Because the contract did not require Trinity to pay UIM benefits before Premier's negligence and underinsured status were determined, Brainard did not present a contract claim before the trial court rendered its judgment....
Id. (citation omitted).
One may disagree with Brainard ’s holding that Chapter 38 does not allow attorney fees on a UIM claim, but neither that holding nor anything in the opinion's reasoning suggests that a suit against an insurer for UIM benefits is not an action for breach of contract. The Court acknowledges that Brainard sued her UIM carrier for breach of contract. Even so, the Court states, under Brainard , "litigation between the insured and his carrier is on the UIM contract but not for its breach, which cannot occur until the underlying conditions precedent of liability and damages are established." The Court then ignores our rendition of judgment for Brainard on her claim for breach of contract , including prejudgment interest. A person cannot both have and not have a contract claim at the same time. By rendering judgment for Brainard on the breach-of-contract claim she asserted in her pleadings, the Court endorsed that procedure for litigating UIM coverage. Brainard only differentiated between the requirements for pleading a claim and the presentment required by Chapter 38 for recovering attorney fees. Brainard held that a claim for UIM benefits can be pleaded and prosecuted with recovery subject to proof of a UIM's liability and the damages caused, but that statutory presentment entitling the claimant to attorney fees cannot occur until there is a "just amount owed", after those facts are proved.
I joined the Court's unanimous opinion in Brainard , but I now think that the attorney-fee issue was incorrectly decided. To recover attorney fees on a contract claim under Chapter 38, "the claimant must present the claim to the opposing party", and "payment for the just amount owed must not have been tendered [within 30 days] after the claim is presented." Tex. Civ. Prac. & Rem. Code § 38.002(2) –(3). A UIM claim is different from some contract claims because it turns on a third party's liability, but that hardly makes it unique. A simple agreement to pay commissions may turn on a third person's liability for sales claimed to have been made. The use of tort principles to determine the third person's liability may make the UIM claim unusual, but I do not see how that matters to Chapter 38. I see no reason not to treat UIM claims like other contract claims for which damages are liquidated in a judicial proceeding before recovery is allowed. Under Chapter 38, presentment of a contract claim can and should occur well before the right to recover on it is established, even when a claim is disputed, legally and factually, and any amount due is contested. Indeed, the statute's threat of attorney fees to incentivize early payment of claims would amount to little if a defendant could wait to respond until suffering an adverse judgment. A defendant can dispute everything about a claim and still owe Chapter 38 attorney fees for not paying a "just amount" when it was presented, as shown by later proof. That is the whole point of Chapter 38. Nor is uncertainty in "the just amount owed" for determining whether payment was timely tendered to avoid attorney fees unique to UIM claims. We held long ago that attorney fees are not recoverable under Chapter 38 when the claim presented is excessive. Findlay v. Cave , 611 S.W.2d 57, 58 (Tex. 1981) ("A creditor who makes an excessive demand upon a debtor is not entitled to attorney's fees for subsequent litigation required to recover the debt." (citations omitted)). Applying Findlay, Brainard may have reached the correct result. Brainard "presented" a claim for $1 million in UIM benefits, 200 times the $5,000 Trinity owed.
No party to the present case has asked that Brainard ’s no-attorney-fee rule be reconsidered, and our doing so would require consideration of general stare decisis principles and the general acceptance of the rule for 15 years, although the present declaratory-judgment action is an attempt to avoid its consequences. Additionally, it is not clear how Findlay would apply here. Irwin demanded his $50,000 UIM limits even though he was at most entitled to $20,000 after offsetting the amount recovered from the other driver's insurer, but Allstate offered only $500. Including costs, Irwin recovered about $52,000 from Allstate.
Ante at 266–67.
Ante at 267.
Today, the Court holds that an insured cannot sue his UIM insurer for breach of contract, as we held Brainard successfully did. Instead, the insured must sue under the Uniform Declaratory Judgments Act (UDJA), as Irwin did here. But Irwin did not seek declaratory relief; he sought only damages. His live pleadings before trial asserted: "Plaintiff brings this suit to recover damages for personal injuries sustained in a motor vehicle collision on or about April 5, 2016." He mentioned the UDJA only once:
Tex. Civ. Prac. & Rem. Code ch. 37.
Plaintiff seeks a declaratory judgment pursuant to [the UDJA] that he is entitled to recover from Defendant Allstate his damages resulting from the motor vehicle collision of April 5, 2016, that those damages fall within the coverage afforded him under the Defendant Allstate's insurance policy, and specifying the amount of damages, attorney fees, interest, and court costs that Defendant Allstate is obligated to pay.
Neither his prayer nor the judgment he obtained mention declaratory relief.
Before trial, the parties stipulated that the driver who hit Irwin was negligent and that Irwin had UIM coverage under the insurance policy. There were no legal issues, only fact issues relating to damages. The only question asked to the jury was: "What sum of money, if paid now in cash, would fairly and reasonably compensate Daniel Wes Irwin for his injuries, if any, that resulted from the occurrence in question?" The jury answered separately for past and future medical expenses, past and future physical pain and mental anguish, past and future physical impairment, and past loss of earning capacity. Deciding only fact issues such as those is inconsistent with the UDJA's stated purpose, which is "to settle and to afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations". And it is plainly outside the UDJA's stated scope of relief:
Id. § 37.002(b); see also Shahin v. Mem'l Hermann Health Sys. , 527 S.W.3d 484, 491 (Tex. App.—Houston [1st Dist.] 2017, pet. denied) (holding that the declaratory-judgment mechanism was inapplicable because appellant's issues were "all questions of fact"); Schuhardt Consulting Profit Sharing Plan v. Double Knobs Mountain Ranch, Inc. , 468 S.W.3d 557, 573 (Tex. App.—San Antonio 2014, pet. denied) ("Purely factual disputes are not properly resolved with a declaratory judgment."); City of Watauga v. Taylor , 752 S.W.2d 199, 205–206 (Tex. App.—Fort Worth 1988, no writ) (holding that "a suit for damages arising out of alleged negligence and an alleged unconstitutional taking, both questions of fact", "is clearly not a declaratory judgment case", because otherwise "every action for damages would be a declaratory judgment").
A person interested under a ... written contract ... may have determined any question of construction or validity arising under the ... contract ... and obtain a declaration of rights, status, or other legal relations thereunder.
Tex. Civ. Prac. & Rem. Code § 37.004(a) ; see also Indian Beach Prop. Owners’ Ass'n v. Linden , 222 S.W.3d 682, 700 (Tex. App.—Houston [1st Dist.] 2007, no pet.) (holding that the declaratory-judgment mechanism is "an improper remedy" when the "trial court's declaratory judgment simply repeats the factual findings of the jury and does not ‘declare rights, status, [or] other legal relations,’ as required by the Declaratory Judgments Act").
The Court mandates the use of a UDJA action to try the tort issues used to determine the extent of UIM coverage. Here, the parties stipulated to the uninsured 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.
Averitt v. PriceWaterhouseCoopers L.L.P. , 89 S.W.3d 330, 333–334 (Tex. App.—Fort Worth 2002, no pet.) ("A potential defendant may not, however, use a declaratory judgment action to determine potential tort liability.").
It seems to be very bad policy and, more importantly, bad law to allow a UIM claim to be brought as a declaratory-judgment action. The claim does not fit within the UDJA text. A declaratory-judgment action is unnecessary when there is a perfectly suitable contract claim. And the only issues are negligence and damages, which are not declarable. Using the UDJA to try what amounts to a simple tort claim is a clear misuse of the statute.
This case is like Brainard in one respect: it is not about how UIM cases are to be pleaded and tried but rather about how to recover attorney fees. Today's ruling abolishes Chapter 38's requirement that before attorney fees can be recovered, the claimant must present the "just amount owed", as we upheld in Brainard. Now attorney-fee awards will be within each trial court's discretion. Even if a UIM case were properly asserted under the UDJA—and for the reasons I have stated, it cannot be—attorney-fee awards should not be an exception to Chapter 38.
Tex. Civ. Prac. & Rem. Code § 37.009 ("In any proceeding under this chapter, the court may award costs and reasonable and necessary attorney's fees as are equitable and just.").
See Allstate Ins. Co. v. Jordan , 503 S.W.3d 450, 456–457 (Tex. App.—Texarkana 2016, no pet.).
* * * * *
I respectfully dissent.