By: Fred Shuchart
The Texas Supreme Court issued two important decisions in May 2021: In re Allstate Indemnity Company, No. 20-0071, ___ S.W.3d ___, 2021 WL 1842926 (Tex. May 7, 2021) and Allstate Ins, Co. v. Irwin, No. 19-0885, ___ S.W.3d ___, 2021 WL 2021446 (Tex. May 21, 2021). While the Allstate Indemnity Company opinion reached a favorable result for the defense, the Irwin decision created potential additional exposure under Uninsured/Underinsured Motorist coverage.
In the first, Allstate Indemnity Company, the plaintiff filed affidavits from several medical providers pursuant to Section 18.001 of the Texas Civil Practices and Remedies Code. Defendant filed counteraffidavits as provided for in the Code. In response, plaintiff filed a motion to strike the counteraffidavits, asserting that the affiant was not qualified to offer the opinions expressed therein. The trial court granted the motion to strike, struck the affidavits, prohibited defendant from calling the affiant to testify at trial, and prohibited defendant from eliciting any testimony from any witness or making any argument regarding the reasonableness of the medical bills.
Defendant filed a Petition for Writ of Mandamus with the 13th Court of Appeals, which was denied. Defendant then filed a Petition for Writ of Mandamus with the Texas Supreme Court. The Supreme Court granted the writ, concluding that the affiant was qualified and that the trial court erred in striking the counter affidavits. Although a victory in the actual case, that determination was not the most important holding in the case.
Prior to Allstate Indemnity Company, courts generally agreed that, if there were no filed counter affidavits or they had been struck, the plaintiff did not have to present any further testimony regarding the reasonableness or necessity of the medical expenses and the defendant was prohibited from contesting same. In addressing the remainder of the trial court order, the Supreme Court held that the Code did not prohibit a defendant from making a reasonableness or necessity challenge if no counter affidavit was on file. Accordingly, even if the counter affidavits were properly struck, a defendant can still present evidence that the medical bills were not reasonable or the services were not necessary.
This holding is a great benefit to the defense bar. We no longer have to obtain counteraffidavits to preserve the right to contest reasonableness or necessity. A defendant can present deposition testimony, live testimony, or make jury argument to contest reasonableness or necessity. Given the fact that most of the motions to strike were being granted in Harris County, it also takes the hammer out of the plaintiff’s hands with respect to the damages number that would be black boarded to the jury, without being contested.
In the second case, Irwin, considered on petition for review from the 4th Court of Appeals, Irwin was involved in an accident with an underinsured motorist. Irwin settled with the underinsured driver and then made a claim with Allstate for underinsured motorist benefits. Allstate made an offer to settle the claim, which was rejected by the insured. Irwin sued Allstate under the Texas Declaratory Judgment Act seeking a declaration that he was entitled to UIM benefits and asking the court to award him those benefits. The case went to trial and Irwin was awarded the policy limits and attorney fees pursuant to the Texas Declaratory Judgment Act. Allstate only appealed the award of attorney fees. Allstate argued that an insured is not entitled to attorney fees pursuant to the Texas Declaratory Judgment Act because the Court, in Brainard v. Trinity Universal Insurance Co., 216 S.W.3d 809 (Tex. 2006), had already determined that a UM/UIM carrier had no contractual obligation to pay benefits until the tortfeasor’s liability and insured’s damages were judicially determined and therefore no breach of contract existed until that point. Allowing an insured to recover attorney fees in a Declaratory Judgment Action would be an end run around Brainard.
In a 5-4 decision, the Court concluded that the Texas Declaratory Judgment Act was a proper vehicle in which to resolve the issue, and the insured was entitled to keep the attorney fees award. Although an UM/UIM carrier has no contractual liability and may have no extra-contractual liability prior to a judicial determination of the tortfeasor’s liability and insured’s damages, an insured can now bring a declaratory judgment suit prior to that determination and recover its attorney fees. Carriers may need to consider changing the way they respond to UM/UIM claims.