UIM Insurance Covers Prejudgment Interest That The Underinsured Motorist Would Owe The Insured.

Under Chapter 38, A Claim For UIM Benefits Is Not Presented Until The Trial Courts Signs A Judgment Establishing The Negligence And Underinsured Status Of The Other Motorist

Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809 (Tex. 2006)

Facts: Edward H. Brainard II was killed in a head-on collision with a rig owned by Premier Well Service. His widow, Lilith Brainard, and their five children sought uninsured/underinsured motorist ("UIM") benefits from Trinity Universal Insurance Company. Trinity paid $5,000 under the personal injury protection ("PIP") provision of the policy but requested more information supporting the UIM claim. Brainard brought action against Trinity alleging breach of contract, breach of the common law duty of good faith, violations of the Deceptive Trade Practices-Consumer Protection Act, and violations of Insurance Code articles 21.21 and 21.55. Brainard settled all claims against Premier for $1,000,000, Premier's policy limit.

A jury found that Premier's negligence caused the accident and awarded Brainard $1,010,000 and an additional $100,000 for attorney's fees. The trial court applied a $1,005,000 credit for Brainard's settlement and PIP benefits and entered a a judgment against Trinity for the remaining $5,000 and the attorney's fees, but refused to award prejudgment interest on the $1,010,000 in damages. The court of appeals affirmed the trial court's denial of prejudgment interest.

Holding: Affirmed in part, reversed in part, and remanded.

Reasoning: The Texas Supreme Court held that the UIM insurance covered prejudgment interest that Premier would owe on the $1,010,000 in actual damages. Tex. Ins. Code. art. 5.06-1(5) mandated that UIM coverage provide payment of the amount that the insured would be able to recover "because of bodily injury or property damage." The court explained that the compensatory purpose of article 5.06-1(5) is well served by allowing the insured to obtain prejudgment interest that the underinsured motorist would have owed.

The court rejected Trinity's argument that prejudgment interest is compensation for lost use of money, not damages from bodily injury. Interpreting the phrase "because of bodily injury" literally to eliminate covering prejudgment interest contradicts the court's precedent and the statute's history. Precedent requires that article 5.06-1 should be liberally construed to protect those who are legally entitled to recover damages from underinsured motorist. A literal reading of the phrase would also "entail splitting hairs among purely compensatory damages, such as those for mental anguish and loss of society." The court further rejected Trinity's alternative argument that Brainard's recovery was based on a written contract that prejudgment interest was not authorized for purely contractual claims. Premier would have been liable for prejudgment interest under Tex. Fin. Code 304.102, which authorizes prejudgment interest in wrongful death, personal injury, and property cases. Although Brainard's suit against Trinity in based in contract, section 304.102 was applicable. The UIM policy "effectively incorporates the statue." Once the liability of the underinsured is determined, the UIM policy controls the insurer's obligations. Accordingly, Brainard obtained a judgment against Premier which established its negligence and underinsured status, and the contract requires Trinity to pay benefits, including prejudgment interest.

The court also held that under Chapter 38 of the Civil Practice & Remedies Code 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. Chapter 38 allowed for recovery of attorney's fees in a successful breach of contract suit against an insurer. Because the UIM contract did not require Trinity to pay benefits before determining  Premier was negligent and underinsured, Brainard did not present a contract claim until the trial court rendered it judgment and Chapter 38 did not authorize the recovery of attorney's fees.

The court explained that the insured party may settle with the tortfeasor and then pursue the UIM coverage claim with the insurer as Brainard did in this case. Nevertheless, obtaining a settlement or an admission of liability from the tortfeasor does not establish UIM coverage. A jury could determine that the suspected tortfeasor was not at fault or it could award damages to be fully covered by the tortfeasor's liability insurance. An essential element to recovery under chapter 38 is the existence of a duty to pay the insured which the insurer has failed to meet. The court held, "neither requesting UIM benefits nor filing suit against the insurer triggers a contractual duty to pay."

Journal of Consumer & Commercial Law
Volume 10, Number 3, Summer 2007