AUSTIN FEDERAL MAGISTRATE RECOMMENDS DISMISSING MOST CLAIMS IN UIM BAD FAITH SUIT

A federal magistrate judge in Austin recently recommended that all claims against an auto insurer by its policyholder be dismissed EXCEPT for the policyholder’s request for declaratory judgment (DJ) as to whether uninsured motorist (UIM) benefits were owed.  In Shaban v. United Financial Cas. Co., No. 1:22-CV-00847-LY, 2023 WL 324518 (W.D. Tex. Jan. 18, 2023) (slip copy), the policyholder sought UIM benefits from his own auto insurer after an accident with an allegedly uninsured motorist.  The policyholder sued, seeking DJ as to whether UIM benefits were owed, and also alleging breach of contract, negligence, misrepresentation, Insurance Code violations, and DTPA violations. 

After successfully removing the case to federal court, the insurer filed a Rule 12(b)(6) motion to dismiss all of the claims except the DJ claim because an auto insurer has no contractual duty to pay UIM benefits until the policyholder has obtained a judgement against the adverse driver, and here the policyholder could neither plead nor prove he had done so.  The federal magistrate agreed, observing that under these circumstances, the DJ claim was the only properly pleaded claim.  The magistrate judge recommended that all claims except the DJ claim be dismissed, and noted that because the case was now pending in federal court, the DJ claims would be construed under the Federal Declaratory Judgment Act rather than the Texas Declaratory Judgment Act as originally pleaded. 

Editor’s Note:  This recommendation, while still short of being an official ruling from the district judge, may lead to battles over whether UIM suits will be litigated in state court, where it is more difficult to obtain dismissals of extra-contractual claims, and where the Texas Declaratory Judgment Act allows for attorney fee awards… or in federal court, where the reverse is true on both counts.