The Texas Legislature is moving forward with a new law that will have the effect of overturning Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809 (Tex. 2006), which holds that an uninsured / underinsured motorist (UM/UIM) insurer has no obligation to pay policy benefits until the insured establishes legal liability and the uninsured / underinsured status of the other driver.  H.B. 1739 was voted out of the House Insurance Committee on April 9, 2019, and is moving through the legislative process.

If passed, the Bill will establish that statutory notice under Texas Insurance Code 541 (Unfair Claims) and 542 (Prompt Payment of Claims Act) for the purpose of triggering interest and attorney fees, is given when the facts of the claim are reported to the insurer. The Bill will also prohibit an insurer from requiring, as a prerequisite to asserting a claim, a judgment or other legal determination establishing the other motorist’s liability or UM/UIM status. It will also bar an insurer from requiring, as a prerequisite to paying benefits under UM/UIM coverage, a judgment or legal determination of the other motorist’s liability or the insured’s damages before benefits are paid under the policy.

The Bill provides that prejudgment interest accrues on a UM/UIM claim on the earlier of the 180th day after the date the claimant notifies the insurer of the claim or the date on which suit is filed against the insurer. For purposes of the recovery of attorney’s fees, a UM/UIM claim is presented when the insurer receives notice of the claim (defined as written notification to the insurer that reasonably informs the insurer of the facts of the claim). Lastly, after removing the prerequisites above, the Bill imposes on insurers the duty of good faith and fair dealing “once liability and damages have become reasonably clear.”

Editor’s Note: Currently, under Brainard, there is a clear line for determining when liability and damages are reasonably clear, i.e. once legal liability and damages are determined by judgment or settlement. And, under Brainard, insurers may abate all extra-contractual and insurance code based claims until legal liability and damages are proven. And then, insurers may avoid penalties, interest and extra-contractual liability by promptly paying policy benefits. But under HB 1739, insurers face an award of attorney fees, penalties and interest if they simply choose to defend a UM/UIM lawsuit after HB 1739 becomes law. A full copy of HB 1739 is attached. We will continue to monitor this significant Bill and report on further developments.

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