A federal district judge in Dallas recently remanded an underinsured motorist (UIM) case in which the UIM claimant had sued both his auto insurer and the in-state adjuster alleging breach of contract and Insurance Code violations, without first obtaining a judgment against the underinsured driver.  James v. Allstate Fire & Cas. Ins. Co., No. 3:20-CV-0786-K, 2020 WL 4338953 (N.D. Tex. July 28, 2020) (slip op.) involved a hit-and-run accident, after which the policyholder made a UIM claim with Allstate.  Unsatisfied with Allstate’s settlement offer, James sued both Allstate and the Allstate adjuster, alleging breach of contract and violations of Insurance Code Chapter 541.

Allstate removed the suit to federal court and argued the adjuster was improperly joined and James had no cause of action against the adjuster because under Texas law, UIM claims do not mature until the insured becomes “legally entitled to recover” damages from the tortfeasor.  The court agreed this was true of contract claims, but relied on the 2018 Supreme Court of Texas decision in USAA Texas Lloyds v. Menchaca for the proposition that an Insurance Code claim can be brought independently of a contract claim, and to bring an Insurance Code claim, the claimant must only prove that liability is “reasonably clear,” which is a lesser standard than “legally entitled to recover.”

Editor’s Note: Allstate did not have access to the adjuster election and dismissal provision of Texas Insurance Code Chapter 542A, which applies only to weather-related claims for property damage.  Instead, it was forced to rely on a traditional improper joinder argument.  In its remand analysis, the federal court did not examine whether James had alleged any damages that were independently recoverable under the five-part rule set out in Menchaca.  Instead, it merely concluded the petition alleged facts that could potentially support a viable cause of action against the adjuster and remanded on that basis.  Thus, this ruling appears likely to pave the way for more adjusters to be sued in UIM cases, and the application of Menchaca’s five-part rule governing recovery of Insurance Code damages independent of contract damages in UIM cases may be led heavily by Texas state courts.

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