In a potentially important underinsured motorist (UIM) decision issued last Friday, the Supreme Court of Texas held a UIM insurer may not enforce a jury verdict that is not reduced to judgment, but is instead settled after the verdict and disposed of without rendition of a final judgment.  In Re USAA General Indem. Co., --- S.W.3d ---, No. 20-0075, 2021 WL 1822944 (Tex. May 7, 2021) involved an auto accident in which the injured claimant sued both the defendant driver and his own UIM insurer, seeking damages far in excess of the defendant’s liability insurance limits.   USAA demanded its own separate trial on its liability under the UIM coverage, and the UIM claim was bifurcated from the tort claim and abated.  After trial, the jury found the defendant 100% responsible for the accident and awarded damages in excess of the defendant’s liability insurance (but less than the claimant was seeking).  They then settled for roughly the amount of the jury award and dismissed the tort portion of the case without a final judgment.

After the settlement and dismissal of the tort portion of the case, USAA consented in writing to the settlement.  Then, with the abatement lifted on the UIM portion of the case, USAA immediately moved for summary judgment and contended a trial on the UIM claim was no longer necessary because the jury verdict and subsequent settlement conclusively established both liability and damages.  The claimant argued USAA had consented too late and was not now entitled to claim its contract damages were limited to the underlying jury verdict and settlement.

In a seven-justice majority opinion, the court declined to apply the doctrine of collateral estoppel to prevent the negligence and damages issues from being re-litigated because collateral estoppel, by its own terms, applies only to final judgments, and the post-verdict dismissal was not a final judgment.  Additionally, a UIM insurer’s contractual liability depends on the damages the insured is “legally entitled to recover” from the underinsured motorist.  And only a judgment, not merely a jury verdict, establishes the amount the plaintiff in any lawsuit is legally entitled to recover.  Finally, the court pointed out that piecemeal consent cannot be given – the insurer either consents or refuses to consent to the outcome as a whole, and may not consent only to the parts it likes.  Because USAA consented to the outcome, it also implicitly consented to the verdict’s lack of enforceability without a final judgment.  Therefore, the court reasoned, the parties had to start over and conduct a separate trial, as USAA had originally demanded, to determine its insured’s legal entitlement to recover damages from the underinsured motorist.

Because the majority held the lack of a judgment prevented USAA from enforcing the jury verdict at all, it did not address the question of whether USAA’s post-verdict, post-settlement consent was timely.

Two justices dissented, focusing in part on the fact that for unknown reasons, the defendant’s liability insurer funded the entire settlement of $160,000, rather than merely paying its $30,000 limit.  Because the claimant was fully compensated by the defendant’s liability insurer, the defendant did not meet the definition of an “underinsured motorist” and there could be no possible UIM exposure. 

They also found it significant that USAA had participated in post-verdict hearings, sought judgment on the verdict at that time, and opposed dismissal of the case.  Thus, the dissent expressed concern that the outcome created an opportunity for a claimant to obtain one jury verdict, collude with the defendant to dismiss the suit without judgment if he is not happy with the number (even over his UIM insurer’s objection, which happened here) and then try liability and damages a second time against the UIM insurer, hoping for a larger number the second time around.  The dissent likened this situation to Gandy in its potential for collusive fraud and public policy concerns.

Finally, the dissent cited existing supreme court precedent holding that a dismissal with prejudice is tantamount to a final judgment on the merits.  While the dissent agreed collateral estoppel only applies to final judgments when a third party attempts to relitigate them in a later suit, they pointed out that here, USAA was not a third party, and these events all took place within the confines of a single lawsuit.  Therefore, traditional notions of collateral estoppel did not apply anyway.

The dissent concluded the trial court had abused its discretion by refusing to enter a judgment on the verdict as USAA had requested, and argued mandamus should have been granted to prevent a second lengthy and expensive trial on fact issues that already been decided by one jury.

Editor’s note: This outcome highlights the importance of concluding a settled case, particularly a UIM case, with a final judgment rather than a mere dismissal, so that the judgment will create collateral estoppel, preventing key issues in the case from being re-litigated later.  However, when an insurer declines to participate in the litigation, it often loses the ability to control the ultimate disposition of the case, which can lead to adverse results such as this one.  This is true for liability insurers generally, as well as UIM insurers.  The majority appeared to view this result as simply the risk a UIM insurer must take when it either consents or refuses to consent to be bound by the as-yet-unknown outcome of the tort claim, while the dissent read the policy’s consent clause as entitling the UIM insurer to the precise kind of hindsight the majority refused to allow.

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