Uninsured/Underinsured Motorist (UM/UIM) Coverage Part 2

In part 2 of this conversation, Josh and Aaron explain how Texas law has evolved to hold insurance companies more accountable when they wrongfully delay or deny valid claims. They also share how landmark legal victories, including cases argued by FVF Law, have helped strengthen protections for policyholders and improve the way insurers handle UIM claims

 FVF Law is a well-credentialed, overwhelmingly 5-star reviewed personal injury law firm in Austin, TX. FVF strives to be the educational resource for the injured, available to guide those with questions about what comes next. It is FVF’s mission to ensure clients are prioritized and informed throughout the injury claim process, and to secure the best possible outcome. Josh Fogelman and Aaron Von Flatern founded FVF Law to offer a different kind of injury law firm, and a dignified alternative in the marketplace. They hope to show injured Texans that consulting a lawyer after an injury is a natural, and responsible thing to do.

Transcript

0:00:00.0: Hey, Josh.

0:00:00.6: Oh, hey, Aaron. I like your tartan shirt.

0:00:05.9: It's funny that you say that. I was just about to ask you if you would give me a compliment.

0:00:09.8: Yeah, I just did.

0:00:11.6: Could you say it again?

0:00:12.6: Yes. I like your tartan shirt.

0:00:16.3: That's very nice of you to say.

0:00:18.3: I'm a nice guy.

0:00:20.2: Yes. And that's my compliment to you.

0:00:23.5: Thank you so... You know what, I'm really glad we had this talk.

0:00:25.8: You're good at complimenting me.

0:00:26.9: Thank you.

0:00:28.1: Excellent. So, speaking of underinsured motorist coverage.

0:00:31.4: Yeah.

0:00:34.8: This is part two of our discussion of the topic that Josh continually brings up at cocktail parties.

0:00:41.1: I have a knack. It's what I'm known as.

0:00:43.7: Josh isn't the only one with a personal connection to this world. Okay, so if you listen to our last podcast, you know we talked about underinsured motorist coverage. It's the coverage that you can control. You go out and get it from your insurance company. And when someone else hits you and they don't have enough coverage, this coverage steps into that gap and fills the shoes of the at-fault party. And a friend of my father's, his family had to use that when he was killed on his bike. And it was a godsend that this man had an inordinately large underinsured motorist policy. And really... There are times when you're glad you had underinsured motorist because it made things a little easier, and there's times where it just made a huge difference in the family's life.

0:01:35.0: Yeah.

0:01:36.3: And the last thing that happened to this man is obviously tragic for the family, but the fact that they're able to use the money for what it can help with is important. And so that's why we care about underinsured motorist coverage. And one thing that has come up since we started our law firm is the fact that insurance companies didn't seem to care about it for a long time.

0:02:02.2: Yeah.

0:02:03.6: What do I mean by that?

0:02:04.7: Yeah, there's kind of a long, convoluted history of how this particular type of insurance coverage has been reviewed and applied by insurance companies. Starting in about, I think it was 2005, the mid-2000s, the Texas Supreme Court... Let me take a step back. Okay. So historically, in Texas, when you purchase an insurance product, there has been law put in place that makes sure that your own insurance company treats you fairly when you assert a claim. You have damage to your house, you assert a claim on your homeowner's insurance policy, your insurance company has a legal obligation to treat you fairly. If they don't treat you fairly, there are consequences to that. Well, starting in about the mid-2000s, the Texas Supreme Court started interpreting the law a little bit differently than probably the law should have been interpreted and really began to close the door on what type of penalties could be levied against an insurance company who didn't treat you fairly. That sort of worked its way into the very specific context that we're talking about called uninsured underinsured or UIM coverage, and actually ended up... The Texas Supreme Court issued a case called [0:03:43.2] ____ Brainard v. Trinity Universal Insurance Co., which wasn't even really about bad faith insurance at all. But there was some language that the Texas Supreme Court used when they issued that opinion that the insurance companies wrongly took to basically mean that there was no longer any penalty whatsoever that could be levied against them if they chose to baselessly refuse to pay you on a UIM claim, regardless of how strong your UIM claim was.

0:04:24.1: And so when we started the law firm, we were in the throes of this. We were constantly finding ourselves in a situation where our clients came to us. They'd been hurt badly. The person who hurt them didn't have enough insurance to pay for their medical bills or for their lost earnings. They were underinsured, or they didn't have any insurance at all. And our clients had done the prudent thing and purchased an uninsured underinsured motorist coverage policy to protect themselves from this very situation. We would compile the documents, issue a demand, a claim on behalf of our clients that was completely valid and justified, only to be met with silence from their own insurance company, to whom they had faithfully been paying premiums for years.

0:05:24.5: Let me give you a quick... Let me let you finish on this, but as a quick window into what their analysis was... And this is me interpreting their behavior. But essentially, let's say you had a $50,000 underinsured motorist policy and you submitted a claim to them. The adjuster would figuratively call you and say, "Listen, there's a total of $50,000 here. If you're dead, you get $50,000."

0:05:42.2: Yeah.

0:05:53.3: If your client is only 95% dead, we're gonna pay you 47,500.

0:05:59.0: Or zero.

0:06:01.4: And so it was like these crazy... You could have a limb chopped off and they'd be like, "I don't really think the whole policy is owed here," even though it was just kind of obvious to us.

0:06:02.8: Yes.

0:06:12.3: So, anyway, I'll let you get back to you.

0:06:13.4: No, and that's because there was some language from some court cases that came out despite the existence of clearly written statutory law. There was some language that our Texas Supreme Court utilized that they interpreted to mean that they didn't have to pay those claims because they would never be penalized for not paying them. They thought the worst penalty that they could ever have is that they would have to actually just pay on the claim. No additional money owed for lawyers' fees, no additional money owed for their bad conduct. Worst case scenario is we gotta pay on the policy. Well, let's make them come and get it. So the way that it evolved, and it's a unique... Because of kind of the indefinite nature of personal injury damages. Unlike when a house burns down... I mean, there's a lot of memories and things like that lost, but assuming a person isn't harmed, that it's just property that's damaged or destroyed, you can get an appraiser out there to assess the value of the property. Okay, here's enough money to rebuild the property.

0:06:49.5: Using a calculator.

0:07:25.5: Exactly. With a personal injury claim, there's all these intangible losses that are really, really difficult to calculate, like physical pain and physical suffering. There's also questions about who was at fault. There's liability questions. So because of the uncertainty associated with developing or understanding what is the loss really in a personal injury case, the way that the law has evolved for uninsured underinsured motorist coverage claims is a jury gets to decide what is the value of your case, and that determines whether or not the person that hurt you is uninsured or if they're underinsured. So to be clear, in your hypothetical, you've got a person who has a $50,000 UIM policy and they're really, really badly hurt, the person who caused the crash has no insurance at all. If you want to prove your right to that insurance claim on your own policy, the law says you have to go and file a lawsuit against your own insurance company and you go to trial and you prove actually your personal injury case against the person who hit you. You prove that they were at fault and you prove how much damages you sustained. And depending upon what the jury finds, if they find that you sustained damages or that your damages are beyond the other person's insurance, that is when your insurance company's obligation to pay is triggered. Right? And this is complicated because you can understand if you're an insurance company and you think that you can never be penalized for anything above and beyond just paying on your policy, you stand in this position where you can drag your insured through a multiple-year litigation process that's gonna cost them time and cost them money. And the worst thing that you might have to do is pay on that claim. Maybe you don't have to pay on that claim. Or mostly what would happen is they would use that dynamic to bargain with you to pay you less than you were probably owed. And for a long time, they thought they could get away with that. Tell us how that changed in 2021.

0:09:58.4: So in a way, it didn't really change.

0:10:02.9: True.

0:10:03.5: Because the reality was that the case law, and maybe the viewers or listeners aren't gonna be that concerned about this case law, but the case law was decided upon a chapter of the Texas Civil Practice and Remedies Code that was inapplicable to a declaration action. So we were doing a declaratory judgment in our cases. The case that the insurance companies were relying on was a contractual case. So it's sort of a maybe an overly technical point, but in reality...

0:10:18.0: There was confusion.

0:10:37.6: There was confusion about what applied. And this Texas Supreme Court in 2021 clarified it for us, answered the question finally and said, "Yeah, no, this is a deck action under Chapter 37, and therefore attorney's fees are available to the plaintiff at the discretion of the judge." So I'll let you unpackage that.

0:10:59.0: Yeah, yeah. So this was kind of phase one in terms of trial lawyers like us winning what we shouldn't have had to even fight about to begin with, but winning at least some pressure point against the insurance companies who were really unfairly withholding payments to their own insureds who needed access to that money by basically creating a situation where now if you ended up taking that case to trial against your own insurance company and proving your entitlement to get paid on the policy, you didn't just get paid your insurance policy. Now a judge had the discretion to authorize an award of your attorney's fees associated with the work that you had to do to go and actually recover that policy from the insurance company. And this is a pretty big shift because for the first time we saw a change in the attitude of the insurance companies on legitimate claims where they were beginning to actually pick up the phone and talk to us and negotiate and pay out on claims. But it was still... There was still a lot of abuse.

0:12:32.0: Because attorney's fees are, I would call them compensatory, meaning that when the judge says, "You know what, not only do you get what the jury awarded you, but I'm gonna tack on 20, 30, $50,000 of attorney's fees here to compensate the plaintiff for what they went through," you're kind of just putting things back to even when you do that. And that got the insurance companies to change. I mean, that was a huge change for them.

0:13:00.6: It was a huge change.

0:13:01.8: But then there was even more where as we were studying this law in connection with this 2021 case, and I think you're a good person to talk to because you did a lot of the work on this research-wise, we started to realize that even though the insurance companies have been acting like there's no bad faith law applicable to them, there actually is a punitive bad faith component to these claims that we can bring to bear. So you want to talk about that?

0:13:31.1: Yeah, yeah. Sometimes the law doesn't just... When someone wrongs you, sometimes the law doesn't just allow you to go and recover some amount of money to make you whole. Sometimes the law will impose a penalty upon the bad actor when they have acted egregiously, when they have acted in bad faith or maliciously or fraudulently. Really, really reprehensible conduct that we just won't tolerate and shouldn't tolerate as a society. And kind of based in part on what happened in the mid-2000s and the Escobedo case and some interpretations of the bad faith law that was specifically applicable in the insurance context, the insurance companies, as we talked about earlier, believed that the bad faith insurance law no longer applied to them once they paid their policy. If you went to the... If you sued them like you had to and you went and you proved your entitlement to the benefits, as long as they stroked a check to you within 30 days, they believed they had comported with their obligations under the law and they were done, regardless of how bad their conduct had been in denying that claim and dragging you through the litigation process. So we challenged that.

0:15:13.0: Our firm made it a mission to say, "No, no, you don't have this right. You have misinterpreted and misunderstood the Texas insurance law. You're not gonna get away with this type of conduct." And so in the mid 2015-2018 timeframe, we tried some of these uninsured underinsured motorist coverage claims. We tried them successfully. The insurance companies paid promptly after we won the jury verdict. And then we said, "You know what? This is inadequate. This is a clear claim. You clearly have been acting in bad faith and denying our client access to their money for multiple years," because that's sometimes how long it takes to get through the jury trial process, "now we're gonna file a lawsuit against you for bad faith for your conduct. We're gonna punish you for doing that." And one of the landmark cases in this arena was one of our cases that I personally argued in front of the Third Court of Appeals called Burgess v. Allstate. It was a fantastic case with a fantastic client who had a neck injury and a lot of future medical expenses. Her own insurance company refused to pay them. Jury awarded us well above the insurance policy limits. We sued Allstate for bad faith. And they fought. They said, "No, no, we don't have an obligation. There's no... You don't even have the right to sue us for bad faith. That law doesn't exist anymore." We took that case up on appeal and we secured a wonderful victory from the Third Court of Appeals. They interpreted the law correctly and said, "No, insurance companies, in fact, the whole reason bad faith insurance law exists is because of an uninsured underinsured motorist coverage case that occurred back in the '80s." This triggered a whole new law to be written to specifically address this type of conduct. That law is still valid. You can be penalized when your bad conduct harms a person. And that was a huge win. That was a huge win for all of Texas, frankly, because that was really the moment that, combined with the Irwin case that you talked about, was the moment that we recognized a sea change in the handling of insurance claims, of uninsured underinsured motorist coverage insurance claims by Texas insurers in paying their clients fairly. I'm really proud to have been a part of that. And it was really just a fantastic decision.

0:17:43.7: Yeah, it's fantastic.

0:18:08.5: But interestingly enough, it kind of left the question of, well, how do you prove a bad faith... How do you prove a bad faith case? Under what circumstances can you really do this?

0:18:24.9: You need extra-contractual damages, right?

0:18:27.3: That's exactly right. That is the term: Extra-contractual damages. And that is an evolving concept.

0:18:34.2: What the heck does that mean?

0:18:35.3: Yeah, what that means is that you were harmed in some way that went above and beyond just the deprivation of the policy benefits that you were entitled to. Fortunately, within the last year, a jury verdict was taken on a... The first one that I'm aware of was taken on a pure bad faith claim where the claimant first proved their entitlement to their insurance policy and then sued their insurance company for bad faith handling of that case. And their argument was that the deprivation of their insurance policy benefits, not having access to the money that they should have been entitled to, and the bad faith handling of that claim by the insurance company caused harm to them in the form of mental anguish damages in this particular case. And a jury responded and awarded almost a million dollars in bad faith damages to this claimant. So you can imagine a situation where you're a person that is living paycheck to paycheck and your life gets upended because somebody else did something careless and hurt you, and all of a sudden you can't work. You don't have access to that paycheck anymore. And the person that hurt you has a minimum limits insurance policy or no insurance at all. And you don't have a short-term disability policy or a long-term disability policy or health insurance or any number of these things that are not a guarantee in American society. And it creates a downward spiral. You end up having your house foreclosed on, your credit gets destroyed, you get kicked out of your apartment, right? Your marriage falls apart. I mean, these are real consequences.

0:20:39.7: And in the old days, those real consequences were the basis for the insurance companies saying, "I think we can get this for cheaper.

0:20:47.3: Yeah.

0:20:48.3: Yeah, we owe them the whole $100,000 policy, but this guy's got... He's trying to buy a new house."

0:20:53.6: That's right.

0:20:54.4: "I bet he'll take seventy-five."

0:20:55.6: That's right.

0:20:56.9: And then they'll just... And that was how they used to operate. Unfortunately, they're still operating that way in some corners.

0:21:00.5: They are.

0:21:04.1: But we have some leverage. We've got a stick. You know?

0:21:07.0: Absolutely. Absolutely. And I think the direction that... It's hard. Okay. And here's the problem, right? It still takes a very, very, very long time to be able to use that stick, right? You still first have to go through the process of establishing your entitlement to the policy benefits in the first place. Give that a year and a half to two and a half years if you're lucky to have that fight fought and won just because of the nature of the jury trial system in Texas. We've just got a lot of cases and not enough judges to handle them all. It's just clogged up. It just takes time. So you're gonna be delayed there, and then you gotta do it all again. Then you gotta file another lawsuit and go through the whole process of discovery, digging into their files, proving their bad faith, proving your client's harms and losses. You might be another 18 to 24, 36 months out. So it's not a perfect system. You could be waiting six years from the date of your crash until you ultimately get that vindication from a jury that their bad faith hurt you. But, but people are doing it. And the threat of people doing it and the consequences, attorney's fees, bad faith damages, the consequences... The real consequences of what the insurance companies stand to lose for those people who are willing to have that fight and wage that war are very, very real. And I mean, we have seen it meaningfully change in terms of how our cases are handled and how our clients are getting recoveries on their UIM policies. And that might be just in part because our firm did it. We demonstrated our willingness to have that fight, not just have that fight, but win that fight. And that goes a long, long way. So now you know.

0:23:25.5: Thank you. Thank you for the work you did in that case.

0:23:28.6: Thank you for wearing this tartan shirt today.

0:23:30.8: Yeah, I got you covered.

0:23:32.0: Yeah, I appreciate you.