Because of the complexity of insurance policies, the proliferation of non-standard auto policies in Texas by insurance companies, the complex requirements of various statutes and ever changing legal decisions, I highly recommend that anyone who has been in a serious motor vehicle collision or who has sustained a significant injury in a motor vehicle accident, seek legal representation from an attorney who is well versed in issues with Uninsured and Underinsured Motorist claims. Some who try to navigate these waters on their own without competent legal guidance may find that they have lost the right to even bring a claim because they failed to comply with a mandatory provision of the insurance policy.
For example, many people are unaware that insurance policies contain a “Consent to Settle Clause” that applies to Underinsured Motorist claims. The Consent to Settle Clause is usually phrased something like:
We do not provide UM/UIM Coverage for any person: If that person or the legal representative settles the claim without our written consent.
The first time many people ever hear about the Consent to Settle clause is after they have settled their “liability” claim at the at-fault driver’s (also called a “tortfeasor”) insurance company for at or near policy limits, and then present a claim to their own auto insurance company for “Underinsured Motorist” (UIM) benefits. That is when the adjuster tells them that their claim is being denied because they failed to get consent from the underinsured motorist carrier to settle the claim with the at-fault driver.
Needless to say, that can be devastating news to someone who has sustained serious or catastrophic injuries and where the at-fault driver’s insurance policy is insufficient to pay the damages that were sustained in the collision. There may be a way to show that the Consent to Settle clause is unenforceable and that the claim must be paid.
Although this was an issue that had been considered to be a fairly settled area of law since the early 1990’s, over the past few years, this issue has continued to be brought up by insurance companies as a way to avoid paying claims. For example, in an unpublished opinion in Gonzalez v. Philadelphia Indem. Ins. Co., F. App.’s 302, 305-306 (5th Cir. 2016) (applying Texas law), the Fifth Circuit Court held that an insurance company was entitled to summary judgment to have the case dismissed based on nothing more than the insured’s failure to obtain consent to settle.
In a similar case, State Farm also sought to have the insured’s lawsuit dismissed based on nothing more than the fact the insured failed to obtain consent to settle with the at-fault driver. In the case of Davis v. State Farm Lloyds, Inc. (Tex.App.—Dallas 2019), the insured was injured in a motor vehicle accident and eventually settled his case with the at-fault driver’s insurance company for policy limits. When Mr. Davis presented an Underinsured Motorist Claim to State Farm, State Farm denied the claim asserting that Mr. Davis failed to obtain State Farm’s consent to settle with the at-fault driver and therefore State Farm was not obligated to pay his claim. When a lawsuit was filed against State Farm to recover the UIM benefits under his policy, State Farm filed a Motion for Summary Judgment to get the lawsuit dismissed because Mr. Davis did not obtain consent to settle. The trial court agreed with State Farm and dismissed the lawsuit.
Mr. Davis appealed the dismissal of his lawsuit. On appeal, the Dallas Court of Appeals reversed the summary judgment and granted Mr. Davis’ request to send the case back to the trial court for a trial to determine his rights to recover underinsured motorist benefits.
Mr. Davis did not dispute that he failed to get State Farm’s consent to settle, but Mr. Davis asserted that the Consent to Settle Clause was unenforceable because State Farm failed to show it was prejudiced by his failure to obtain State Farm’s consent. The Court of Appeals agreed with Mr. Davis.
The Court held that State Farm had the burden to prove it was prejudiced by the insured’s failure to obtain consent to settle, and that State Farm failed to present any evidence in support of its claims of prejudice. The Court recognized and followed the Texas Supreme Court’s precedent in Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691 (Tex. 1994) which is directly on point and which has not been withdrawn or revised. State Farm argued:
- In Guaranty County Mutual Ins. Co. v. Kline, 845 S.W.2d 810, 811 (Tex. 1992) (per curiam) enforced the consent to settle clause. The Court of Appeals agreed, but then noted that in Kline, the Court also expressly acknowledged that the clause is unenforceable if the insurer is unable to show prejudice.
- Several cases involving the duties of the insured to give notice to the insurer of a liability claim prejudices the insurer’s rights as a matter of law. The Court stated it is unpersuaded by this argument because it involves a different type of insurance.
State Farm conceded that it produced no evidence that it was prejudiced. Instead, State Farm argued:
- Because the case was settled without its consent, State Farm was “prevented from doing anything or conducting any investigation to protect its interests under the consent to settle provision.”
- Because so much time had passed since the settlement, it would be difficult for State Farm to locate the tortfeasor and to discover his assets without civil process.”
- The Court rejected State Farm’s assertions and noted that the only prejudice that matters is the loss of a valuable subrogation right. If the tortfeasor does not have assets to satisfy a judgment, even in part, then the subrogation right has no value.
- The Court also declined to adopt a new rule that addressed whether it would be difficult for the insurer to prove that the tortfeasor is not judgment proof.
- The court also noted that State Farm not only produced no evidence that the tortfeasor had assets, but that State Farm produced no evidence that it even attempted to conduct an investigation into such assets, and that State Farm failed to introduce any evidence of how the settlement would have interfered with State Farm’s investigation of assets.
The Davis v. State Farm Lloyds, Inc. re-affirms long-standing Texas law that:
- The Consent to Settle Clause is valid, but
- The Consent to Settle Clause is not enforceable if the insurance company cannot show that it was prejudiced by the failure to obtain consent.
While the Davis v. State Farm Lloyds, Inc. and the Texas Supreme Court’s opinion in Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691 (Tex. 1994) may save many insured’s from having otherwise valid claims from being denied or dismissed because of the failure to obtain consent to settle, clearly the best practice is to always request consent to settle. These cases also show that for anyone who has been in an accident with an uninsured motorist or a serious motor vehicle collision or who has sustained a significant injury in a motor vehicle accident, seek legal representation from an attorney who is well versed in issues with Uninsured and Underinsured Motorist claims.
I devote a substantial portion of my practice to handling and studying Uninsured and Underinsured Motorist claims. If you or a loved one has been seriously injured or killed in a motor vehicle accident, or if you are pursuing an uninsured or underinsured motorist claim and need competent legal representation, contact Thomas A. Herald, P.C at (214) 432-2800.