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AUTO/UM/PIP COVERAGE By Daniel C. Andrews TABLE OF CONTENTS
III. PERSONAL INJURY PROTECTION COVERAGE V. UNINSURED/UNDERINSURED MOTORIST COVERAGE |
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Understanding automobile insurance coverage is extremely important to anyone involved with personal injury litigation. Given the fact that every licensed driver in the state is required to be covered under a Personal Auto Policy, it is certainly the most frequently encountered type of policy. This paper will focus upon the Texas Personal Auto Policy, its coverages, exclusions, and conditions, and will attempt to highlight and dissect the significant issues which arise from the policy. An insurance policy is a contract and as such, it controlled by general rules of construction which are applicable to contracts generally. Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex. 1987). Obviously, when interpreting a contract, the starting point must be the contractual language itself, so any person wishing to understand the Personal Auto Policy should start by reading the policy. The Personal Auto Policy is a form promulgated by the Texas Department of Insurance, and as such, it is the same policy form regardless of the company selling it. Therefore, Farmer’s Personal Auto Policy is exactly like Allstate’s, which is identical to Liberty Mutual’s. Basically, the policy provides eight different coverages: liability, medical payments, personal injury protection, uninsured/underinsured collision, comprehensive (physical damage other than collision), towing & labor, and rental reimbursement. This paper discusses the liability, medical payments, personal injury protection, and uninsured/underinsured coverages. The insuring agreement for the liability coverage provides as follows:
The phrase "covered person" is specifically defined by the policy, and generally includes the named insured, his or her spouse (if a resident of the same household), family members, and anyone using a "covered auto." The policy defines family member as a person "who is a resident of your household and related to you by blood, marriage or adoption". It also includes a ward or foster child who is a resident of your household, and includes "your spouse even when not a resident of your household during a period of separation in contemplation of divorce." The meaning of the phrase "resident of your household" was at issue in Cicciarella v. Amica Mut. Ins. Co., 66 F.3d 764 (5th Cir. 1995). There, the court reversed a summary judgment granted in favor of the insurance carrier which had argued the named insured’s mother, who lived with him approximately sixty days a year, was not a member of his household. In considering the phrase, the court stated:
Id. at 768. The court separately considered both the word "resident" and "household," and found both words to be ambiguous. The case was remanded to allow a jury to determine whether the mother was, in fact, a member of the household. Id. at 769. In State Farm Mut. Auto. Ins. Co. v. Nguyen, 920 S.W.2d 409 (Tex. App. - Houston [1st Dist.] 1996, no writ), the Court of Appeals faced the issue of whether a baby who spent all six days of her life in the hospital when an auto accident preceded her birth, was a family member under her parents’ insurance policy. Considering the baby’s age, lack of self-sufficiency, and absence of other lodging, the court held the baby was a resident of the Nguyen household, despite the fact the baby never made it to her parents’ home. It is interesting to note the definition of family member includes a spouse who is not a resident of the named insured’s household "during a period of separation in contemplation of divorce". Therefore, if a husband in El Paso separates from his wife and moves hundreds of miles to Beaumont, but never gets divorced, and six years later is at fault for an accident while driving a borrowed car, liability may exist under the wife’s auto liability policy. Due to exclusions under the policy, he would not have coverage if driving his own car, or someone else’s car if it was regularly available to him, so the circumstances for coverage to exist are not very likely. The more difficult problem may be getting the estranged spouse to divulge information concerning the insurance coverage. The "permissive use" clause in a Personal Auto Policy is stated in terms of an exclusion. The Liability Coverage portion of the policy excludes coverage for any person "using a vehicle without a reasonable belief that that person is entitled to do so." However, the exclusion does not apply to "you or any family member while using your coverage auto." As written, the permissive use clause would not exclude coverage for children of the insured who take the car despite being specifically instructed that they are not allowed to do so. Nor would this exclusion bar coverage for an estranged spouse who steals the covered vehicle. By focusing on the borrower’s subjective belief, the policy language makes it very difficult to base a denial of coverage on this exclusion. Texas courts have been fairly liberal from the standpoint of the borrower in interpreting the "reasonable belief" exclusion. See U.S. Fire Ins. v. United Services Auto. Ass’n., 772 S.W.2d 219 (Tex. App. - Dallas 1989, writ denied); Republic Ins. Co. v. Luna, 539 S.W.2d 69 (Tex. Civ. App. - Beaumont 1975 writ ref’d n.r.e.). Although the Texas Supreme Court has not weighed in on the issue, excluded driver endorsements have been regularly upheld by various appellate courts in Texas. In Zamora v. Dairyland County Mut. Ins. Co., 930 S.W.2d 739 (Tex. App. - Corpus Christi 1996, writ denied), a wife who was excluded from coverage under her husband’s insurance policy, was involved in an auto accident while driving her husband’s automobile. The injured parties brought suit against both the husband and wife based on negligence, gross negligence and negligent entrustment. Dairyland denied coverage to both the husband and wife on the basis of the named driver exclusion in the policy. Id. at 740. The Corpus Christi Court of Appeals upheld the validity of the named driver exclusion and found that it furthered Texas public policy on two levels. The first being permitting drivers with family members having poor driving records to secure insurance they can afford, rather than being relegated to the assigned risk pool at a much higher cost. Second, the named driver exclusion deterred insured drivers from entrusting their vehicles to the unsafe excluded drivers, thereby keeping these unfit drivers off the roadway. Id. at 741. The second issue considered by the Corpus Christi Court of Appeals was whether the insurer had a duty to defend the negligent entrustment allegations when the vehicle was being operated by an excluded driver. In considering the language of the exclusion which read, "You agree that none of the insurance coverage afforded by this policy shall apply while (the insured’s wife) is operating your covered auto or any other motor vehicle". Based on this language, the court found there was no duty to defend the husband for liability incurred for acts specifically excluded under the policy. Id. at 742. This is consistent with the holdings from other courts. Fidelity & Guar. Ins. Underwriters, Inc. v. McManus, 633 S.W.2d 787 (Tex. 1982); Western Alliance Ins. Co. v. Alvarez, 380 S.W.2d 710 (Tex. Civ. App. - Austin 1964, writ ref’d n.r.e.). In Wright v. Rodney D. Young Ins. Agcy, 905 S.W.2d 293 (Tex. App. - Fort Worth 1995, no writ), the parties seeking coverage argued that the excluded driver endorsement violated the Texas Motor Vehicle Safety-Responsibility Act because it does not protect named insureds from claims of negligent entrustment that arise from the authorized use of vehicles by excluded drivers. The court found that "nothing in Act or its underlying public policy mandates financial protection for insured drivers for claims arising from the negligent entrustment of their automobiles to excluded drivers". Id. at 295. Furthermore, the court found that the language of the excluded driver endorsement is plain and unambiguous, and had been approved by the State Board of Insurance. Id. See also DiFrancesco v. Houston Gen. Ins. Co., 858 S.W.2d 595 (Tex. App. - Texarkana 1993, no writ). Texas Personal Auto Policy contains the following definition for "your covered auto": 1. Any vehicle shown in the Declarations; 2. I. Any of the following types of vehicles on the date you became the owner: a. A private passenger auto; or b. A pickup or van with a G.V.W. of 10,000 lbs. or less not used for the delivery or transportation of goods, materials, or supplies other than samples; unless, (1) the delivery of goods, materials, or supplies is not the primary usage of the vehicle, or (2) used for farming or ranching. II. This provision (G.2.) applies only if you: a.acquire the vehicle during the policy period; and b. notify us within 30 days after you become the owner. If the vehicle you acquire replaces one shown in the Declarations, it will have the same coverage as the vehicle it replaced. You must notify us of a replacement vehicle within 30 days only if you wish to add or continue Coverage for Damage to Your Auto. If the vehicle you acquire is in addition to any shown in the Declarations, it will have the broadest coverage we now provide for any vehicle shown in the declarations. 3. Any trailer you own 4.Any auto or trailer you do not own while used as a temporary substitute for any other vehicle described in this definition which is out of normal use because of its: a. breakdown; When an insured obtains a new vehicle, the policy appears to place different burdens upon the insured, depending upon whether the car replaces one which was previously on the policy or is a vehicle which is purchased in addition to those vehicles which were already on the policy. If the vehicle is a replacement vehicle, the insured must notify the insurer within 30 days "only if you wish to add or continue Coverage for Damage to Your Auto." Under a previous form of the policy, all coverages, including property damage coverages, were automatically transferred to the replacement car, "only if the replaced vehicle has been disposed of by the named insured or is inoperable or incapable of further service." Pioneer Casualty Co. v. Jefferson, 456 S.W.2d 410, 412 (Tex. Civ. App. - Houston [14th Dist.] 1970, writ ref’d n.r.e.). However, where the vehicle is an additional vehicle, the carrier must be notified within 30 days after purchase for any coverage to exist. In Guerra v. Sentry Ins., 927 S.W.2d 733 (Tex. App. - Eastland 1996, writ denied), an insured who purchased an additional vehicle was involved in an accident 10 days after purchasing the vehicle. However, the insured did not notify the insurance company until more than 60 days after the accident, "because she thought the other person involved in the accident would pay for the damages". Id at 734-735. The court found there was no coverage because the clear language of the policy required notice to the insurer within 30 days of the acquisition of the vehicle. What happens if the additional vehicle is involved in an accident within the first 30 days but prior to the notification to the carrier of the purchase of the vehicle? In Pride v. State Farm Fire and Cas. Ins. Co., 434 S.W.2d 146 (Tex. Civ. App. - Amarillo 1968, no writ), the court held that "the intervention of an accident after acquisition but before reporting within the prescribed thirty day period, does not invalidate the insurance." Id. at 149. Obviously, a purchaser of a new vehicle should always inform his or her carrier immediately to prevent any such question from ever arising. 2. Temporary Substitute Vehicles As stated above, the definition of "covered auto" includes unowned vehicles which are temporary substitutes because any other vehicle described in the declarations is out of normal use because of breakdown, repair, servicing, loss or destruction. What constitutes a "temporary substitute" will apparently be interpreted fairly liberally. In State Farm Mut. Auto. Ins. Co. v. Cobos, 901 S.W.2d 585 (Tex. App. - El Paso 1995, writ denied), the insured’s son drove his family car to meet his father at a work site. While there, the car was blocked in by other vehicles and the son no longer had the keys, having given them to his aunt earlier in the day. Because he did not have the keys, and because the car was blocked in, he instead took, with his father’s permission, a company truck. The court found that the absence of keys constituted a loss of the vehicle because without keys, the vehicle is "unavailable for normal use". Id. at 590. 3. Insured Vehicles Which Have Been Sold The Houston Court of Appeals in Black v. BLC Ins. Co., 725 S.W.2d 286 (Tex. App. - Houston [1st Dist.] 1986, writ ref’d n.r.e.), considered the situation where a particular vehicle was listed on an insured’s declaration page, but that vehicle had been sold to another person prior to the date of accident. In that case, about four months after the policy had been issued by BLC Insurance, the insured sold one of the vehicles listed on the declarations page. A week later, the vehicle was sold again. Soon thereafter, the new purchaser of the vehicle was involved in an accident while driving the car. The party injured in the accident contended that BLC Insurance had a duty to defend and indemnify his claims. The court found that, in such a case, the liability coverage ceased to attach to the vehicle when it was sold. Id. at 288. See also Gulf Ins. Co. v. Bobo, 595 S.W.2d 847 (Tex. 1980); Pfluger v. Colquitt, 620 S.W.2d 739 (Tex. Civ. App. - Dallas 1991, writ ref’d n.r.e.); Johnson v. Safeco Ins. Co., 464 S.W.2d 164 (Tex. Civ. App. - El Paso 1971, no writ). The named insured and his or her family members are generally covered for rental cars. If the rental car is being used as a temporary substitute because of one of the various reasons listed above, non-family members are also covered while in the rental car. However, if a family goes on vacation and brings along an uninsured friend, liability would not exist under the policy if the uninsured friend was operating the vehicle at the time of the accident. In that situation, the rental car would not fall under any of the definitions of covered auto, nor is the family friend considered a covered person. F. What Constitutes an Auto Accident? The insuring agreement under the liability coverage provides that the carrier "will pay damages for bodily injury or property damage for which any covered person becomes responsible because of an auto accident." The policy does not define what constitutes an auto accident. The definition of "auto accident" was at issue in State Farm. Mut. Ins. Co. v. Peck, 900 S.W.2d 910 (Tex. App. - Amarillo 1995, no writ). In Peck, the insured’s dog bit a passenger in the insured’s vehicle. The court held that "an auto accident" was plain and unambiguous, despite the fact the phrase is not defined in the policy. The court found the phrase referred to situations where "one or more vehicles are involved in some type of collision or near-collision with another vehicle, object, or person." The mere fact that an unattended event takes place in or near a car does not render the event "an auto accident." Id. at 913. The Texas Supreme Court adopted the court’s definition from the Peck case in Farmer’s Texas County Mut. Ins. Co. v. Griffin, 955 S.W.2d 81 (Tex. 1997). In that case, the court held that there was no duty to defend or indemnify in a suit arising from drive-by shooting. In addition to finding that the claims were excluded as intentional acts, the court found the petition did "not allege that (the plaintiffs) injuries resulted from an auto accident." Id. at 83. G.The Carrier’s Duties Arising From the Liability Coverage Insuring Agreement. The insuring agreement obligates a carrier to "pay damages for bodily injury or property damage for which any covered person becomes legally responsible because of an auto accident." The obligation to indemnify is, of course, limited by the policy limits. The typical Personal Auto Policy will provide separate policy limits for "each person" and for "each accident." Texas courts have resisted allowing an additional "per person" limit of liability for claims which arise out of an injury to someone else. In McGovern v. Williams, 741 S.W.2d 373 (Tex. 1987), the Texas Supreme Court held that a family member’s loss of consortium claim does not create a second "per person" limit of liability. The "per person" limitation refers to the person who is actually involved in and injured in the accident in question. Id. at 374. Under the Motor Vehicle Safety-Responsibility Act, Transportation Code §601.001 et. seq., the minimum policy limits required by law are established. A driver who carries liability insurance coverage to establish financial responsibility must have policy limits of $20,000.00 per person for bodily injury, $40,000.00 per accident for bodily injury, and $15,000.00 per accident for property damage. Transportation Code §601.072(a). Especially in situations involving minimum limit policies, carriers are faced with issues regarding inadequate limits. Obviously, as in all cases, the insurer has a duty to evaluate and respond to settlement offers within policy limits with the degree of care and diligence that an ordinarily prudent person would exercise in the management of his or her own business. American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 848 (Tex. 1994); G.A. Stowers Furniture v. American Indemnity Co., 15 S.W.2d 544, 546 (Tex. Comm'n App. 1929, holding approved). A carrier must be acutely sensitive to its Stowers' duties when a claim involves a minimum limits policy. In 1994, the Texas Supreme Court clarified the issue of a carrier's obligations when faced with multiple claimants and inadequate policy limits. The court held in Texas Farmer's Ins. Co. v. Soriano, 881 S.W.2d 312 (Tex. 1994), that a carrier faced with multiple claimants could settle with one or a few claimants to the exclusion of others, if it acts reasonably. Prior to Soriano, carriers concerned about their potential Stowers liability would often interplead their policy limits into the registry of the court, giving the multiple claimants the opportunity to litigate a division of the policy proceeds. The problem with this approach is that it did not actually protect the insured because it would not extinguish the claims of any claimants, but only serve to protect the interests of the carrier. Under Soriano, a carrier handling a multiple party claim may choose to settle one serious claim for policy limits, to the exclusion of other claimants, if it is reasonable to do so, without facing excess exposure. The policy provides that the carrier has the obligation to settle or defend any claim or suit asking for covered damages. The insuring agreement further provides that, "In addition to our limit of liability, we will pay all defense costs we incur. Our duty to settle or defend ends when our limit of liability for this coverage has been exhausted". The duty to defend under an automobile insurance policy is subject to the same general principles that apply to a carrier’s duty to defend under any type of liability policy. The policy does specifically provide that the duty to defend ends when the carrier’s limit of liability has been exhausted. That issue was dealt with in American States Ins. Co. of Tex. v. Arnold, 930 S.W.2d 196 (Tex. App. - Dallas 1996, writ denied). In that case, the issue was whether the insurer could refuse to defend a permissive user after it had paid its per person policy limits to settle a negligent entrustment claim against the owner. The Arnold court concluded that the settlement on behalf of the named insured for the full policy limit terminated the carrier’s duty to defend. Id. at 202. Although withdrawing the defense of an insured facing personal liability may seem harsh, the insured only purchases a limited amount of coverage, and when the carrier has paid up to its limits of liability, it has fulfilled its contractual obligation. a. Failure to Forward Suit Papers The Personal Auto Policy requires the insured to send copies of any notices or legal papers to the carrier. Where an insured has been served with a lawsuit, the insured has the duty to forward the suit papers to the carrier. Obviously, a carrier cannot defend a suit unless it is notified that such a suit exists. It has been held that compliance with the notice provision is a condition precedent to the insurer's liability on the policy. Harwell v. State Farm Mut. Auto. Ins. Co., 896 S.W.2d 170, 173-174 (Tex. 1995); Weaver v. Hartford Acc. & Indem. Co., 570 S.W.2d 367, 369 (Tex. 1978). However, a carrier is not excused from its obligations to its insured unless it can show it was prejudiced by the failure to forward suit papers. Harwell, 896 S.W.2d at 174; Liberty Mut. Ins. Co. v. Cruz, 883 S.W.2d 164, 165 (Tex. 1993). When a carrier is not informed that suit has been filed against its insured until after a default judgment has been taken and the judgment has become final, then clearly the insurer has been prejudiced. See Ratcliff v. National County Mut. Fire. Ins. Co., 735 S.W.2d 955, 957 (Tex. App. - Dallas 1987, no writ). It has also been held that an insurer is prejudiced when notified of the lawsuit after a default has been taken but before the time has expired for filing a motion for new trial. See Kimble v. Aetna Casualty & Surety Co., 767 S.W.2d 846 (Tex. App. - Amarillo 1989, writ denied). However, the law is not so clear when the carrier is aware of the claim against its insured, and may have some knowledge that suit has been or will be filed. In Members Ins. Co. v. Branscum, 803 S.W.2d 462 (Tex. App. - Dallas 1991, no writ), the carrier was aware of the accident involving its insured, and the potential claim arising out of the accident. It participated in settlement negotiations with the claimant's attorney, and when the negotiations failed, the attorney informed the carrier he was filing suit. The attorney filed suit, served the insured, and told the adjuster that suit had been filed. The adjuster sent a letter to the insured requesting she notify him upon receipt of service. The carrier did nothing further to determine whether the insured had been served, nor did the adjuster and the claimant's attorney further discuss the suit. The attorney took a default judgment against the insured, and then sought to enforce the default against the carrier. The claimant took the position that the carrier was not prejudiced by the insured's failure to forward suit papers because the carrier had notice of the claim. The court noted: Actual knowledge of the claim does not equate to actual knowledge of the service of the suit on Members' insured. The assertion that Branscum would file suit and the later assertion that he had filed suit imposed no duty or obligation on the insured or on Members to take any action. It is the service of citation upon the insured which imposes on the insured the duty to answer to prevent a default judgment. No duty is imposed on an insurer until its insured is served and sends the suit papers to the insurer. Id. at 466-467 (emphasis in original). However, in Allstate Ins. Co. v. Pare, 688 S.W.2d 680 (Tex. App. - Beaumont 1985, writ ref'd n.r.e.), the Court of Appeals held that a carrier was not prejudiced by its insured's failure to forward suit papers when the carrier had been provided a copy of the original petition, although undated and unnumbered. After receiving the petition, the Allstate adjuster did not ask the plaintiff's attorney for a certified copy of the petition, the file number, or the filing date. Id. at 684. Despite the fact that the policy places the duty upon the insured to forward the suit papers, courts are reluctant to find prejudice where the carrier may have some knowledge that suit has been filed. See Ohio Cas. Group v. Risinger, 960 S.W.2d 708 (Tex. App. - Tyler 1997, writ denied). See also Harwell, 896 S.W.2d at 174 n.3; Cruz, 883 S.W.2d at 165. Thus, if a plaintiff's attorney sends the carrier a copy of the petition, including the cause number, and a copy of the citation indicating service upon the insured, the insurer probably cannot show prejudice merely by its insured's failure to forward suit papers. For certain insureds, their failure to forward suit papers is often the first sign of their non-cooperation. Carriers are sometimes forced to file answers for insureds whose whereabouts are unknown. Obviously, the insured cannot be said to be cooperating when he is not present to provide information regarding the incident in question, nor would he be able to verify discovery responses. When an event occurs which finally does prejudice the carrier, it would appear that at that point it would be within its rights to terminate the defense. The personal automobile policy provides that in addition to the limits of liability, the carrier will pay on behalf of a covered person: 1. Up to $250.00 for the costs of bail bonds required because of an accident, including related traffic law violations. The accident must result in bodily injury or property damage covered under this policy. 2.Premiums on appeal bonds and bonds to release attachments in any suit we defend. 3.Interest accruing after a judgment is entered in any suit we defend. Our duty to pay interest ends when we offer to pay that part of the judgment which does not exceed our limit of liability for this coverage. 4.Up to $50 a day for loss of earnings, but not other income, because of attendance at hearings or trials at our request. 5. Other reasonable expenses incurred at our request. Obviously, from the language above, the carrier is obligated to pay postjudgment interest. However, a more hotly disputed issue is the extent to which the carrier is obligated to pay prejudgment interest. Prejudgment interest is referenced in the insuring where it states: "Damages include prejudgment interest awarded against the covered person." The question becomes whether the carrier is responsible to pay prejudgment interest when there is a judgment taken which is equal to or in excess of policy limit. A general liability policy includes the provision that, "The company will pay, in addition to the applicable limit of liability, prejudgment interest awarded against the insured on the part of the judgment the company pays." However, the Personal Auto Policy does not provide such clear direction. In Potomac Ins. Co. v. Howard, 813 S.W.2d 557 (Tex. App. - Houston [14th Dist.] 1991, no writ), the Court of Appeals ordered the carrier to pay damages plus prejudgment interest in an amount which exceeded the policy limits. However, Howard was an uninsured motorist case, which may distinguish from a liability claim. As mentioned above, the policy provides that prejudgment interest is to be included as damages under the policy, and the limit of liability provides that the limits are "the maximum limit of liability for all damages for bodily injury." 1. Intentionally Caused Damage The policy excludes liability coverage for anyone who "intentionally causes bodily injury or property damage." In Misle v. State Farm Auto Ins. Co., 908 S.W.2d 289 (Tex. App. - Austin 1995, no writ), the issue was whether a shooting from a car with a BB gun was excluded as an intentionally caused injury. The court quoted State Farm Fire & Cas. Co. v. S.S. & G.W., 858 S.W.2d 374, 378 (Tex. 1993), wherein the court stated "an insured intends to injure or harm another if he intends the consequences of his act, or believes they are substantially certain to follow." In the case at hand, the shooter had testified he was not intending to harm anyone; he just wanted to get a "reaction" from those he shot. The court found this meant he must have intended the BBs to cause an offensive bodily contact; otherwise, there could be no "reaction." Id. at 291. As the would-be insured had clearly intended to cause the bodily injury, the court held there was no duty to defend. A similar result was reached by the Texas Supreme Court in Farmer’s Texas County Mut. Ins. Co. v. Griffin, 995 S.W.2d 81 (Tex. 1997). In that case, the court considered a carrier’s duty to defend a suit which alleged negligence and gross negligence arising out of a drive-by shooting. Although the petition’s allegations and the policy language determine the duty to defend, the court found that the focus must be on the factual allegations in the petition rather than the legal theories asserted. Id. at 82. Without much discussion, the court found the drive-by shooting was an intentional act, which was excluded from coverage. Id. at 83. 2. Owned but Uninsured Motor Vehicles The Personal Auto Policy excludes from liability coverage claims arising out of the ownership, maintenance, or use of any vehicle other than your covered auto "which is owned by you; or furnished or available for your regular use." The purpose of this exclusion is obviously to prohibit the insured from having multiple cars covered under one policy when the insured is paying a premium for only one vehicle. See Benjamin v. Plains Ins., 650 F.2d 98, 100 (5th Cir. 1981). In State Farm Mut. Auto Ins. Co. v. Cobos, 901 S.W.2d 585 (Tex. App. - El Paso 1995, writ denied), the named insured was provided a company vehicle for use on the job and for transportation to and for his work place. The insured testified he rarely used the vehicle for purposes unrelated to work, although it appears on the date of the accident, the insured had driven the vehicle to a relative’s house to assist in roofing repair work. The court found that whether the vehicle was furnished for regular use was a fact question, and found that there was some evidence to support the jury’s finding that the vehicle was not furnished or available for the insured’s regular use. The court quoted with approval an Oregon case which found the phrase "furnished for regular use" implies a right to regular use of the automobile in the sense there is an expressed or implied understanding that the insured could use the automobile at any such time he desired, if available. Id. at 589, quoting George B. Wallace v. State Farm Automobile Ins. Co., 220 Or.520, 349 P.2d 789 (1960). Until 1987, Texas common law did not allow spouses to sue each other for personal injuries. In Price v. Price, 732 S.W.2d 316 (Tex. 1987), the Supreme Court of Texas abolished the doctrine of interspousal immunity in negligence actions for personal injuries. That same year, the State Board of Insurance approved Form 575, which contains the family member exclusion. This provides, "We do not provide Liability Coverage for you or any family member for bodily injuries to you or any family member." In a plurality opinion, the Texas Supreme Court partially struck down the family member exclusion in National County Mut. Fire Ins. Co. v. Johnson, 879 S.W.2d 1 (Tex. 1993). The court found that the family member exclusion was void because it prevented those persons related to and living with a tortfeasor from receiving financial protection mandated by statute. Id. at 3. Although the four justices who joined in the plurality opinion were arguing the family member exclusion was completely void, the fifth vote on their side came from Justice Cornyn, who issued a concurring and dissenting opinion, finding that the exclusion was invalid "only up to the minimum amount of mandated liability insurance." Id. at 6. In other words, a spouse could recover up to only $20,000.00 under the liability coverage available to their spouse, regardless of the actual policy limit. The decision in Johnson caused some disagreement as to the effect of the court’s opinion. However, any doubts were settled in Liberty Mut. Fire Ins. Co. v. Sanford, 879 S.W.2d 9 (Tex. 1994) (per curiam), in which the court stated that the scope of their decision in Johnson was determined by the concurring and dissenting opinion: "[T]he family member exclusion is invalid only to the extent it conflicts with the Texas Safety Responsibility Act ... that is, to the statutorily-imposed minimum limit of automobile liability insurance imposed by the Act." Quoting Johnson, 879 S.W.2d at 2, note 1(Cornyn, J., concurring and dissenting). Under the Liability Coverage section of the Personal Auto Policy, punitive damages are covered, to the extent the total damages do not exceed the policy limits. See Manriquez v. Mid-Century Ins. Co., 779 S.W.2d 482, 484 (Tex. App. - El Paso 1989, writ denied ); American Home Assurance Co. v. Safway Steel Products Co., Inc., 743 S.W.2d 693 (Tex. App. - Austin 1987, writ denied); Home Indemnity Co. v. Tyler, 522 S.W.2d 594 (Tex. App. - Houston [14th Dist.] 1975, writ ref'd n.r.e.); and Dairyland County Mut. Ins. Co. v. Wallgren, 477 S.W.2d 341 (Tex. Civ. App. - Fort Worth 1972, writ ref'd n.r.e). III. PERSONAL INJURY PROTECTION COVERAGE Personal injury protection ("PIP") is required to be offered as part of every personal automobile policy in Texas, and is made a part of the policy unless any named insured has rejected the coverage in writing. Tex. Ins. Code art. 5.06 -3(a). For subsequent renewal policies, the initial rejection is valid, unless the insured thereafter requests such coverage in writing. To be effective, rejection of PIP coverage must be written in clear and express language and signed by the insured. Uniguard Sec. Ins. Co. v. Shaefer, 572 S.W.2d 303, 308 (Tex. 1978). However, there is no requirement that the written rejection must be attached to the policy to be effective. Ortiz v. State Farm Mut. Auto. Ins. Co., 955 S.W.2d 353, 358 (Tex. App. - San Antonio 1997, writ denied). See also Berry v. Texas Farm Bureau Mut. Ins. Co., 782 S.W.2d 246 (Tex. App. - Waco 1989, no writ). Personal injury protection is a coverage which provides reimbursement for incurred medical and funeral expenses, replacement of 80% of loss of income for an employed income producer, or if the injured person was not an income producer, then reimbursement for reasonable expenses incurred for obtaining household services. Tex. Ins. Code art. 5.06-3(b). The statute provides that if the insurer fails to pay PIP benefits within 30 days of receipt of satisfactory proof, the person entitled to the benefits may sue in contract to recover the same. If the insurer is required to pay the benefits, the insured is entitled to recover, in addition to the benefits, reasonable attorney's fees, a 12% penalty, and interest. Art. 5.06-3(d)(3). The standard personal auto policy provides for payment of only 80% of covered person's loss of income. However, Article 5.06-3 specifically provides that PIP consists of payment of benefits for "loss of income, as a result of the accident". The carrier's 80% limitation on loss of income recoverable under PIP was unsuccessfully challenged in a class action suit which alleged conspiracy with the State Board of Insurance to deny statutorily required benefits. Springfield v. Aetna Cas. & Sure Ins. Co., 612 S.W.2d 285, 289-290 (Tex. Civ. App. - Austin 1991) writ ref'd n.r.e. per curiam 620 S.W.2d 557, 558 (Tex. 1981). The insuring agreement under the PIP coverage provides as follows: A. We will pay Personal Injury Protection benefits because of bodily injury: 1. resulting from a motor vehicle accident; and 2. sustained by a covered person. Our payment will only be for losses or expenses incurred within three years from the date of accident. Exactly what constitutes a motor vehicle accident under this coverage has been the matter of some dispute. In Le v. Farmers Texas County Mut. Ins. Co., 936 S.W.2d 317 (Tex. App. - Houston [1st Dist.] 1996, writ denied), the plaintiffs sought PIP and uninsured motorists benefits arising from an incident in which the plaintiff was riding in the backseat of an automobile when he was shot by someone in another automobile. The court considered whether PIP coverage applies to cover injuries "from any accidents that happen to occur in a car or only those injuries that result from automobile accidents." Id. at 323. The court noted that Article 5.06-3(b) does not limit the term "accident" to motor vehicle accidents. However, the policy language which limits PIP coverage to motor vehicle accidents is in the policy form approved by what was then known as the State Board of Insurance. Id. at 323-324. The court held that the term "the accident" under the PIP statute would be interpreted to mean "a motor vehicle accident, not any accident which happens to occur in a motor vehicle". See also Schulze v. State Farm Mut. Auto. Ins. Co., 930 S.W.2d 872 (Tex. App. - Houston [1st Dist.] 1996, no writ); but see, Berry v. Dairyland County Mut. Ins. Co., 534 S.W.2d 428 (Tex. Civ. App. - Fort Worth 1976, no writ). Personal injury protection extends to the named insured or any family member "while occupying or when struck by" a motor vehicle designed for use on public roads or a trailer. It also provides coverage to any other person while occupying "your covered auto with your permission". Obviously, if the named insured or any family member is struck by a motor vehicle, including a motorcycle, coverage is provided under PIP. The benefits payable under PIP are paid regardless of fault on the part of the insured or any other person. Tex. Ins. Code art. 5.06-3. Therefore, PIP is often called "no fault" insurance. See USAA v. Perry, 102 F.3d 144 (5th Cir. 1997). D. Personal Injury Protection Exclusions The PIP section of the policy provides for five exclusions. There is no coverage for any person for bodily injuries sustained: 1. In an accident caused intentionally by that person; 2. By that person while in commission of a felony; 3. By that person while attempting to allude arrest by a law enforcement official; 4. While occupying, or when struck by, any motor vehicle (other than your covered auto), which is owned by you; and 5. By a family member while occupying, or when struck by any motor vehicle (other than your covered auto) which is owned by a family member. A Personal Auto Policy may also exclude PIP coverage for specific persons if the named insured executes a form agreeing to the exclusion and stating the name of the excluded driver. Simms v. Standard Fire Ins. Co., 781 S.W.2d 328, 329-331 (Tex. App. - Houston [1st Dist.] 1989, writ denied). However, to be valid, the exclusionary endorsement must specifically reference personal injury protection coverage. See Unigard Sec. Ins. Co. v. Schaefer, 572 S.W.2d 303, 306-308 (Tex. 1978). E. Stacking of PIP Coverage Prohibited The PIP section of the policy contains an "other insurance" clause. If there is more than one policy with PIP protection benefits available to a covered person, each insurer pays its proportional share which is "the proportion that our limit of liability bears to the total of all applicable limits". However, the policy specifically provides that "with respect to a vehicle you do not own [this insurance] shall be excess over any other collectible Personal Injury Protection Insurance". Where a person has a single policy on which multiple vehicles are insured, courts have uniformly held that insureds may not stack the PIP limits. Carter v. Republic Ins. Co., 579 S.W.2d 326, 328 -329 (Tex. Civ. App. - Fort Worth, 1979 writ ref'd n.r.e); Guerrero v. Aetna Cas. & Sur. Co., 575 S.W.2d 323, 326 (Tex. Civ. App. - San Antonio 1978, no writ). However, when the insured is covered under more than one policy which provides PIP benefits, an insured may be entitled to recover under more than one policy if the insured's actual losses exceed the policy limits under one of the two applicable policies. See Travelers Indem. Co. v. Lucas, 378 S.W.2d 732, 735-736 (Tex. App. - Texarkana 1984, no writ). Under no circumstances can an insured have a double recovery by being reimbursed for the same expenses under two separate policies. See United Services Auto Ass'n. v. DiCarlo, 670 S.W.2d 756, 785 (Tex. App. - El Paso 1984, writ ref'd n.r.e.). F. Personal Injury Protection Offset Article 5.06-3 specifically gives carriers the right to offset PIP payments against amounts awarded to any guests or passengers on any claims payable under third party liability coverage. The controversy surrounding PIP offsets concerns whether a carrier may offset amounts payable under uninsured motorists coverage by amounts already paid under the PIP. Under the uninsured/underinsured motorist coverage portion of the policy, the policy specifically provides as follows:
In 1982, the Texas Supreme Court rendered its decision in Dabney v. Home Ins. Co., 643 S.W.2d 386 (Tex. 1982). In Dabney, the court held an insurer was not entitled to offset payments made under PIP coverage against claims payable under uninsured motorist coverage. The 14th District Court of Appeals interpreted Dabney in James v. Nationwide Property & Casualty Ins. Co., 786 S.W.2d 91, 94 (Tex. App. - Houston [14th Dist.] 1990, no writ) to mean that an insurer could take an offset in certain situations as long as the offset did not reduce the amount payable below the statutorily imposed minimum amounts of uninsured motorists coverage. Id. at 94. In Kim v. State Farm Mut. Auto. Ins. Co., 966 S.W.2d 776 (Tex. App. - Dallas 1998), the Dallas Court of Appeals distinguished the Dabney decision by noting that the current form of the Personal Auto Policy specifically provides for an offset to avoid permitting recoveries in excess of actual damages, while the policy in Dabney did not. However, a recent decision from the San Antonio Court of Appeals further muddies the issue. In Nationwide Ins. Co. v. Gerlich, ___S.W.2d ___ , No. 04-96-00417-CV, (Tex. App. - San Antonio June 10, 1998, n.w.h.), Justice Alma L. Lopez, writing for the plurality, interpreted Dabney as holding all offsets of PIP payments under uninsured motorists coverage were invalid, regardless of whether or not it would reduce the amounts payable below the statutory minimum limits. The court also found that the PIP benefits should be treated as a collateral source, and therefore, the carrier should not be able to reduce its payment under the uninsured coverage by such a collateral source. The case was heard en banc, with three justices voting for the plurality, Justice Tom Rickhoff concurring in the decision without comment, and three justices dissenting. Given the conflict between the Courts of Appeal and the confusion surrounding the Dabney opinion, this certainly seems to be an appropriate issue to be addressed by the Texas Supreme Court. Medical payments coverage is provided as an alternative to personal injury protection and is available in the Personal Auto Policy for payment of an additional premium. As in the case of PIP, it provides for reimbursement for medical and funeral expenses incurred which were caused by an accident and sustained by a covered person. However, medical payments does not provide any benefits to reimburse the insured for lost income or for services for the care and maintenance of the household. The standard exclusions from coverage for medical payments coverage are similar to those contained in the liability section of the policy. For example, coverage for any person for bodily injury sustained during the course of employment for which worker's compensation benefits are payable is excluded under both the liability and medical payments section of the policy. See Williams v. Employer's Mutual Casualty Company, 368 S.W.2d 122, 123-124 (Tex. Civ. App. - San Antonio 1963, no writ). V. UNINSURED/UNDERINSURED MOTORIST COVERAGE The insuring agreement under the uninsured/underinsured motorists coverage provides as follows:
The purpose of uninsured/underinsured motorist coverage is the protection of persons who are legally entitled to recover damages from the owners or operators of uninsured or underinsured motor vehicles. Stracener v. United Serv. Auto. Ass'n., 777 S.W.2d 378, 382 (Tex. 1989). In other words, this coverage substitutes for liability insurance normally available to compensate injured persons. Simpson v. GEICO General Ins. Co., 907 S.W.2d 942, 946 (Tex. App. - Houston [1st Dist.] 1995, no writ). Uninsured motorist coverage is designed to place an injured party in the same position they would have been in had the other motorist been insured. Sikes v. Zuloaga, 830 S.W.2d 752, 753 (Tex. App. - Austin 1992, no writ); Greene v. Great Amer. Ins. Co., 516 S.W.2d 739, 743 (Tex. Civ. App. - Beaumont 1974, writ ref'd n.r.e.). C. Arising out of the Ownership, Maintenance, or Use As stated above, the policy requires that the liability of owner or operator of the uninsured or underinsured motor vehicle arises from the "ownership, maintenance, or use of that vehicle". Obviously, the typical automobile accident is going to arise out of the ownership, maintenance, or use of the uninsured/underinsured motor vehicle. However, there has been a good deal of litigation concerning whether shootings, both intentional or accidental, create liability arising out of the ownership, maintenance, or use of a vehicle. When the shooting involves an intentional act, such as in the case of a drive-by shooting, courts typically find that the incident does not arise out of the ownership, maintenance, or use of the motor vehicle. For example, in Le v. Farmers Texas County Mut. Ins. Co., 936 S.W.2d 317 (Tex. App. - Houston [1st Dist. 1996], writ denied), the court quoted a three part test set out in 6B Appleman, Insurance Law & Practice § 4317 (Buckley ed. 1979), which construed the word "use" as follows:
Id. at 361. The court found that the plaintiff's injuries, which were sustained while riding as a passenger in a car when he was shot by a person in a passing automobile, were caused by a gun, not by an automobile. Id. See also Collier v. Employers Nat'l Ins. Co., 861 S.W.2d 286, 288 (Tex. App. - Houston [14th Dist.] 1993, writ denied). However, under the right circumstances, a court may find that there is use of an automobile when there has been a shooting from the vehicle. In Whitehead v. State Farm Mut. Auto Ins. Co., 952 S.W.2d 79 (Tex. App. - Texarkana 1997, no writ), the driver of a pickup was killed when fired upon by a passenger in a van. The shooter, Kevin Hawkins, had been picked up by his brother from a nightclub. As they were leaving, Kevin Hawkins saw an individual with whom he believed he had earlier had a quarrel. Kevin Hawkins instructed his brother to chase the pickup truck in which the person was riding so Kevin could shoot that person. As the van pulled alongside the truck, Kevin Hawkins fired 8 shots, which killed the driver, causing the pickup to go out of control. The truck hit a bridge stanchion, severely injuring the passenger. The passenger and the driver's survivors made claims for uninsured/underinsured benefits which were denied because the shooting was not a use of the uninsured vehicle. The court found that the term "use" was a catchall term not limited to the ordinary use of a vehicle. In the court's opinion, any exercise of control over the vehicle constituted a use, and the fact the van was used as a moving gun platform did not exclude the possibility of liability under the UM portion of the policy. "The van was used to overtake the victim's vehicle and to give the shooter an opportunity to fire into the other vehicle." This was a use of the vehicle and would fall within the meaning of the term use under the policy. Id. at 84. The Texarkana Court of Appeals also found that a shooting was the use of a vehicle in MidCentury Ins. Co. of Texas v. Lindsey, 942 S.W.2d 140 (Tex. App. - Texarkana 1987, writ granted), although that case involved an accidental shooting. In Lindsay, a nine year old boy, climbing through the back window of his family's pickup, accidentally caused the discharge of a loaded shotgun located on the gunrack. Buckshot entered the vehicle parked next to the truck, striking plaintiff Richard Lindsey in the head, causing injuries. The damages sustained by Lindsey exceeded the liability policy limits on the pickup truck, so Lindsey made an underinsured motorist claim. In determining whether liability arose from the use of a vehicle, the court considered a number of other "gunrack" cases from around the country and found that transportation of a firearm is an ordinary use of a vehicle with a gunrack. Id. at 148. As the court stated, "It especially can be assumed to be within contemplation of the parties [to an insurance policy] that a pickup truck in Texas might be used to carry a gun." The Supreme Court of Texas has granted writ of error in the Lindsey case and may have already given a preview how it will decide the Lindsey case. The Court recently addressed the issue as to whether an alleged accidental shooting from a motor vehicle constituted use of the motor vehicle under the liability section of the automobile policy in National Union Fire Ins. Co. of Pittsburgh v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139 (Tex. 1997). The issue in that case was determining whether the carrier had a duty to defend a lawsuit which alleged that a truck driver "negligently discharged a firearm and caused a bullet to strike" a passenger in a vehicle driving alongside the truck. Id. at 141. The court correctly applied the complaint allegation rule, and therefore, considered only the allegations within the petition. The pleadings did not allege that the plaintiff's injury was caused by an accident "resulting from" the use of the covered auto. Id. The court stated that "a causal relation between the injury and the use of the auto is essential to recovery, and the mere fact that an automobile is the situs of an accident is not enough to establish the necessary nexus between the use and the accident to reach the conclusion that the accident resulted from the use of a motor vehicle." Id. Thus, the court held that there was no duty to defend in the underlying lawsuit. D. Legally Entitled to Recovery In United Services Auto. Ass'n. v. Blakemore, 782 S.W.2d 277 (Tex. App. - Waco 1989, writ denied), the Court of Appeals found that the term "legally entitled to recover" under an uninsured motorist policy simply meant that the insured must be able to show fault on the part of the uninsured motorist and the extent of the insured's damages. Thus, the fact in that case that the uninsured driver could not be liable to the plaintiff because of governmental immunity was not a bar to the plaintiff's claim against his uninsured motorist carrier. Id. at 279. Furthermore, in Franco v. Allstate Ins. Co., 505 S.W.2d 789 (Tex. 1974), the Texas Supreme Court held that an action against a UM carrier was not barred even though the statute of limitations had expired for an action between the insured and a responsible uninsured driver. Id. at 792. However, in Valentine v. Safeco Lloyds Ins. Co., 929 S.W.2d 639 (Tex. App. - Houston [1st Dist.] 1996, writ denied), the court was presented with the question of whether a person could seek uninsured/underinsured motorist benefits arising out of her employer's negligence when that person had already received worker's compensation benefits. Valentine was employed by UPS as a driver. She fell off the rear bumper while loading her truck and was injured, and she alleged the accident was caused by UPS's negligence in failing to properly repair the back bumper. She received $30,000.00 in worker's compensation benefits, and then sued both UPS's auto liability insurer and her own uninsured motorist carrier. Both carriers were granted summary judgment, and Valentine only appealed the summary judgment granted in favor of her UM carrier. Id. at 641. Valentine claimed that UPS was underinsured because she was limited to collecting $30,000.00 in worker’s compensation from UPS and that was insufficient to cover her actual damages. The court considered the policy requirement that the carrier pay damages "which a covered person is legally entitled to recover from the owner or operator of an uninsured motor vehicle." The court found that due to the worker's compensation bar, which prevented Valentine from suing UPS, Valentine was not legally entitled to recover from UPS in this situation, and uninsured motorist coverage would not be available. Id. at 644. The court also seemed persuaded by the fact that UPS was not a "financially irresponsible motorist," as it maintained automobile liability insurance which met the statutory requirements. Id. The fact that UPS "maintained automobile liability insurance that met the statutory requirements" seems irrelevant because a party may have the required minimum limits, and still be considered "underinsured," as the plaintiff was asserting. E. Texas Insurance Code art. 5.06-1 Every automobile liability policy "delivered or issued for delivery in Texas" must provide coverage for loss caused by uninsured or underinsured motor vehicles unless the coverage is waived as authorized by statute. Article 5.06-1(1) states the coverage must provide the minimum limits described in the Texas Motor Vehicle Safety Responsibility Act, Transportation Code § 601.072. Id. These limits are $20,000.00 per person, $40,000.00 per accident, and $15,000.00 for property damage. Transportation Code § 601.072. Uninsured/underinsured motorist coverage must be offered as part of every automobile liability policy, and then the insured has the option to accept or reject the coverage. To reject the coverage, the statute requires the rejection be in writing. Art. 5.06-1. Clearly, an oral rejection would not waive coverage. See Employer's Cas. Co. v. Sloan, 565 S.W.2d 580, 583-584 (Tex. Civ. App. - Austin 1978, writ ref'd n.r.e.). A court will not consider the parties' intent in determining whether a valid rejection of uninsured/underinsured motorists coverage exists, and a policy may not be reformed to reject such coverage retroactively. Howard v. INA County Mut. Ins. Co., 933 S.W.2d 212, 219-220 (Tex. App. - Dallas 1996, writ denied). The original rejection carries forward to all subsequent renewals of the policy. Art. 5.06-1(1). Creative lawyers have attempted to create coverage by claiming that a personal umbrella policy must provide uninsured/underinsured motorists coverage unless there has been a specific written rejection of that coverage. This argument has not succeeded because such policies are not considered "automobile liability insurance" for purposes of Art. 5.06-1. See Sidelnik v. American States Ins. Co., 914 S.W.2d 689, 694 (Tex. App. - Austin 1996, writ denied). F. What Constitutes Uninsured/Underinsured? The policy defines four types of vehicles or trailers which would be uninsured motor vehicles. They are as follows: 1. To which no liability bond or policy applies at the time of the accident, 2. Which is a hit and run vehicle whose operator or owner cannot be identified and which hits:
3. To which a liability bond or policy applies at the time of the accident but the bonding or insuring company:
4. Which is an underinsured motor vehicle. An uninsured motor vehicle is one to which a liability bond or policy applies at the time of the accident but its limit of liability either:
There has been a fair amount of litigation concerning what constitutes a hit and run vehicle under the uninsured/underinsured motorists coverage. For another vehicle to be considered a "hit and run" vehicle, there must be physical contact between the claimant's vehicle and the unidentified vehicle. See Young v. State Farm Mut. Auto. Ins. Co., 711 S.W.2d 262 (Tex. App. - El Paso 1986, writ ref'd n.r.e.); Phelps v. Twin City Fire Ins. Co., 476 S.W.2d 419 (Tex. Civ. App. - Beaumont 1972, writ ref'd n.r.e.). Therefore, a claimant who overturned her vehicle to avoid a collision with an unidentified automobile was not entitled to uninsured motorists benefits because there was no physical contact. Beacon Nat. Ins. Co. v. Fenwick, 557 S.W.2d 379 (Tex. Civ. App. - Eastland 1977, writ dism'd). The contact between the vehicles must be direct physical contact with the uninsured vehicle or a situation in which the uninsured vehicle creates an uninterrupted chain of physical events between another motor vehicle or vehicles which ultimately results in the insured's injury or property damage. Thus, when pieces of iron fell from an uninsured truck and struck the insured's vehicle, this was found not to be physical contact. Williams v. Allstate Ins. Co., 849 S.W.2d 859 (Tex. App. - Beaumont 1993, no writ); see also Republic Ins. Co. v. Stoker, 903 S.W.2d 338 (Tex. 1995) (when an unidentified pickup truck dropped a load of furniture on the highway, causing a chain reaction collision, no physical contact occurred between the uninsured pickup and the claimant's vehicle). In fact, the actual physical contact requirement has been adopted by statute. Art. 5.06-1(2)(d). An indirect collision may satisfy the actual physical contact requirement, but only if an unidentified driver hits one car, which hits another, which then hits the claimant's car. This indirect contact does meet the physical contact requirements. Latham v. Mountain States Mut. Casualty Co., 482 S.W.2d 655, 657 (Tex. Civ. App. - Houston [1st Dist.] 1972, writ ref'd n.r.e.). However, a drive-by shooting in which shots are fired from one vehicle to another does not satisfy the actual physical contact requirements. Le v. Farmers Texas County Mut. Ins. Co., 936 S.W.2d 317, 322 (Tex. App. - Houston [1st Dist.] 1996, writ denied). The term "underinsured motor vehicle" formerly was the subject of a great deal of litigation because of the way the term was defined. The personal auto policy used to define the term, in part, as one to which a liability bond or policy applies but its limit of liability "is less than the limit of liability for this coverage." See Stracener v. United Serv. Auto Ass'n, 777 S.W.2d 378, 380 (Tex. 1989). Under the current definition, an uninsured vehicle is simply one which has a liability bond or policy but its limits of liability are "not enough to pay the full amount the covered person is legally entitled to recover as damages." Thus, it is simply a matter of comparing the liability dollars available to pay the insured's claim with the extent of the insured's damages. If the damages exceed the amount of liability insurance available, then the vehicle is underinsured. The policy specifically provides that certain vehicles are not included within the definition of uninsured motor vehicle. These include vehicles operated on rails or crawler treads, vehicles designed mainly for use off public roads while not on public roads, and vehicles "while located for use as a residence or premises." The policy also specifically excepts from the definition of uninsured motor vehicle, any vehicle or equipment "owned by or furnished or available for the regular use of you or any family member." One effect of this exception is to exclude from coverage uninsured/underinsured claims by passengers against the operator of the vehicle in which they were riding. In Scarborough v. Employers Cas. Co., 820 S.W.2d 32 (Tex. App. - Fort Worth 1991, writ denied), a husband and wife were driving in their vehicle, when the husband lost control of the car and jumped a median into oncoming traffic. The wife was injured in the accident, and she sued her husband, seeking his liability coverage. Additionally, she made a claim for uninsured/underinsured benefits. The court found that the exception under UM coverage for vehicles "owned by or furnished or available for the regular use of you or any family member" was unambiguous, and did not violate contravene the purpose of Article 5.06-1 of the Texas Insurance Code. Id. at 34. See also Burgensen v. Hartford Ins. Co. of the Midwest, 845 S.W.2d 374 (Tex. App. - Houston [1st Dist.] 1992, writ ref'd n.r.e.) (the underinsured provision of the contract was intended to protect the Burgensens from other motorists who fail to maintain adequate coverage on their vehicles, not to protect the Burgensens from their own failure to maintain adequate liability insurance). Two cases have held the exclusion did not apply to the facts presented in those cases because of the likely subjective belief of the insured. In Briones v. State Farm Mut. Auto Ins. Co., 790 S.W.2d 70 (Tex. App. - San Antonio 1990, writ denied), a worker who was injured while a passenger in an uninsured truck owned by his employer and being driven by an uninsured co-employee, was allowed to recover uninsured motorists coverage, despite the fact the truck was available for his regular use. The court held that when the worker purchased the insurance, he probably believed he would be protected if involved in an accident and while a passenger in an uninsured motor vehicle owned by his employer and driven by an uninsured co-employee. Id. at 73. Additionally, this exclusion was not enforced to deny coverage for injuries inflicted by an uninsured thief who was stealing the insured's vehicle, because it was unlikely that the insured realized that her uninsured coverage would not apply under these circumstances. Fontanez v. Texas Farm Bureau Ins. Companies, 840 S.W.2d 647, 649-650 (Tex. App. - Tyler 1992, no writ). The Texas personal auto policy excludes uninsured/underinsured motorists coverage for any person: 1. For bodily injury sustained while occupying or when struck by, any motor vehicle or trailer of any type owned by you or any family member which is not insured for this coverage under this policy. 2. If that person or the legal representative settles the claim without our written consent. 3. When your covered auto is:
4. For the first $250.00 of the amount of damage to the property of that person as the result of any one accident. 5. Using a vehicle without a reasonable belief that the person is entitled to do so. This exclusion (A.5.) does not apply to you or any family member, using your covered auto. 6. For bodily injury or property damage resulting from the intentional acts of that person. The exclusion for injuries sustained while occupying a vehicle you own which is not insured under the policy has been held to be enforceable and not an unauthorized limitation on the statutory coverage. See Beaupre v. Standard Fire Ins. Co., 736 S.W.2d 237, 238-239 (Tex. App. - Corpus Christi 1987, writ denied); Berry v. Texas Farm Bureau Mut. Ins. Co., 782 S.W.2d 246, 246-247 (Tex. App. - Waco 1989, writ denied). Exclusion 2 provides there is no coverage "if that person or the legal representative settles the claim without our written consent." A settlement with the uninsured/underinsured driver formerly operated as an absolute bar to a later claim against an uninsured motorist carrier. See Castorena v. Employers Cas. Co., 526 S.W.2d 680 (Tex. Civ. App. - El Paso 1975, writ ref'd n.r.e.); McClelland v. United Services Auto. Ass'n., 525 S.W.2d 271 (Tex. Civ. App. - Beaumont 1975, writ ref'd n.r.e.); Jessie v. Security Mut. Cas. Co., 488 S.W.2d 140 (Tex. Civ. App. - Fort Worth 1972, writ ref'd n.r.e.). The purpose of this exception was to require the insured to protect the subrogation rights of the carrier. If the insured had already settled with the tortfeasor, this destroyed the subrogation rights of the carrier. See Dairyland County Mutual Ins. Co. v. Roman, 498 S.W.2d 154, 159 (Tex. 1973). However, in Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691 (Tex. 1994), the Supreme Court of Texas held that a breach of a provision in a contract must be material before the other party is discharged or excused from any obligation to perform. Id. at 692. In certain situations, the insured's settlement without the consent of the carrier extinguishes a valuable right: the right of subrogation against a tortfeasor who may have the assets to pay a subrogation claim. However, where sufficient assets may not exist to satisfy a judgment, the insurer is not prejudiced by a settlement, and the insured's breach is not material. Thus, "an insurer who is not prejudiced by an insured's settlement may not deny coverage under an uninsured/underinsured motorists policy that contains a settlement-without-consent clause." Id at 693. When a tortfeasor does not have sufficient assets which could be recovered by a carrier in a subrogation action, the carrier is not prejudiced by its insured's agreement to a settlement without the carrier's consent. The insuring agreement under the uninsured/underinsured motorists coverage provides, "Any judgment for damages arising out of a suit brought without our consent is not binding on us." This provision has been upheld as enforceable. U.S. Fire Ins. Co. v. Millard, 847 S.W.2d 668 (Tex. App. - Houston [1st Dist.] 1993, orig. proceeding). If the insured attempts to obtain a judgment against a negligent party without the permission of the carrier, the carrier will not be liable to the insured for the judgment obtained against the negligent driver. GEICO v. Lichte, 792 S.W.2d 546-548 (Tex. App. - El Paso 1990), writ denied per curiam, 825 S.W.2d 431 (Tex. 1991). In that case, the insured obtained a default judgment against the negligent party, and attempted to enforce that judgment against the uninsured/underinsured motorist carrier. Under the limit of liability portion of the uninsured/underinsured motorists coverage, the policy specifically provides as follows:
As discussed in more detail under the Personal Injury Protection section of this paper, this language is utilized by carriers to reduce their total liability under the UM/UIM for payments previously made under the PIP coverage. However, this does not appear to be permissible in situations where it reduces the amounts payable below the statutorily imposed minimum amounts of UM/UIM protection. See Dabney v. Home Ins. Co., 643 S.W.2d 386, 389 (Tex. 1982); James v. Nationwide Property & Cas. Ins. Co., 786 S.W.2d 91, 94 (Tex. App. - Houston [14th Dist.] 1990, no writ). However, given the plurality opinion in Nationwide Mutual Ins. Co. v. Gerlich, ____ S.W.2d ____, No. 04-96-00417-CV (Tex. App. - San Antonio June 10, 1998, n.w.h.), this issue seems to be one begging for review by the Supreme Court of Texas. In Westchester Fire Ins. Co. v. Tucker, 512 S.W.2d 679 (Tex. 1974), the Texas Supreme Court held that the policy provision requiring payments under medical expense coverage to be credited on amounts otherwise recoverable under the uninsured motorist coverage was ineffective to the extent that it reduced the uninsured motorist protection below the minimum limits required by statute. Id. at 685-686. Thus, it appears the carrier is permitted to take an offset for payments made under the med pay coverage so long as it does not reduce the payment below the statutorily imposed minimums for uninsured motorists coverage. In Hamaker v. American States Ins. Co. of Texas, 493 S.W.2d 893 (Tex. Civ. App. - Houston [1st Dist.] 1973, writ ref'd n.r.e.), the court considered the offset taken for payment of worker's compensation benefits. Again, because the offset may take the payments below the statutorily required minimum, the offset was held to be ineffective. However, the case seemed to go further than simply holding that the offset was invalid to the extent it reduced the amount paid below the statutorily required minimum. Instead, the Court held that "the subsequent provision reducing the 'amount payable' because of bodily injury by 'the amount paid and the present value of all amounts payable on account of such bodily injury under any worker's compensation law' .... is invalid." Id. at 898. See also Fidelity & Casualty Co. of New York v. McMahon, 487 S.W.2d 371 (Tex. Civ. App. - Beaumont 1972, writ ref'd n.r.e.). Under the limit of liability section of the uninsured/underinsured motorists coverage, the policy provides that, "Any payment made under this coverage to or for a covered person will reduce any amount that person is entitled to recover for the same damages under the Liability Coverage of this policy." Thus, in those situations where a person may be entitled to make either a liability claim or an uninsured/underinsured motorists claim under the same policy, they will not recover two separate policy limits, as the amount they recover under one coverage reduces the amount available under the other coverage. In the past, there has been an issue as to whether amounts recoverable under uninsured motorists coverage include punitive damages which may have been assessed against the responsible driver. Id. at 597. In Home Indem. Co. v. Tyler, 522 S.W.2d 594 (Tex. Civ. App. - Houston [14th Dist.] 1975, writ ref'd n.r.e.), it was held that the insuring agreement requiring the carrier to pay "all sums which the insured ... shall be legally entitled to recover as damages ... because of bodily injury" included exemplary damages. This seemed consistent with the policy behind uninsured motorists coverage being to place the injured party in the same position that would have been had the tortfeasor maintained the required liability insurance. See also Dairyland County Mut. Ins. Co. v. Wallgren, 477 S.W.2d 341 (Tex. Civ. App. - Fort Worth 1972, writ ref'd n.r.e.). However, more recent caselaw has held that exemplary damages which would have been assessed against the underlying tortfeasor are not recoverable in an action under the uninsured/underinsured motorists coverage. In Government Employees Ins. Co. v. Lichte, 792 S.W.2d 546 (Tex. App. - El Paso 1990), writ denied per curiam, 825 S.W.2d 431 (Tex. 1991), the El Paso Court of Appeals considered the narrower language of the current policy form ("damages which a covered person is a legally entitled to recover ... because of bodily injury") and found it does not permit the recovery of exemplary damages. In the per curiam denial of writ of error, the Texas Supreme Court specifically reserved the question of whether an insurer is liable for exemplary damages through uninsured/underinsured motorists coverage, failing to resolve the conflict among the appellate courts. 825 S.W.2d at 432. In Milligan v. State Farm Mut. Auto. Ins. Co., 940 S.W.2d 228 (Tex. App. - Houston [14th Dist.] 1997, writ denied), the plaintiff was injured in an accident caused by an uninsured drunk driver, and her carrier stipulated that the driver's conduct constituted gross negligence. The carrier settled her claim for actual damages under the auto policy, but denied her claim for exemplary damages. In considering whether to allow recovery for exemplary damages, the court considered the policy reasons for imposing punitive damages. The court found that, "exemplary damages are assessed both to punish a wrongdoer and to serve as a deterrent to future wrongdoers." Id. at 230. The court held that, "neither deterence of wrongful conduct nor punishment of the wrongdoer is achieved by imposing exemplary damages against an insurance carrier in this situation". Id. at 231. Thus, the court concluded that, as a matter of law, the uninsured motorist clause in the auto policy does not cover exemplary damages. Id. at 232. See also State Farm Mut. Auto. Ins. Co. v. Shaffer, 888 S.W.2d 146 (Tex. App. - Houston [1st Dist.] 1994, writ denied); Vanderlinden v. USAA Prop. & Cas. Ins. Co., 885 S.W.2d 239 (Tex. App. - Texarkana 1994, writ denied). This seems to be the better rule of law because punitive damages are not designed to compensate the injured party, and the claimant can be made whole simply by an award of actual damages. Carriers have some control over who they choose to insure, but they have no control over what type of uninsured driver may have an accident with one of their insureds. A claim for uninsured/underinsured motorists coverage is a claim based on the contract of insurance. Therefore, it is governed by the four year statute of limitations relating to breach of contract actions. Franco v. Allstate Ins. Co., 505 S.W.2d 789, 792 (Tex. 1974). It is important to remember that the cause of action does not accrue when the accident occurs, but when the carrier denies liability, thus, arguably, breaching its contract. For example, in Alvarez v. American General Fire & Cas., 757 S.W.2d 156 (Tex. App. - Corpus Christi 1988, no writ), an insured filed suit against his uninsured/underinsured motorists carrier approximately four years and two weeks after the date of the car accident. However, only approximately three years had passed since the carrier had denied the uninsured motorist claim, so the court found that a suit was brought within the applicable period of limitations. Id. at 158. See also Reames v. Logue, 712 S.W.2d 802, 804 (Tex. App. - Dallas 1986, writ ref'd n.r.e.); Midore v. Dairyland County Mut. Ins. Co., 696 S.W.2d 274, 276 (Tex. App. - Fort Worth 1985, no writ); Webster v. Allstate Ins. Co., 833 S.W.2d 747 (Tex. App. - Houston [1st Dist.] 1992, no writ). Thus, it is theoretically possible that in cases where the claim is never denied, but not resolved due to numerous factors, the statute of limitations would never begin to run. There is some confusion as to whether the plaintiff’s attorney's fees are recoverable in a lawsuit for uninsured/underinsured motorists coverage. In Sikes v. Zuloaga, 830 S.W.2d 752 (Tex. App. - Austin 1992, no writ), the Austin Court of Appeals considered whether the plaintiff, who had successfully recovered damages under her underinsured motorists policy, was entitled to an award of attorney's fees. In that case, liability was controverted by Allstate, so the fact of payment remained in dispute until the jury reached its verdict. The court considered the requisites for recovery of attorney's fees under Tex. Civ. Prac. & Rem Code. §§38.001-.002. These are: (1) recovery of a valid claim in a suit on an oral or written contract; (2) representation by an attorney; (3) presentment of the claim to the opposing party or a representative of an opposing party; and (4) failure of the opposing party to tender payment of the just amount owed before the expiration of 30 days from the day of presentment. The court found that there had not been a proper presentment of the claim nor a failure to tender payment of the just amount owed. This was based on the court's holding that the language in the insuring agreement that the carrier will pay only those damages which a covered person is legally entitled to recover from the owner or operator of an uninsured motor vehicle is a condition precedent to any duty to pay under the policy. Id. at 753. A carrier has a right under the contract to have liability and the extent of damages determined by the trier of fact before they are obligated to pay under the policy, and as there was no presentment and no failure to tender a just amount owed, the court found that Allstate was not responsible for payment of attorney's fees. Id. at 754. See also Sprague v. State Farm Mut. Auto. Ins. Co., 880 S.W.2d 415 (Tex. App. - Houston [14th Dist.] 1993, writ denied). This holding was modified somewhat in Novosad v. Mid-Century Ins. Co., 881 S.W.2d 546 (Tex. App. - San Antonio 1994, no writ). In that case, Novosad was involved in an accident with an underinsured third party. Mid-Century stipulated to the negligence of the third party prior to the presentation of evidence in that case, so the only issues presented to the jury were the personal injury damages to be awarded Novosad and the amount of reasonable attorney's fees incurred by her. Id. at 547-548. In considering whether attorney's fees should have been awarded, the San Antonio Court of Appeals considered the holding in Sikes v. Zuloaga, and found that the situation presented in Novosad was distinguishable from Sikes as the carrier's stipulation to the underinsured driver's negligence allowed Novosad to establish that "by judgment or agreement" she was legally entitled to recover from the underinsured driver. Despite the fact that the amount of damages had not been determined, the court found that a proper presentment had been made, because the insurance company agreed it had some liability under the contract. Id. at 552. The Texarkana Court of Appeals went even further in Whitehead v. State Farm Mut. Auto. Ins. Co., 952 S.W.2d 79 (Tex. App. - Texarkana 1997, no writ). This was a case that dealt with a shooting from one vehicle to another, in which the Court of Appeals found that the injured parties could make an uninsured motorist claim because the claims against the uninsured driver were based on his negligence and his use of a motor vehicle. Id. at 84-85. Obviously, given the coverage problems, State Farm disputed liability on this claim. After deciding that §38.001 of the Tex. Civ. Prac. & Rem. Code does apply to uninsured/underinsured claims, the court rejected State Farm's argument that the attorney's fees were not available because there was no duty to pay until the insureds showed themselves to be legally entitled to recover from the uninsured motorist. The court stated as follows:
Id. at 89. The court found that so long as the requirements of §38.002 of the Tex. Civ. Prac. & Rem. Code (requiring presentment, representation, and failure to tender the just amount owed within 30 days after presentment) are met, a claimant could recover attorney's fees on an uninsured motorists claim even when liability has been denied and is hotly disputed. It is possible that Tex. Ins. Code art. 21.55 makes this discussion irrelevant. If the carrier denies a claim for uninsured/underinsured motorists benefits, then it is exposed to potential liability under article 21.55. Article 21.55 is essentially a strict liability statute. The deadlines must be met, and the insurer's good faith in handling a claim is not a defense to a claim under 21.55. Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d 456, 461 (5th Cir. 1997). Under 21.55, an insured may recover, in addition to the amount of the claim, 18% per annum of the amount of such claim as damages, together with reasonable attorney's fees. Art. 21.55 §6. Additionally, because the 18% interest is awarded as damages, standard pre-judgment interest will then be calculated on top of the amount awarded. Because of the attorney's fees and pre-judgment interest awards, it is very likely that every lawsuit filed seeking uninsured/underinsured motorists benefits will include a claim under art. 21.55. It should be noted as well that the time deadlines set forth in article 21.55 have been incorporated into the Personal Auto Policy by Endorsement 593. 4. Venue for Uninsured/Underinsured Motorists Lawsuits Prior to September 1, 1995, selection of venue was an important strategic decision in an uninsured/underinsured motorist case. Prior to its repeal, Tex. Civ. Prac. & Rem. Code §15.037 allowed foreign corporations to be sued in any county in which they had an agency or representative. For the larger insurance companies, such as State Farm and Allstate, this created possible venue in almost any county in the state. It also gave rise to ridiculous situations in which an underinsured carrier was added merely to create venue in a certain county, when the plaintiff's damages clearly did not exceed the amount of underlying liability insurance coverage available. Under Tex. Ins. Code art. 5.06 -1(8), effective September 1, 1995, an action against a carrier on an uninsured/underinsured motorists claim may be brought only in the county in which the policyholder or beneficiary instituting the suit resided at the time of the accident, or the county in which the accident involving the uninsured or underinsured motor vehicle occurred. DANIEL C. ANDREWS EDUCATIONB.S. in Finance (with honors) 1985, Trinity University,
San Antonio, Texas PROFESSIONAL ACTIVITIES 1994 - Present: Shareholder, Jones Kurth , Andrews & Ortiz, P.C., San Antonio, Texas1991-1993: Associate, Jones Kurth & Treat, P.C., San Antonio, Texas 1988-1991: Associate, Fulbright & Jaworski, San Antonio, Texas Member, State Bar of Texas Member, San Antonio Bar Association Member, San Antonio Young Lawyer's Association Certified Mediator, 1996 Board Certified, Personal Injury Trial Law by the Texas Board of Legal Specialization, 1995 LEGAL PUBLICATIONS "Deceptive Trade Practices Act: Non-Insurance Claims," Texas Tort Law Update (Professional Education Systems, Inc., 1989) "Consumer Protection Issues," Adjusting the Automobile Injury Claim in Texas (National Business Institute, 1998) Numerous papers presented at private seminars "Auto/UM/PIP Coverage," Insurance Law Symposium (South Texas College of Law, 1998)
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