Garza v. Allstate Fire & Cas. Ins. Co.

• Decision Date: 10 June 2020
• Docket Number: Civil Action No. 7:19-CV-129
• Parties: Aaron GARZA, Plaintiff, v. ALLSTATE FIRE AND CASUALTY INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Texas

466 F.Supp.3d 705

Aaron GARZA, Plaintiff,

v.ALLSTATE FIRE AND CASUALTY INSURANCE COMPANY, Defendant.

Civil Action No. 7:19-CV-129

United States District Court, S.D. Texas, McAllen Division.

Signed June 10, 2020

Hector Leal Rodriguez, Raul Rudy Rodriguez, Attorney at Law, Edinburg, TX, for Plaintiff.

Rosemary Conrad-Sandoval, Roerig Oliveira et al., McAllen, TX, for Defendant.

ORDER & OPINION

Micaela Alvarez, United States District Judge

The Court now considers the motion to dismiss¹ filed by Allstate Fire and Casualty Insurance Company (hereafter, "Defendant"). The Court also considers the response² filed by Aaron Garza (hereafter, "Plaintiff") and the reply³ filed by Defendant. After considering the motion, record, and relevant authorities, the Court hereby GRANTS Defendant's motion to dismiss.

I. BACKGROUND

This is an insurance case involving a December 23, 2017 motor vehicle collision during which Plaintiff was injured.⁴ Plaintiff allegedly incurred $26,180.00 in medical expenses as a result of the accident.⁵ After the accident, a third-party tortfeasor involved in the accident offered Plaintiff $30,000.00, the limit of its insurance policy, in settlement of Plaintiff's claims against the tortfeasor.⁶ Plaintiff alleges that he received permission from Defendant to accept this settlement offer on May 22, 2018.⁷

Plaintiff claims that because "the liability limits of the third-party tortfeasor were not sufficient to compensate Plaintiff for his injuries," Plaintiff made a subsequent claim under his own uninsured motorist (hereafter, "UIM") policy with Defendant on June 5, 2018.⁸ On June 29, 2018, Defendant sent a letter to Plaintiff informing Plaintiff that his claim did " ‘not pierce the threshold for an Underinsured Motorist claim.’ "⁹ Plaintiff alleges that Defendant "offered absolutely nothing to Plaintiff from his UIM policy coverage."¹⁰

On March 12, 2019, Plaintiff filed suit against Defendant in Hidalgo County District Court for violations of the Texas Insurance Code. In his state court petition (hereafter, "complaint"), Plaintiff alleges that he "is not seeking any of the proceeds of the UIM insurance policy entered into with Defendant."¹¹ Rather, Plaintiff clarifies that he is suing Defendant for its violation of the Texas Insurance Code by denying Plaintiff's UIM claim without providing any explanation.¹² Plaintiff brings claims for the following three violations of Chapter 541 of the Texas Insurance Code: (1) failing to make a good faith attempt to effectuate a prompt, fair, and equitable settlement pursuant to Tex. Ins. Code § 541.060(a)(2) ; (2) failing to provide adequate explanation pursuant to Tex. Ins. Code § 541.060(a)(3) ; and (3) refusing "... to pay on a claim without conducting a reasonable investigation" pursuant to Tex. Ins. Code § 541.060(a)(7).¹³ Plaintiff requests actual damages in the form of past and future medical expenses, as well as past and future pain, suffering, and mental anguish.¹⁴ Plaintiff also requests treble damages, court costs, and attorneys’ fees.¹⁵

On April 18, 2019, Defendant removed to this Court on the basis of diversity jurisdiction.¹⁶ On August 9, 2019, Plaintiff filed a motion for remand, arguing that the amount in controversy requirement was not met and that Plaintiff's case should be remanded to state court.¹⁷ The Court denied Plaintiff's motion for remand on March 12, 2020¹⁸ and thereafter issued a scheduling order.¹⁹ Defendant filed the instant motion to dismiss²⁰ on April 14, 2020 and Plaintiff responded in opposition on May 5, 2020.²¹ Defendant filed its reply²² to Plaintiff's response on May 18, 2020. The Court now turns to its analysis.

II. ANALYSIS

a. Legal Standard

Defendant moves for dismissal pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6).²³ To survive a Rule 12(b)(6) motion, a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face."²⁴ Although this does not require extensive detail, the pleading must contain "more than labels and conclusions" and go beyond "a formulaic recitation of the elements."²⁵ The Court regards all well-pled facts as true; however conclusory allegations are not entitled to the same presumption of truth.²⁶ These well-pled facts are viewed in the light most favorable to the plaintiff.²⁷ The Court may dismiss a complaint if the complaint fails to state a claim upon which relief can be granted, or if the pleading does not assert enough facts to support a plausible claim for relief.²⁸

As to the question of law, because federal jurisdiction is invoked on the basis of diversity of citizenship,²⁹ this Court, Erie -bound, must adhere to grounds of relief authorized by the state law of Texas.³⁰ Absent a decision by Texas's highest tribunal, the decisions by Texas courts of appeals control "unless [the Court] is convinced by other persuasive data that the highest court of the state would decide otherwise."³¹

b. Legal Analysis

As an initial matter, there is much disagreement between the parties regarding which cases guide this Court's analysis of Plaintiff's claims. Moreover, the parties mischaracterize these cases or ignore portions of their holdings entirely. Thus, the Court will begin by outlining the body of law applicable to Plaintiff's Chapter 541 claims before summarizing the parties’ arguments and pleadings. The Court will then apply the legal standard governing Plaintiff's Chapter 541 claims to the facts of Plaintiff's case in order to determine whether Plaintiff's claims survive the aforementioned motion to dismiss standard. The Court first turns to the legal standard governing Plaintiff's claims.

i. Legal Standard Governing Extra-Contractual Claims

The Texas Insurance Code provides for "uninsured or underinsured motorist" policies, which exist to "protect[ ] insureds who are legally entitled to recover from owners or operators of uninsured or underinsured motor vehicles damages for bodily injury, sickness, disease, or death, or property damage resulting from the ownership, maintenance, or use of any motor vehicle."³² "Unlike many first-party insurance contracts, in which the policy alone dictates coverage, UIM insurance utilizes tort law to determine coverage."³³ UIM insurance policies differ from first-party insurance policies in that the benefits derived from them are "conditioned upon the insured's legal entitlement to receive damages from a third party [tortfeasor]."³⁴ Thus, in order to recover the benefits of a UIM policy, the insured is required to prove his or her "legal entitlement" to receive damages from the third-party tortfeasor who caused the accident.³⁵

For many years, Texas courts were undecided regarding a single question of law pertaining to UIM policy claims: what was a UIM policyholder required to do in order to prove his or her "legal entitlement" to receive damages from the third-party tortfeasor, in order to recover the benefits of the UIM policy from the insurer? In Brainard vs. Trinity Universal, the Texas Supreme Court held that for an insured to prove his or her "legal entitlement" to recover damages from a third-party tortfeasor, the insured must first obtain a judgment "establishing the liability and underinsured status of the [third-party] motorist."³⁶ The court held that receiving a judgment establishing legal entitlement is the only way to definitively prove a contractual obligation on the part of the insurer to pay the benefits of the UIM policy.³⁷ The Brainard court explained that the insured could opt to reach a settlement agreement with or obtain an admission from the third-party tortfeasor that he or she was at fault; and then litigate the issue of UIM coverage with the insurer.³⁸ However, that settlement or admission alone does not create a contractual obligation to pay on the part of the insurer, as "a jury could find that the other motorist was not at fault or award damages that do not exceed the tortfeasor's liability insurance" in order to pierce the threshold of the insured's UIM policy.³⁹ Thus, pursuant to Brainard , only a judgment against the third-party tortfeasor will suffice to establish the insured's legal entitlement and create a contractual obligation on the part of the insurer to pay the benefits of a UIM policy.

Defendant correctly argues that because Plaintiff has not obtained a judgment against the third-party tortfeasor as required by Brainard , no UIM policy benefits are contractually owed at this time.⁴⁰ However, Plaintiff does not seek to recover under the UIM policy – rather, Plaintiff claims he only seeks to recover for Defendant's alleged violations of the Texas Insurance Code in denying Plaintiff's UIM policy claim. Because Plaintiff claims he does not seek to recover the policy benefits, this case hinges on whether Plaintiff's extra-contractual claims for violations of the Texas Insurance Code may be brought absent a claim for breach of contract or a judgment creating a contractual duty on the part of Defendant to pay the UIM policy benefits.⁴¹ However, the Brainard decision does not involve any extra-contractual claims at all and thus, does not address this question.⁴² Rather, Brainard holds that the insured must obtain a judgment against a third-party tortfeasor in order to create an obligation on the part of the insurer to pay the benefits under the contract.⁴³ Accordingly, Plaintiff is correct in arguing that Brainard , while relevant to the facts of this case, is largely inapplicable. Instead, this Court, Erie -bound, must look to decisions by Texas’ highest tribunal or Texas courts of appeals regarding the relationship between contractual and extra-contractual insurance claims.⁴⁴

Texas courts have long grappled with the relationship between contractual and extra-contractual claims against insurers following their denial of both first-party and third-party policy benefits. Where their claims for policy benefits are denied, insured plaintiffs often bring the following claims against the insurer: (1) breach of...