In April, the Texas Supreme Court set a favorable precedent for Uninsured and Underinsured (UM/UIM) insurers when it held that an insured seeking to recover UM/UIM benefits must secure a judgment to establish the UM/UIM third-party’s liability and underinsured status before it is entitled to discovery on extracontractual claims. See In re State Farm Mut. Auto. Ins. Co., 23-0755 (Tex. Apr 25, 2025). That said, a four-justice concurrence in this decision hinted that the 2006 Brainard precedent justifying this position may be in jeopardy, meaning UM/UIM carriers should keep a close eye on Texas Supreme Court opinions in the UM/UIM space.
Sever-or-Bifurcate-and-Abate Rule
In State Farm, the Texas Supreme Court first held that a court must abate an insured’s extracontractual claims based on a UM/UIM insurer’s coverage denial when the insured has not yet prevailed on its predicate declaratory judgment claim to establish coverage. This expands similar rulings where courts have held that when an insured raises extracontractual claims along with a breach-of-contract claim based on an insurer’s UM/UIM coverage denial, the insured must prevail on the breach-of-contract claim first. See In re State Farm Mutual Automobile Insurance Co., 629 S.W.3d 866 (Tex. 2021); In re USAA Gen. Indem. Co. (USAA I), 629 S.W.3d 878, 887 (Tex. 2021).
The court further clarified that while a trial court has the discretion to sever a UM/UIM insured’s contract-based claims against its insurer from its extracontractual claims raised in the same lawsuit, the predicate tort litigation and extracontractual claims must be tried to separate juries in separate trials.
Insureds Must Trigger Coverage Before Deposing Insurer
The Supreme Court’s second significant holding was that an insured is not entitled to discovery on abated extracontractual claims. The court held that under Texas Rule of Civil Procedure 194.2, an insured is not entitled to depose a UM/UIM insurer’s corporate representative when the burden caused by the deposition is disproportionate to the potential benefits the insured might gain from the deposition.
Based on the record before it, the court ruled that the insured was not entitled to depose State Farm’s corporate representative on the automobile accident or her extracontractual claims during the predicate trial to establish UM/UIM coverage under her State Farm Policy. The court reasoned that an insured is not entitled to depose an insurer’s corporate representative during predicate tort litigation to establish UM/UIM coverage if the insurer has:
- Stipulated to the matters within its personal knowledge related to the accident.
- Produced all nonprivileged documents related to the accident and damages, and
- Submitted evidence supporting its proportionality complaints and lack of personal knowledge regarding the disputed issues in trial of the tort-based claims.
In further support of its conclusion, the court relied on facts common to many UM/UIM claim files to limit the insured’s discovery against State Farm. These include:
- Insured settled her claims against third-party tortfeasor for the torfeasor’s policy’s limit.
- Insurer made a settlement offer.
- Insured filed a declaratory judgment against its insurer to establish UIM coverage.
- State Farm produced documents related to the accident and the Insured’s injuries.
What Does This Decision Mean for UM/UIM Insurers?
The court’s ruling significantly limits UM/UIM insureds’ ability to use the threat of invasive discovery and costly discovery disputes against UM/UIM insurers to drive up litigation costs and leverage a better outcome.
Instead, UM/UIM insureds must establish UM/UIM coverage via:
- A binding judgment against a third-party tortfeasor or
- A declaratory judgement in a direct action against the UM/UIM insurer
before insureds may pursue or conduct discovery on breach-of-contract or extracontractual claims against UM/UIM insurers. Until then, UM/UIM insurers do not have to present a corporate representative for a deposition and are only subject to discovery on liability for, and damages resulting from, the accident. Importantly, these new limits on discovery effectively eliminate any benefit a plaintiff inure stood to gain by including its UM/UIM insurer as a party to its lawsuit against a third-party tortfeasor to establish UM/UIM coverage. Over time, this may reduce the number of coverage-based claims being prematurely filed against UM/UIM insurers.
While the discovery limits imposed by this case are favorable to insurers, it is important to note that they were imposed based on an earlier Texas Supreme Court case, Brainard v. Trinity Universal Insurance Co., 216 S.W.3d 809 (Tex. 2006), which required an insured to obtain a judgment establishing the liability and underinsured status of another motorist as a condition precedent to its recovery of UM/UIM benefits.
Significantly, however, in a four-justice concurrence in State Farm, the concurring justices expressed interest in overturning Brainard. Authored by Justice James P. Sullivan, the group complained that trial courts inconsistently apply the discovery rules established by the cases following Brainard, thereby requiring higher courts to address an inordinate amount of mandamus filings on discovery, which serves as a recurring drain on judicial resources. Justice Sullivan opined that UM/UIM claims should be treated like any other insurance claim, in which insurers adjust—and often pay—claims before a coverage dispute is resolved by a court, to avoid an unfavorable judgment (including extracontractual damages and interest). Further, Justice Sullivan disagreed with the effect of Brainard’s application on UM/UIM claims, i.e. an insurer can delay payment of UM/UIM benefits until an insured secures a judgment establishing a legal right to recover from an underinsured third-party, which inevitably requires the insured to incur litigation costs.
If the entire Texas Supreme Court takes up the four justices’ invitation to overrule Brainard, the progeny of cases following Brainard will be effectively reversed. And, given the Court regularly grants writs of mandamus on discovery disputes in UM/UIM cases, the Court may be looking for the right opportunity to overrule Brainard. If that occurs, then the discovery-limiting rules springing from Brainard will be rendered moot and there will be no basis to shield insurers from the broad-scope discovery and premature extracontractual claims Brainard has helped them avoid for nearly two decades. In light of this risk, our UM/UIM team will continue to watch and report on developments.
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