Texas Ninth District Court of Appeals Rules Trial Court Did Not Abuse Its Discretion in Awarding Attorney’s Fees for Appellee Under the Declaratory Judgment Act Where Insurer Did Not Invoke Rule 167 or Chapter 42 of the TX. Civ. P. R. Code

By Mustapha M. Nyallay

The Ninth District of Texas Court of Appeals ruled in May that Trial Court did not abuse its discretion in awarding attorney’s fees for the insured under the Declaratory Judgement Act.

The case is Farmers Tex. Cnty. Mut. Ins. Co. v. Barr, 2024 Tex. App. LEXIS 3580. This case involved the insured suing the insurer under an underinsured motorist claim. The insured sought a determination under the Declaratory Judgment Act (UDJA) of his damages from a car wreck, a declaration that the damages fell within the coverage afforded him under his auto policy, and attorney’s fees.  A year and a half into the lawsuit and after completion of discovery, insurer offered to settle with insured for $100,000 at mediation and the insured, insisting on the policy limit of $500,000, rejected the offer without making any counteroffer.

In a bifurcated trial, the jury found that the driver of the vehicle that rear ended insured’s vehicle was negligent and that the insured suffered damages totaling $115,000. After credit for the amount paid to the insured by the insurer of the of the other driver, the jury verdict resulted in $75,000 underinsured motorist benefits. The trial court final judgment was for $131,464 which represented $75,000 for the underinsured motorist damages awarded by the jury and $50,000 in attorney’s fees under the UDJA and prejudgment interest.  The insurer appealed on the ground that the attorney’s award was unjust and not equitable and that trial court judge abused his discretion by awarding the attorney’s fees.

The Court of Appeals of Ninth District affirmed the trial court’s judgment and held that the trial court did not abuse its discretion because the insurer did not invoke Rule 167 when it made the settlement offer and, did not file a declaration to satisfy Chapter 42 cost shifting provision.  

Analysis

On appeal, the Insurer argued that the trial court abused its discretion because the record established that (1) the award of $50,000 in attorney’s fees is unjust because it rewards insured for prolonging the litigation; (2) the award is unjust because insured rejected  settlement offer six months before trial, which ended up being a more favorable offer had it been accepted than the result insured obtained in the trial; and (3) the award is unjust because it includes attorney’s fees that insured incurred after it rejected the offer made six months before trial. The insurer sought to have the Court establish guiding principles for courts to follow so parties don’t face arbitrary exercise of trial court’s decision in awarding attorney’s fees under the UDJA.

The Court held that the guiding principles that the insurer seeks the Court to establish already exists under Rule 167 (Texas Offer of Judgment Rule) which provides that litigation costs may be awarded against a party who rejects an offer made substantially in accordance with this rule to settle a claim for monetary damages. The rule provides that if a settlement offer is made under the requirements that apply after a party invokes the rule, and the offer is rejected and the judgment to be awarded on the monetary claims covered by the offer is significantly less favorable to the offeree than was the offer, the court must award the offeror’s litigation costs against the offeree from the time the offer was rejected to the time of judgment.

The Court held that Rule 167, does not apply in this case because the insurer did not invoke the rule in its settlement offer to the insured as required under the Rule. The Court further held that, Chapter 42 of the Civil Practice and Remedies Code which provides similar cost-shifting procedure as in Rule 167 also does not apply because the insurer did not satisfy the Chapter’s requirement that a party must file a declaration that the settlement procedure allowed by the chapter is available in the action in order to invoke the Chapter.

The Court posited that because the insurer did not invoke Rule 167 or Chapter 42, the trial court was free to exercise its discretion in deciding whether the insured had acted reasonably in rejecting the insurer’s $100,000 offer, and that the court was also free to consider whether it was reasonable for plaintiff to reject the offer after considering what the insured’s net recovery would have been had the offer been accepted. Therefore, the Court concluded that the insurer did not meet its burden of showing that the insured unreasonably rejected its settlement offer or to demonstrate that the insured unduly prolonged the litigation.

Farmers Tex. Cnty. Mut. Ins. Co. v. Barr, 2024 Tex. App. LEXIS 3580

Key Points

• The party seeking to shift its cost to another party based on rejection of an earlier offer that turns out be more than the award received at trial, the party must have invoked Rule 167 of the Texas Remedies and Civil Practice Code or made a declaration under Chapter 42 of the Civil Practice Code.
  
• Where the party failed to invoke Rule 167 or Chapter 42 cost shifting procedures, the trial court would have broad discretion in determining the reasonableness and necessity of the attorney’s fees award against the party, as well as examining whether the award is just and equitable.