Your own insurance company gets a say before you release the driver who hurt you. The clause that gives it that say is two lines in a policy almost no one reads, and in the wrong order of events it can cost an injured person the coverage he paid for.
Consent to settle. Underinsured motorist coverage is the part of your own auto policy that pays what the at-fault driver’s policy cannot. Texas requires it to “provide for payment to the insured of all amounts that the insured is legally entitled to recover as damages from owners or operators of underinsured motor vehicles because of bodily injury or property damage, not to exceed the limit specified in the insurance policy, and reduced by the amount recovered or recoverable from the insurer of the underinsured motor vehicle” (Insurance Code Section 1952.106). An underinsured vehicle is one carrying liability limits “originally lower than, or have been reduced by payment of claims arising from the same accident to, an amount less than the limit of liability stated in the underinsured coverage of the insured’s policy” (Section 1952.103). The standard policy then adds a condition. In the words of the policy the Texas Supreme Court read in the case that governs this entry, the coverage does not apply “to bodily injury or property damage with respect to which the insured, his legal representative or any person entitled to payment under this insurance shall, without written consent of the company, make any settlement with any person or organization who may be legally liable therefor” (Hernandez v. Gulf Group Lloyds). That is the consent-to-settle clause, and it exists for one reason: when your carrier pays you, it steps into your shoes against the driver, and a release you sign without asking can wipe out that claim. The court put it in one phrase: “the settlement may extinguish a valuable subrogation right.”
The case. A family’s daughter was killed when the car she was riding in flipped over. The driver’s only asset was a small liability policy, and the family’s damages were several times its limits. “Six weeks after the accident, the Hernandezes, without the consent of Gulf, entered into a settlement” with the driver “for the limits” of his policy. When they turned to their own underinsured coverage, “Gulf denied coverage based upon the Hernandezes’ failure to obtain its consent before settling” with him. The court of appeals agreed with the carrier and rendered a take-nothing judgment. The Supreme Court of Texas reversed, and wrote the rule that every one of these cases turns on: “We hold that an insurer may escape liability on the basis of a settlement-without-consent exclusion only when the insurer is actually prejudiced by the insured’s settlement with the tortfeasor” (Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691 (Tex. 1994)). The reasoning is ordinary contract law: “A fundamental principle of contract law is that when one party to a contract commits a material breach” the other is excused, and a breach that costs the insurer nothing is not material. The driver “had no assets other than” his policy, the court’s example of the case in which “any extinguished subrogation right has no value,” and the carrier itself had stipulated that it “has not incurred any financial losses.” Judgment for the family. One justice dissented, writing that the case was about coverage rather than breach of contract and that the court had consistently enforced consent-to-settle exclusions; the dissent also described the point of the clause as keeping the insured from usurping “the insurance companies’ subrogation rights,” a purpose the majority did not question. The majority simply asked whether there was anything to usurp.
The edge. Hernandez is real protection and it is narrower than it sounds. It does not erase the clause. It moves the fight to prejudice: whether the carrier lost something it could actually have collected from the driver you released. On a driver with nothing beyond his limits, that argument is short. On a driver with a business, a second policy, an employer who answers for him, or assets worth chasing, the carrier can show prejudice, and the clause does what it was written to do. A person who signed the release without asking has not necessarily lost the claim. He has handed the carrier an argument, and turned a case about his injuries into a case about his paperwork.
The second case. The other thing the word hides is what happens after consent. People assume that once the at-fault carrier pays its limits, their own company pays the difference on request. It does not. The Texas Supreme Court held that “The UIM contract is unique because, according to its terms, benefits are conditioned upon the insured’s legal entitlement to receive damages from a third party,” so “the UIM insurer is under no contractual duty to pay benefits until the insured obtains a judgment establishing the liability and underinsured status of the other motorist” (Brainard v. Trinity Universal Insurance Co.). In that case a man died in a head-on collision with a well-service company’s rig, his family settled with the company for its policy limit, demanded their own underinsured limit, and were offered a fraction of it; the court held the carrier owed nothing until a judgment established the other driver’s fault and underinsured status, and no attorney’s fees before then either, because “a claim for UIM benefits is not presented until the trial court signs a judgment establishing the negligence and underinsured status of the other motorist.” The underinsured claim is a lawsuit against your own insurance company in which you prove the other driver was at fault and prove what your injuries are worth. The settlement with the liability carrier is step one, not the finish line, which is why the consent letter is sent before the release and never after.
The paper. There are three ways through the fork, and the firm’s longer piece, Permission to Settle, Notice to Settle, or Just Settle, walks each one. Ask for written consent and get it, which is routine when the driver has nothing beyond his limits. Or give written notice of the offer and the date you intend to accept it, and keep the copy, so the carrier that later claims surprise is answered by its own file. Or sign and say nothing, and bet that the carrier cannot show prejudice. The first two roads do not require the bet. The same letter that preserves the claim also builds the record for the second case: the carrier’s own file shows that it knew of the settlement, the limits and the date from the day it consented. The UM and UIM page describes the coverage; Limitations is the clock that runs on the second case while the first one settles; and Responsible Third Party, Flight and Render Aid explain what the same coverage does when the driver who hurt you cannot be found at all.
Why the word matters. A consent-to-settle clause is not a trap the law lets the carrier spring at will; Texas lets the carrier use it only when it was actually hurt. But it is a condition the injured person controls entirely, with one letter sent at the right moment, and no rule of law is as cheap as the letter. Read early, the word is a reminder that your own insurer is a party to the case from the first week. Read late, it is the reason the case is about paperwork.
The rule: Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691 (Tex. 1994) (Spector, J.; Enoch, J., dissenting; the policy clause quoted in footnote 1; the facts; the material-breach reasoning; the prejudice holding; the court of appeals reversed and the trial court’s judgment for the insureds affirmed). The second case: Brainard v. Trinity Universal Insurance Co., No. 04-0537 (Tex. Dec. 22, 2006) (Jefferson, C.J.; benefits conditioned on legal entitlement; no breach until a judgment establishes liability and underinsured status; attorney’s fees). The statute: Tex. Ins. Code § 1952.106 and § 1952.103. The firm’s longer piece: Permission to Settle, Notice to Settle, or Just Settle. Policy language varies; read yours. Statutory and case text as published at publication.
