IN THE SUPREME COURT OF TEXAS

IN THE SUPREME COURT OF TEXAS

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No. 04-0514

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State Farm Mutual = Automobile=20 Insurance Company, Petitioner,

Jimmie R. Norris,=20 Respondent

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On Petition for Review from = the

Court of Appeals for the Tenth = District of=20 Texas

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Argued April 14,=20 2005

Chief Justice Jefferson = delivered the=20 opinion of the Court.

Justice O=92Neill did not = participate in=20 the decision.

An=20 underinsured motorist (UIM) policy allows an insured to recover the = difference=20 between the negligent driver=92s insurance policy limit and the full = amount of=20 damages, including prejudgment interest, determined at trial. The trial = court=20 held that the insured was not entitled to prejudgment interest under his = UIM=20 policy because the insurer had already paid benefits that exceeded the = actual=20 damages found by the jury. Additionally, the trial court refused to = award=20 attorney=92s fees to the insured. The court of appeals reversed on both = issues. In=20 accordance with our Brainard opinion, we hold that the insured is = entitled to prejudgment interest but not attorney=92s fees.

Background

Jimmie R.=20 Norris was injured during a car accident with Allen Johnston on December = 8,=20 1997. Norris sued Johnston on March 29, 1999, and subsequently settled = with=20 Johnston for $40,000 ($10,000 less than Johnston=92s policy limit). The = record=20 does not reflect the date of the settlement. On the same day that he = dismissed=20 his claims against Johnston, Norris added State Farm as a defendant, = seeking to=20 recover benefits under his UIM policy. Although State Farm paid Norris = $5,000 in=20 personal injury protection (PIP) benefits, it never offered to settle = Norris=92s=20 UIM claim.

A = jury found=20 that: (1) Johnston=92s negligence caused the accident; (2) Norris = suffered only=20 past damages in the amount of $51,200; and (3) Norris=92s attorney=92s = fees were=20 $11,500 for trial, $5,000 for appeal to the court of appeals, and $7,500 = for=20 appeal to this Court. The trial court applied a $55,000 credit (the sum = of=20 Johnston=92s policy limit and the PIP benefits already paid to Norris) = and signed=20 a take-nothing judgment in State Farm=92s favor, finding that Norris was = not=20 entitled to attorney=92s fees or prejudgment interest. Reversing the = trial court=92s=20 judgment, the court of appeals held that Norris was entitled to both = prejudgment=20 interest and attorney=92s fees. ___S.W.3d___. We hold, contrary to the = court of=20 appeals, that: (1) Norris is entitled to prejudgment interest calculated = by the=20 declining principal formula; and (2) Norris is not entitled to = attorney=92s fees=20 under Chapter 38 of the Civil Practice and Remedies Code.

Prejudgment=20 Interest

Norris argues=20 that prejudgment interest is covered under his UIM policy and should be=20 calculated on the full amount of damages before deducting State Farm=92s = PIP and=20 settlement credits. State Farm disputes that it owes prejudgment = interest at=20 all. According to State Farm, the $55,000 in PIP and settlement credits = should=20 be deducted from the $51,200 damages award before calculating = prejudgment=20 interest, leaving no principal on which prejudgment interest can accrue. =

We = apply the=20 =93declining principal=94 formula to calculate prejudgment interest in a = UIM case.=20 Brainard v. Trinity Universal Insurance Co., ___S.W.3d___, ___ = (Tex.=20 2006). Under this approach, the trial court considers the date on which = the=20 insured received each payment. Id. at___. As Chief Justice Gray = correctly=20 observed, however, the record in this case does not reflect the dates of = either=20 the PIP or the settlement payments. ___S.W.3d___, ___ (Gray, C.J., = dissenting).=20 Because prejudgment interest cannot be calculated until those dates are=20 established,[1] we remand this = case to the=20 trial court for that purpose. Tex. R.=20 App. P. 60.2(f), 60.3.

This case=20 presents an additional issue that Brainard does not answer. = Norris=20 settled with Johnston for $40,000, which is $10,000 less than = Johnston=92s policy=20 limit of $50,000. Norris argues he is entitled to prejudgment interest = on the=20 entire $50,000 amount because, based on the jury=92s verdict, he would = have been=20 =93legally entitled to recover=94 more than that amount from the = tortfeasor. We=20 disagree. UIM policies are intended to compensate injured parties =93up = to the=20 limit specified in the policy, reduced by the amount recovered or = recoverable=20 from the insurer of the underinsured motor vehicle.=94 Tex. Ins. Code art. 5.06-1(5) = (emphasis=20 added). When Norris settled and released his claims against Johnston, he = also=20 released any interest in the difference between Johnston=92s policy = limit and the=20 settlement amount. The purpose of prejudgment interest is to compensate = a=20 claimant for the lost use of money due as damages during the lapse of = time=20 between the accrual of the claim and the date of the judgment. = Battaglia,=20 177 S.W.3d at 907. Because Norris has not lost use of that $10,000, = having=20 released any entitlement to it, he can receive prejudgment interest only = on the=20 amount of the settlement ($40,000) plus the amount that exceeds = Johnston=92s=20 policy limits ($1,200).

III

Calculating=20 Prejudgment Interest

Prejudgment=20 interest begins to accrue on the earlier of: (1) 180 days after the date = the=20 defendant receives written notice of a claim; or (2) the date suit is = filed.=20 Tex. Fin. Code =A7 = 304.104;=20 Johnson & Higgins of Tex., Inc. v. Kenneco Energy, = Inc., 962=20 S.W.2d 507, 529 (Tex. 1998). Norris asserts that prejudgment interest = began to=20 accrue 180 days after the accident. The record does not indicate, = however, that=20 State Farm had written notice of the accident on the day it occurred, = December=20 8, 1997. January 21, 1998, is the earliest date in the record showing = that State=20 Farm had written notice of the accident.[2] Therefore, = prejudgment=20 interest began to accrue 180 days after January 21, 1998.

State Farm is=20 entitled to: (1) a $50,000 credit, representing Johnston=92s policy = limit, as of=20 the date Johnston remitted the settlement amount; and (2) a $5,000 = credit,=20 representing the PIP benefits State Farm paid, as of the date it was = tendered.=20 Credits applied before prejudgment interest began to accrue will reduce = the=20 principal. Thereafter, each credit will apply first to the accrued = prejudgment=20 interest and second to the remaining principal. Brainard, ___ = S.W.3d at=20 ___. Thus, State Farm is liable, up to the UIM policy limits, for the = principal=20 plus accrued prejudgment interest remaining after the credits are = applied.

Attorney=92s=20 Fees

Norris argues=20 that he is entitled to attorney=92s fees under Chapter 38 of the Civil = Practice=20 and Remedies Code. The trial court denied Norris those fees, = notwithstanding the=20 jury=92s verdict. The court of appeals reversed and awarded attorney=92s = fees,=20 citing its opinion in Allstate Insurance Company v. Lincoln, 976 = S.W.2d=20 873 (Tex. App.=97Waco 1998, no pet.). We disapprove of Allstate = Insurance=20 Company v. Lincoln to the extent it is inconsistent with our = decision in=20 Brainard, and we hold that State Farm is entitled to a = take-nothing=20 judgment with respect to attorney=92s fees.

An = insured=20 may recover attorney=92s fees under Chapter 38 only if the insurer does = not tender=20 the UIM benefits within thirty days after the trial court signs a = judgment=20 establishing the liability and underinsured status of the other = motorist.=20 Brainard, ___S.W.3d at___. Chapter 38 requires Norris to = =93present a=20 claim=94 to State Farm, which must pay the =93just amount owed=94 within = thirty days=20 of presentation. Tex. Civ. = Prac. &=20 Rem. Code =A7 38.002(2),(3). Under a UIM policy, however, there = can be no=20 =93just amount owed=94 until the trial court establishes liability and = damages.=20 Brainard, ___S.W.3d at___; Henson v. S. Farm Bureau = Cas. Ins.=20 Co., 17 S.W.3d 652, 654 (Tex. 2000). Thus, Norris could not seek = attorney=92s=20 fees until, at the earliest, thirty days after the trial court rendered=20 judgment=97assuming that State Farm refused to pay the amount due under = the UIM=20 contract.[3] Therefore, the = trial court=20 did not err in refusing to award Norris attorney=92s fees, and the court = of=20 appeals erred in reversing that=20 judgment. &nbs= p; = ; =20

Conclusion

We = hold that=20 Norris is entitled to prejudgment interest calculated under the = declining=20 principal formula. We reverse that part of the court of appeals=92 = judgment and=20 remand this cause to the trial court for further proceedings consistent = with=20 this opinion. Tex. R. App. P.=20 60.2(f), 60.3. = With=20 respect to the attorney=92s fees issue, we reverse the court of = appeals=92 judgment=20 and render judgment for State Farm. Tex.=20 R. App. P. 60.2(c).

______________________________

Wallace B.=20 Jefferson

Chief=20 Justice

OPINION=20 DELIVERED: December 22,=20 2006 &nb= sp; &nbs= p; = ; = =20