In a memorandum opinion authored by Chief Justice Byrne and joined by Justices Triana and Kelly, the Austin Court of Appeals has conditionally granted an insurer’s petition for mandamus based on the trial court’s denial of the insurer’s motion to sever contractual and extra-contractual claims arising from a dispute over uninsured/underinsured motorist coverage.
In re Allstate Fire and Casualty Insurance Company (No. 03-21-00515-CV) arose from a claim for UM/UIM benefits following an accident in which another driver backed into the insured’s vehicle in a parking lot. The insured sued the driver to recover for injuries and damages alleging negligence, negligence per se, gross negligence, sought a declaratory judgment against Allstate establishing coverage, and alleged extracontractual claims against Allstate for violations of Chapters 541 and 542, Insurance Code. Allstate moved to sever and abate the extracontractual claims pending a judicial determination of the insured’s entitlement to policy benefits. The trial court denied the motion. Allstate then sought a writ of mandamus from the Austin Court of Appeals.
The court of appeals found that the trial court abused its discretion in denying Allstate’s motion to sever and abate the bad faith claims from the claim for coverage under the policy. While TRCP Rule 41 gives trial court’s broad discretion to grant or deny severance and abatement, the court of appeals reasoned, that discretion is not unlimited. According to the court, “[S]everance and abatement is appropriate if: (1) the controversy involves more than one cause of action, (2) the severed claims is one that could be independently asserted in a separate lawsuit, and (3) the severed actions are not so interwoven with the other claims that they involve the same facts and issues” (citing Liberty Nat’l Fire Ins. v. Akin, 927 S.W.2d 627, 629 (Tex. 1996); Rule 41). Moreover, the ‘controlling reasons for severance are to do justice, avoid prejudice, and further convenience” (citing Guaranty Fed. Sav. Bank v. Horseshoe Operating Co., 793 S.W.2d 652, 659 (Tex. 1990)).
Allstate contended that this case meets the criteria for severance and abatement because bad faith extracontractual claims are independent and must be tried separately from claims on the insurance contract. In In re State Farm Mut. Auto. Ins., 629 S.W.3d 366 (Tex. 2021), SCOTX directed the trial court to grant the insurer’s request to order a bifurcated trial on the coverage and statutory claims. SCOTX and other courts of appeals have likewise ordered severance and abatement of statutory claims pending the determination of the coverage issue because “(1) extracontractual claims may be rendered moot because a determination of no coverage generally precludes extracontractual claims, and thus a joint trial could waste time and resources of the court and the parties, and (2) a joint trial concerning contractual obligation and the violation of extracontractual duties could unduly prejudice the insurer because evidence of a settlement offer is often excluded with respect to contract claims as implying an admission of liability, but is admissible on extracontractual claims regarding whether the insurer made a good-faith attempt to resolve the claim” (citing In re State Farm, 629 S.W.3d at 826).
The court of appeals agreed that this general rule applied. A joint trial in this case would likely prejudice Allstate because: (1) the coverage issue had not yet been determined, (2) a determination of non-coverage would extinguish the statutory claims and waste the time and resources of the court and parties, (3) such determination is based on different facts than the statutory bad faith claims, and (4) Allstate’s settlement offer could improperly influence the jury. Additionally, even if the court determined that no coverage existed under the policy, nothing stops an insured from pursuing bad faith claim against an insurer for pre-determination settlement practices in a separate lawsuit.
See also In re Old Republic Insurance Company, No. 13-21-00264-CV, Op. issued January 5, 2022, in which the Corpus Christi Court of Appeals found that the trial court abused its discretion in denying the insurer’s motion to sever and abate contractual and extra contractual claims arising from a coverage dispute under a homeowner’s policy.