in Re Old American County Mutual Fire Insurance Company

Citation: Not availableDocket: 13-12-00700-CV

Court: Court of Appeals of Texas; January 29, 2013; Texas; State Appellate Court

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Old American County Mutual Fire Insurance Company sought a writ of mandamus from the Thirteenth Court of Appeals to compel the trial court to vacate its order denying Old American's motion to sever and abate extra-contractual claims in an uninsured motorist case involving plaintiff Rosa M. Silva. Silva's lawsuit arose from a vehicle accident with an uninsured driver, leading her to claim uninsured motorist benefits from Old American based on allegations of breach of contract and violations of the Texas Insurance Code. Old American argued that the extra-contractual claims should be severed and abated until the breach of contract issue was resolved, asserting that this would prevent prejudice and unnecessary litigation. Silva opposed the motion, claiming it was premature as she was preparing a motion for summary judgment to establish Old American's liability. The trial court denied Old American's motion without addressing Silva's request for trial bifurcation. Old American then filed for mandamus relief, asserting the trial court abused its discretion in its ruling. The court granted temporary relief, allowing Old American to stay trial proceedings while the mandamus petition was under consideration.

Old American argues it has no duty to pay benefits for uninsured motorist claims until plaintiffs obtain a judgment confirming the other motorist's liability and underinsured status, referencing *Brainard v. Trinity Universal Insurance Co.*. Old American emphasizes that since such a judgment has not been obtained, it has no contractual obligation to pay. The insurer contends that the trial court should sever unripe claims to avoid jurisdiction issues and prevent manifest injustice from trying contractual and extra-contractual claims together. Old American describes the extra-contractual claims as premature, suggesting that resources should not be wasted on potentially non-viable claims dependent on the outcome of the uninsured motorist claim.

To obtain a writ of mandamus, Old American must demonstrate the trial court abused its discretion and that an appeal is inadequate as a remedy. A trial court abuses its discretion if its decision is arbitrary or fails to apply the law correctly. The relator must show the court could only reasonably reach one decision, with appeal deemed inadequate if not severing the claims constitutes an abuse of discretion.

Severance is governed by Texas Rule of Civil Procedure 41, which allows for severing improperly joined actions. Claims are severable if they involve multiple causes of action, can stand alone, and are not interwoven with remaining claims. The trial court holds broad discretion to sever claims to promote justice and convenience but must act when separate trials are necessary to prevent manifest injustice and protect the parties' legal rights. In *Liberty National Fire Insurance Co. v. Akin*, the Texas Supreme Court rejected a rigid requirement for severance in cases involving bad-faith insurance claims, affirming that discretion should remain with the trial court.

The court determined that contractual and extra-contractual claims are closely linked, allowing for the admissibility of most evidence across both types of claims, with potential for mitigating any prejudicial effects through limiting instructions. However, in certain bad faith cases, severance may be necessary, particularly when evidence relevant only to the bad faith claim could unfairly prejudice the insurer during a trial on the contract claim. An example includes situations where an insurer has made a settlement offer on the disputed contract claim, which could bias the jury against the insurer. In this case, there is no evidence of such a settlement offer, thus severance is not warranted.

Additionally, some parties have pursued bifurcation of contractual claims from bad faith claims as an alternative to severance. Recent case law has indicated that severance may be required in uninsured or underinsured motorist insurance coverage cases. For instance, the San Antonio Court of Appeals ruled that an insurer should not be compelled to engage in discovery or trial preparation for bad faith claims that could become irrelevant pending the resolution of an underinsured motorist claim. The court found that the insurer lacked an adequate remedy by appeal if forced to prepare for claims that might be moot.

To succeed in their extra-contractual claims against the insurer Old American, plaintiffs must first establish that Old American had a contractual duty to pay their uninsured motorist claim, which involves proving their coverage, the negligence of the other driver, and the amount of damages incurred.

The San Antonio Court of Appeals referenced the Texas Supreme Court's decision in Brainard v. Trinity Universal Insurance Co. to address the circumstances under which a party may seek attorney’s fees, noting that Brainard focused on presentment of a contract claim rather than severance and abatement of uninsured motorist claims. The court determined that Old American should not be burdened with discovery and trial preparation for bad faith and extra-contractual claims, which could be rendered irrelevant depending on the outcome of the breach of contract claim for uninsured motorist benefits. The court found that the extra-contractual claims are severable and that severance is necessary to prevent manifest injustice without prejudicing the parties' legal rights. The trial court's refusal to sever and abate the claims was deemed an abuse of discretion. Consequently, the court granted Old American’s motion, lifting the previously imposed stay, and ordered the trial court to vacate its earlier order denying severance and to grant the motion to sever and abate. The writ will be issued only if the trial court does not comply. Justice Nelda V. Rodriguez delivered the ruling on January 30, 2013.