in Re Old American County Mutual Fire Insurance Company

• Court: Court of Appeals of Texas
• Decided: January 30, 2013
• Docket: 13-12-00700-CV
• Status: Published

Opinion

NUMBER 13-12-00700-CV

COURT OF APPEALS

THIRTEENTH DISTRICT OF TEXAS

CORPUS CHRISTI - EDINBURG

IN RE OLD AMERICAN COUNTY MUTUAL FIRE INSURANCE COMPANY

On Petition for Writ of Mandamus.

MEMORANDUM OPINION

Before Justices Rodriguez, Garza, and Longoria Memorandum Opinion by Justice Rodriguez1

Relator, Old American County Mutual Fire Insurance Company (“Old American”),

seeks a writ of mandamus compelling the trial court to: (1) vacate its “Order Denying

Defendant’s Motion to Sever and Abate Breach of Contract and Extra-Contractual

Claims,” and (2) sever and abate the extra-contractual claims against it in an uninsured

1 See TEX. R. APP. P. 47.4 (distinguishing opinions and memorandum opinions); id. R. 52.8(d) (“When granting relief, the court must hand down an opinion as in any other case,” but when “denying relief, the court may hand down an opinion but is not required to do so.”). motorist case until the seminal breach of contract case has been determined. We

conditionally grant mandamus relief.

I. BACKGROUND

The underlying lawsuit arose from a motor vehicle accident involving plaintiff

Rosa M. Silva and the uninsured driver of another vehicle, Audrey Jade Ramirez.

Ramirez is not a party to these proceedings. Silva was traveling eastbound on State

Highway 107 in Weslaco, Texas, accompanied by minors Vanessa Silva, Jose Silva,

and Diego Silva, when Ramirez struck her vehicle from the rear. Silva, individually and

on behalf of the minor plaintiffs, brought suit against her insurer, Old American, for

uninsured motorist benefits pursuant to a standard automobile policy she had

purchased from Old American. Silva alleged causes of action for breach of contract and

extra-contractual claims for violation of the Texas Insurance Code and violation of the

duty of good faith and fair dealing.

Old American filed a motion to sever and abate the plaintiffs’ extra-contractual

claims from the underlying claim for uninsured motorist benefits. According to Old

American’s motion, the plaintiffs cannot bring an extra-contractual damage claim until

Old American’s contractual liability has been determined, and, any separate and distinct

causes of action must be severed. Old American argued that severance and abatement

is mandatory to prevent prejudice, unnecessary litigation, and discovery quagmires.

The plaintiffs filed a response to the motion to sever. The plaintiffs contended

that the motion to sever was premature because they were “in the process of preparing

a motion for summary judgment in which Defendant’s liability for breach of contract will

be established as a matter of law” and that severance and abatement was improper

2 because Old American had not offered to settle the case. Plaintiffs contended that Old

American sought to delay the case and suggested that bifurcation of the trial, rather

than severance and abatement, would be the appropriate remedy for Old American’s

alleged problems.

After a non-evidentiary hearing, the trial court took the matter under advisement.

The record before the Court does not include the reporter’s record of this hearing. Old

American has certified that no testimony or evidence was received at the hearing on the

motion to sever and abate. See TEX. R. APP. P. 52.7(a)(2) (requiring relator to furnish a

transcript of any relevant testimony and exhibits from any underlying proceeding or a

“statement that no testimony was adduced in connection with the matter complained”).

The trial court ultimately denied the motion to sever and abate. The record does not

reflect a ruling on the plaintiffs’ request for bifurcation.

This original proceeding ensued. In conjunction with its petition for writ of

mandamus, Old American filed a motion for temporary relief seeking to stay the trial

court proceedings pending resolution of this original proceeding. The Court granted the

motion for temporary relief and requested a response to the petition for writ of

mandamus from the real parties in interest. Old American filed supplements to its

petition for writ of mandamus and the mandamus record. The real parties in interest

have filed their response to the petition for writ of mandamus, and Old American has

filed a reply thereto.

By one issue, Old American contends that the trial court abused its discretion in

refusing to sever and abate the plaintiffs’ extra-contractual claims from the underlying

contractual uninsured motorist claims. Citing Brainard v. Trinity Universal Insurance

3 Co., Old American contends that it has no contractual duty to pay benefits until the

plaintiffs obtain a judgment establishing the liability and the underinsured status of the

other motorist. 216 S.W.3d 809, 818 (Tex. 2006). Old American asserts that plaintiffs

have not obtained such a judgment, and therefore, Old American currently has no

contractual duty to pay their uninsured motorist claims. Old American argues that

severance is required for these unripe claims because the trial court lacks jurisdiction

over them and, further, because manifest injustice would occur if the contractual and

extra-contractual claims were tried together. Old American also asserts that the extra

contractual claims “are at best premature, and the resources of the parties and the trial

court should not be expended on claims that may never become viable, or which may

become moot based on the outcome of the trial of the [uninsured motorist] claim.”

II. STANDARD OF REVIEW

To be entitled to the extraordinary relief of a writ of mandamus, Old American

must show that the trial court abused its discretion and that there is no adequate

remedy by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex.

2004) (orig. proceeding). A trial court abuses its discretion if it reaches a decision so

arbitrary and unreasonable as to constitute a clear and prejudicial error of law or if it

clearly fails to correctly analyze or apply the law. In re Cerberus Capital Mgmt., LP, 164

S.W.3d 379, 382 (Tex. 2005) (per curiam) (orig. proceeding); Walker v. Packer, 827

S.W.2d 833, 839 (Tex. 1992) (orig. proceeding). “To satisfy the clear abuse of

discretion standard, the relator must show ‘that the trial court could reasonably have

reached only one decision.’” Liberty Nat’l First Ins. Co. v. Akin, 927 S.W.2d 627, 630

(Tex. 1996) (orig. proceeding) (quoting Walker, 827 S.W.2d at 840).

4 In determining whether appeal is an adequate remedy, we consider whether the

benefits outweigh the detriments of mandamus review. In re BP Prods. N. Am., Inc.,

244 S.W.3d 840, 845 (Tex. 2008) (orig. proceeding). Appeal is an inadequate remedy

when a trial court’s failure to sever contractual and extra-contractual claims constitutes

an abuse of discretion. In re Allstate Ins. Co., 232 S.W.3d 340, 342 (Tex. App.—Tyler

2007, orig. proceeding); see In re Prudential Ins. Co. of Am., 148 S.W.3d at 136; In re

Allstate Tex. Lloyds, 202 S.W.3d 895, 896 (Tex. App.—Corpus Christi 2006, orig.

proceeding).

III. SEVERANCE OF CONTRACTUAL AND EXTRA-CONTRACTUAL CLAIMS

Severance is governed by Texas Rule of Civil Procedure 41. See TEX. R. CIV. P.

41. Rule 41 provides, in part, that “[a]ctions which have been improperly joined may be

severed . . . on such terms as are just. Any claim against a party may be severed and

proceeded with separately.” Id. Claims are properly severable if: (1) the controversy

involves more than one cause of action; (2) the severed claim is one that would be the

proper subject of a lawsuit if independently asserted; and (3) the severed claim is not so

interwoven with the remaining action that it involves the same facts and issues. Guar.

Fed. Sav. Bank v. Horseshoe Operating Co., 793 S.W.2d 652, 658 (Tex. 1990). The

controlling reasons for a severance are to do justice, avoid prejudice, and promote

convenience. F.F.P. Op. Partners, L.P. v. Duenez, 237 S.W.3d 680, 693 (Tex. 2007).

The trial court has “broad” discretion in the severance of causes of action.

Morgan v. Compugraphic Corp., 675 S.W.2d 729, 734 (Tex. 1984); Black v. Smith, 956

S.W.2d 72, 75 (Tex. App.—Houston [14th Dist.] 1997, orig. proceeding). However, that

discretion is not unlimited. See In re Gen. Agents Ins. Co. of Am., Inc., 254 S.W.3d

5 670, 673–74 (Tex. App.—Houston [14th Dist.] 2008, orig. proceeding). The trial court

has a duty to order severance when “all of the facts and circumstances of the case

unquestionably require a separate trial to prevent manifest injustice, and there is no fact

or circumstance supporting or tending to support a contrary conclusion, and the legal

rights of the parties will not be prejudiced thereby.” Womack v. Berry, 291 S.W.2d 677,

682–83 (Tex. 1956) (orig. proceeding).

In Liberty National Fire Insurance Co. v. Akin, the Texas Supreme Court

considered whether or not severance was required in a case involving breach of

contract and extra-contractual claims against an insurer. 927 S.W.2d at 628. In

refusing to grant mandamus relief, the supreme court rejected “an inflexible rule that

would deny the trial court all discretion and . . . require severance in every case

[involving bad-faith insurance claims], regardless of the likelihood of prejudice.” See id.

Ultimately, the court concluded that the contractual and extra-contractual claims were

interwoven, with most evidence admissible on both claims, and that any prejudicial

effect could be ameliorated by appropriate limiting instructions. Id.

A severance may nevertheless be necessary in some bad faith cases. A trial court will undoubtedly confront instances in which evidence admissible only on the bad faith claim would prejudice the insurer to such an extent that a fair trial on the contract claim would become unlikely. One example would be when the insurer has made a settlement offer on the disputed contract claim. As we have noted, some courts have concluded that the insurer would be unfairly prejudiced by having to defend the contract claim at the same time and before the same jury that would consider evidence that the insurer had offered to settle the entire dispute. While we concur with these decisions, we hasten to add that evidence of this sort simply does not exist in this case. In the absence of a settlement offer on the entire contract claim, or other compelling circumstances, severance is not required.

6 Id. (internal citations omitted); see also In re Miller, 202 S.W.3d 922, 925–26 (Tex.

App.—Tyler 2006, orig. proceeding [mand. denied]); In re Trinity Universal Ins. Co., 64

S.W.3d 463, 468 (Tex. App.—Amarillo 2001, orig. proceeding [mand. denied]). In some

instances, parties have sought bifurcation of the contractual claims from the bad faith

claims as an alternative to severance. See In re Travelers Lloyds of Tex. Ins. Co., 273

S.W.3d 368, 373–75 (Tex. App.—San Antonio 2008, orig. proceeding; In re Allstate

Cnty. Mut. Ins. Co., 209 S.W.3d 742, 746–47 (Tex. App.—Tyler 2006, orig. proceeding);

In re Allstate Tex. Lloyds, 202 S.W.3d at 900.

Several courts of appeals, including this Court, have recently considered the

issues of severance and abatement in the context of uninsured motorist or underinsured

motorist insurance coverage and have concluded that severance of these claims may

be required. See In re Am. Nat’l Cnty. Mut. Ins. Co., 384 S.W.3d 429, ___ (Tex. App.—

Austin 2012, orig. proceeding); In re Reynolds, 369 S.W.3d 638, 650–55 (Tex. App.—

Tyler 2012, orig. proceeding); In re United Fire Lloyds, 327 S.W.3d 250, 257 (Tex.

App.—San Antonio 2010, orig. proceeding); see also In re Old Am. Cnty. Mut. Fire Ins.

Co., No. 13-11-00412-CV, 2012 Tex. App. LEXIS 1293, at **13–14 (Tex. App.—Corpus

Christi Feb. 16, 2012, orig. proceeding); In re Farmers Tex. Cnty. Mut. Ins. Co., No. 07-

11-00396-CV, 2011 Tex. App. LEXIS 8190, at **2–3 (Tex. App.—Amarillo Oct. 17,

2011, orig. proceeding) (op.). The San Antonio Court of Appeals explained its

determination that mandamus relief was proper to compel severance and abatement of

an underinsured motorist claim from related bad faith claims as follows:

[We] hold that United Fire is under no contractual duty to pay UIM benefits until Garcia establishes the liability and underinsured status of the other motorist. Therefore, United Fire should not be required to put forth the effort and expense of conducting discovery, preparing for a trial, and

7 conducting voir dire on bad faith claims that could be rendered moot by the portion of the trial relating to UIM benefits. To require such would not do justice, avoid prejudice, and further convenience. Under these circumstances, we conclude the trial court abused its discretion in bifurcating the case instead of severing and abating the UIM claim from the bad faith claims.

In re United Fire Lloyds, 327 S.W.3d at 257.2 The court concluded that United Fire did

not have an adequate remedy by appeal because if mandamus were not granted, it

stood to lose substantial rights by being required to prepare for claims that might be

rendered moot and may have not even yet accrued. See id. (citing U.S. Fire Ins. Co. v.

Millard, 847 S.W.2d. 668, 675 (Tex. App—Houston [1st Dist.] 1993, orig. proceeding); In

re Trinity Universal Ins. Co., 64 S.W.3d at 468).

We agree with Old American that Texas case law establishes that severance and

abatement of extra-contractual claims is required in many instances in which an insured

asserts a claim to uninsured or underinsured motorist benefits. See In re Am. Nat’l

Cnty. Mut. Ins. Co., 384 S.W.3d at ___; In re Reynolds, 369 S.W.3d at 650–55; In re

United Fire Lloyds, 327 S.W.3d at 257; see also In re Old Am. Cnty. Mut. Fire Ins. Co.,

2012 Tex. App. LEXIS 1293, at **13–14; In re Farmers Tex. Cnty. Mut. Ins. Co., 2011

Tex. App. LEXIS 8190, at **2–3. In the instant case, to prevail on their extra-contractual

claims against Old American, plaintiffs must first demonstrate that Old American was

contractually obligated to pay their uninsured motorist claim. To do this, the plaintiffs

must first prove that they had uninsured motorist coverage, that Silva, the other driver,

negligently caused the accident and was uninsured, and the amount of their damages. 2 In so holding, the San Antonio Court of Appeals relied on the Texas Supreme Court’s reasoning in Brainard v. Trinity Universal Insurance Co., 216 SW.3d 809 (Tex. 2006), but acknowledged that Brainard involved a determination regarding when presentment of a contract claim was made in order to determine whether a party was entitled to attorney’s fees in accordance with Chapter 38 of the Texas Civil Practice and Remedies Code, rather than severance and abatement in the context of a uninsured motorist claim. See In re United Fire Lloyds, 327 S.W.3d 250, 257 (Tex. App.—San Antonio 2010, orig. proceeding) (discussing Brainard, 216 S.W.3d at 818).

8 See In re Reynolds, 368 S.W.3d at 652. Old American should not be required to put

forth the effort and expense of conducting discovery, preparing for a trial, and

conducting voir dire on bad faith and other extra-contractual claims that could be

rendered moot by the portion of the trial relating to breach of contract for uninsured

motorist benefits. See In re United Fire Lloyds, 327 S.W.3d at 257. Based on our

review of the record, we conclude that the plaintiffs’ extra-contractual claims against Old

American are severable, the facts and circumstances of the case require a severance to

prevent manifest injustice, there is no fact or circumstance supporting or tending to

support a contrary conclusion, and the legal rights of the parties will be not prejudiced

thereby. See Womack, 291 S.W.2d at 683. Under the circumstances presented in this

case, the trial court abused its discretion in refusing to sever and abate the uninsured

motorist claims from the bad faith claims pending the determination of Old American's

liability for the uninsured motorist damages under the policy. See In re Am. Nat’l Cnty.

Mut. Ins. Co., 384 S.W.3d at ___; In re Reynolds, 369 S.W.3d at 650–55; In re United

Fire Lloyds, 327 S.W.3d at 257; see also In re Old Am. Cnty. Mut. Fire Ins. Co., 2012

Tex. App. LEXIS 1293, at **13–14; In re Farmers Tex. Cnty. Mut. Ins. Co., 2011 Tex.

App. LEXIS 8190, at **2–3. Accordingly, we sustain Old American’s sole issue.

IV. CONCLUSION

We conclude the trial court abused its discretion in denying Old American’s

motion to sever and abate the plaintiffs’ extra-contractual claims. Accordingly, we lift

the stay previously imposed in this case and we conditionally grant the petition for writ

of mandamus. The trial court is ordered to vacate the October 17, 2012 “Order Denying

Defendant’s Motion to Sever and Abate Breach of contract and Extra-Contractual

9 Claims,” and to grant “Defendants’ Motion to Sever and Abate Breach of Contract and

Extra-Contractual Claims.” The writ will issue only if the trial court fails to comply.

NELDA V. RODRIGUEZ Justice

Delivered and filed the 30th day of January, 2013.