The More Things Change …The More They Stay the Same
The San Antonio Court of Appeals recently granted Progressive Insurance Company’s petition for writ of mandamus and directed the trial court to vacate its order denying Progressive’s motion to sever and abate the plaintiff’s extra-contractual allegations.
In In re Progressive County Mutual Insurance Company, 2020 WL 3815927 (Tex. App. – San Antonio July 8, 2020, n.p.h.), the plaintiff, after settlement with the tortfeasor, brought a declaratory judgment action for recovery of UIM benefits under her insurance policy and alleged violations of the Texas Insurance Code and breach of duty of good faith and fair dealing. The trial court denied Progressive’s motion to sever and abate the extra-contractual claims from the declaratory judgment action.
On mandamus, the court first reviewed the long-standing UIM framework and reiterated that in order to recover benefits under a UIM policy, an insured must show: 1) the insured had underinsured motorist coverage, 2) the underinsured motorist negligently caused the accident that resulted in covered damages, 3) the amount of the insured’s damages, and 4) the underinsured motorist’s insurance coverage is deficient. Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809, 818 (Tex. 2006). As a result, a claim for UIM benefits is not yet presented until a trial court signs a judgment resolving these issues.
Plaintiff claimed that despite the fact that she had not yet received a judgment resolving her UIM claim, severance was not required because her actions were interwoven and involved the same facts and issues. She argued that the amount of damages and Progressive’s investigation of the claim were also the “linchpin for liability in the bad-faith case.” The court disagreed and found that the UIM and extra-contractual claims did not involve the same facts and issues. Moreover, relying on Liberty Nat’l Fire Ins. Co. v. Akin, 927 S.W.2d 627 630 (Tex. 1996) the court again emphasized that severance of extra-contractual claims from contractual claims in insurance cases is often necessary to avoid the inevitable prejudice due to evidentiary concerns related to settlement offers.
The court also rejected Plaintiff’s argument that their recent opinion in State Farm Mutual Automobile Association v. Cook, 591 S.W.3d 677 (Tex.App. – San Antonio Sept. 18, 2019, n.p.h.) supported the trial court’s denial of both severance and abatement. Cook involved a UIM case against State Farm. After the extra-contractual claims were severed and abated, the trial proceeded and a jury returned a verdict in favor of Cook. After State Farm paid the verdict in full, it moved to for summary judgment and argued that it was entitled to summary judgment on Cook’s extra-contractual claims. The court denied the motion but found that an immediate appeal regarding the ultimate questions of law was needed. The appellate court disagreed with State Farm and found that to hold that a UIM claim is not “reasonably clear” until the conclusion of the legal proceeding would effectively and unintentionally eliminate the bad faith cause of action. Id. at 683.
The Progressive court clarified that the Cook opinion does not stand for the proposition that an insured may pursue a bad-faith claim before obtaining a judgment on a UIM claim. Rather, it rejected the argument that an insurer is not liable on a bad-faith claim as a matter of law because the insured obtained a judgment on her breach of contract claim, and only held that the bad-faith claim is ripe for consideration at that time. The court therefore rejected the Plaintiff’s attempt to argue that Cook supported the denial of the severance and abatement of the extra-contractual claims and concluded that the trial court could “only reach one decision that adequately protected the parties’ rights and that was to order severance of the two types of claims.” Id. at * 4. In so doing, the San Antonio Court of Appeals signaled that the past framework and case law related to severance of extra-contractual claims in the UIM context remains unchanged.