EL PASO COURT OF APPEALS WITHDRAWS AND REVERSES ITS PRIOR OPINION AS TO ABATEMENT OF EXTRA-CONTRACTUAL CLAIMS IN UNDERINSURED MOTORIST ACTION

October 1, 2012

On August 8, 2012, the El Paso Court of Appeals held a trial court should have severed plaintiffs’ bad faith claims from their breach of contract claim in an underinsured motorist action, but the trial did not err in refusing to abate plaintiffs’ extra-contractual claims. In re State Farm Mut. Auto. Ins. Co., --- S.W.3d ---2012, WL 3195099, No. 08–12–00176–CV. (Tex. App.—El Paso, August 8, 2012).  On September 19, 2012, however, the El Paso Court of Appeals reversed its decision to deny mandamus relief with respect to the portion of the trial court’s order denying abatement and ordered the lower Court to abate the extra- contractual claims pending the determination of plaintiffs’ contract claim.  In re State Farm Mut. Auto. Ins. Co., --- S.W.3d ---, 2012 WL 4099081, No. 08–12–00176–CV. (Tex. App.—El Paso, Sep. 19, 2012).

Following the Appellate Court’s August 8, 2012 decision, State Farm moved for rehearing as to the portion of the Court’s opinion regarding abatement, arguing that the decision was contrary to well-established authority requiring abatement in uninsured/underinsured cases.  After reviewing the arguments and authorities cited in State Farm’s motion for rehearing, the Court agreed that trial court abused its discretion by failing to abate plaintiffs’ extra-contractual causes of action because State Farm had specifically shown that it would be immediately prejudiced if the extra-contractual claims were not abated.  Citing In re United Fire Lloyds, 327 S.W.3d 250, 257 (Tex.App.-San Antonio 2010, orig. proceeding) and Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809 (Tex. 2006), the El Paso Court of Appeals explained that severance and abatement of extra-contractual claims were required since State Farm was under no contractual duty to pay UM/UIM benefits until plaintiffs established the liability and underinsured status of the other motorist, which had not occurred in this case.

[Editor’s note: The August 8, 2012 opinion issued by the El Paso Texas Court of Appeals is discussed in MDJW’s August 20, 2012 Insurance Newsbrief.]