FOLLOWING RECENT TEXAS SUPREME COURT PRECEDENT, DALLAS APPEALS COURT RULES TRIAL COURT ABUSED ITS DISCRETION BY DENYING AN INSURER’S MOTION TO SEVER AND ABATE EXTRA-CONTRACTUAL CLAIMS IN UM/UIM ACTION
Recently, the Dallas Court of Appeals concluded a trial court abused its discretion by denying an insurer and its adjuster’s motion to sever and abate a claimant’s underinsured motorist (UIM) claim in the district court action. The ruling comes on the heels of the Texas Supreme Court’s ruling in In re State Farm Mut. Auto. Ins. Co., No. 19-0791, 2021 WL 1045651 (Tex. Mar. 19, 2021) (orig. proceeding) (the “Pending Action”)
In re State Farm Mut. Auto. Ins. Co. and Giap Dang, No. 05-20-00815, 2021 WL 1422656 (Tex. App.—Dallas Apr. 15, 2021) involved a claim for UIM benefits by an insured from his insurer, State Farm. The insured was involved in a motor vehicle accident and sued the alleged underlying tortfeasor for damages, claiming over $80,000 in damages. After the insured settled the personal injury claim, he sought UIM benefits from State Farm, whose adjuster, responded by sending an offer of $3,650 to settle the claim.
According to the insured, his insurer did not provide an explanation as to the basis for its decision on his UIM claim, so he sued State Farm alleging various violations of the Insurance Code but not alleging a breach of the insurance policy. Curiously, the insured demanded the UIM policy limits, treble damages under the Insurance Code, and attorney’s fees.
State Farm responded by filing a motion for separate trials and abatement, arguing the trial court should sever the car accident portion of the case from the “premature” extra-contractual claims and abate them until the trial court ruled that the insured was “legally entitled to recover” from the alleged underinsured motorist. The insured argued that there was no breach-of-contract claims to sever because he had only brought statutory claims. The trial court agreed and denied State Farm’s motion.
After State Farm filed a petition for writ of mandamus with the Dallas Court of Appeals arguing the trial court abused its discretion by denying the motion and that it had no adequate remedy by appeal, State Farm asked the appeals court to “await guidance form the Texas Supreme Court on the merits” of its petition because the identical issue before the appeals court—whether severance and abatement required when a claimant only brings extra-contractual claims in a UIM action—was about to decided by the Texas Supreme Court.
The Texas Supreme Court eventually held that to establish damages from an insurer’s violation of the Insurance Code, an insured must establish either (1) a right to receive benefits under the policy, or (2) an injury independent of a right to benefits. The claimants in this case argued State Farm caused them injuries independent of their rights to benefits due to the violations of the Insurance Code. The Texas Supreme Court disagreed holding the only damages claimed were predicated on the insurer’s obligation to pay under the UIM policies, which was not “truly independent of the right to receive policy benefits.” Consequently, the Texas Supreme Court ruled that insureds cannot recover for alleged Insurance Code violations under an “independent-injury” theory, and the appropriate procedure is to hold a bifurcated trial that first determines whether the insurer breached the policy and then, if such is established, to determine whether there was a violation of the Insurance Code. Thus, a trial court’s denial of a motion seeking to bifurcate a case involving a claim for UIM benefits and alleged violations of the Insurance Code was an abuse of discretion, and the insurer lacked an adequate remedy on appeal for the resources wasted seeing reversal of the improperly conducted proceedings.
Once the Texas Supreme Court issued its ruling, the Dallas Court of Appeals followed the Court’s precedent and concluded that the insured in this case had not alleged an injury independent of a right to policy benefits, so the proceedings had to be bifurcated, and the issue of whether the insured was entitled to UIM benefits was required to be adjudicated before adjudicating the issue of whether the insured could recover damages for violations of the Insurance Code.