EXTRA-CONTRACTUAL CLAIMS TO BE ABATED AFTER SEVERANCE IN UM/UIM DECLARATORY JUDGMENT ACTION

Last Tuesday, the Houston First Court of Appeals conditionally granted mandamus relief to an insurer asserting the trial court improperly refused to abate severed extra-contractual claims in a declaratory judgment action seeking uninsured/underinsured motorist (UIM) benefits. In IN RE STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Relator, No. 01-19-00821-CV, 2020 WL 1264184, at *8 (Tex. App.—Houston [1st Dist.] Mar. 17, 2020, no pet. h.), the insured claimed she was injured as a result of an automobile accident with an uninsured driver.  The parties disagreed over whether a settlement offer was made.  The insured filed a declaratory judgment action seeking UIM benefits and, alleging breach of the duty of good faith and fair dealing, violations of Texas Insurance Code Chapters 541 and 542, and violations of the Texas Deceptive Trade Practices-Consumer Protection Act.

State Farm moved for severance and abatement of the extra-contractual claims arguing severance was required because: 1) the insured had not established she was legally entitled to recover UIM benefits; and 2) to protect State Farm from unnecessary discovery and trial preparation in defense of claims that would not be ripe until the jury determined UIM benefits were owed.  The trial court granted State Farm’s motion to sever the extra-contractual claims but refused to abate them.  State Farm moved for reconsideration of the denial of abatement, which the trial court denied.  State Farm then sought mandamus relief of the trial court’s final decision in the court of appeals.

The insured attempted to distinguish cases relied in by State Farm asserting her Insurance Code claims were not dependent on her entitlement to UIM benefits and arguing the cases relied upon by State Farm involved actions taken after a proper response to the claim.  She alleged State Farm failed to properly respond, which State Farm disputed.  The court observed that the “supreme court has recognized that ‘the Insurance Code offers procedural protections against misconduct likely to lead to an improper denial of benefits and little else.’”  Further, the insured conceded her statutory claims were “not premised on an independent-injury theory… In this case, Garza was covered under the policy, so the independent-injury rule does not apply.”

Accordingly, the appellate court agreed with State Farm’s position, conditionally granted mandamus relief and directed the trial court to vacate that portion of its decision denying abatement, and to abate the severed claims until such time as the contractual claims are resolved in the underlying declaratory action.