In re Germania Ins. Co.

Full title: IN RE GERMANIA INSURANCE COMPANY

Court: COURT OF APPEALS THIRTEENTH DISTRICT OF TEXAS CORPUS CHRISTI - EDINBURG

Date published: Apr 23, 2018

NUMBER 13-18-00102-CV (Tex. App. Apr. 23, 2018)

Opinion

NUMBER 13-18-00102-CV

04-23-2018

IN RE GERMANIA INSURANCE COMPANY

Memorandum Opinion by Justice Longoria

On Petition for Writ of Mandamus.

MEMORANDUM OPINION

Before Justices Rodriguez, Longoria, and Hinojosa
Memorandum Opinion by Justice Longoria ¹

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.").

Real party in interest Nelda Garcia brought the underlying case² against her automobile insurer, relator Germania Insurance Company (Germania), asserting contractual and extra-contractual claims based on the uninsured motorist provisions of her insurance policy.³ By one issue, Germania contends that the trial court abused its discretion by denying its motion to sever and abate Garcia's extra-contractual causes of action. We conditionally grant mandamus relief.

2 This original proceeding arises from trial court cause number C-2620-17-I in the 398th District Court of Hidalgo County, Texas, and the respondent is the Honorable Keno Vasquez. See generally TEX. R. APP. P. 52.2.

3 Under the insurance code, "uninsured or underinsured motorist coverage" is defined as "the provisions of an automobile liability insurance policy that provide for coverage . . . that protects insureds who are legally entitled to recover" damages for, inter alia, bodily injury, death, or property damage resulting from the ownership, maintenance, or use of any motor vehicle "from owners or operators of uninsured or underinsured motor vehicles." TEX. INS. CODE ANN. § 1952.101 (West, Westlaw through 2017 1st C.S); see In re Luna, No. 13-16-00467-CV, 2016 WL 6576879, at *1 (Tex. App.—Corpus Christi Nov. 7, 2016, orig. proceeding) (mem. op.).

I. BACKGROUND

The underlying lawsuit arose from a motor vehicle accident involving Garcia and the uninsured driver of another vehicle. The other driver is not a party to the lawsuit or this original proceeding. On or about May 14, 2016, Garcia was traveling on U.S. Highway 281 in Edinburg, Texas, when the uninsured motorist failed to control his speed, lost control of his vehicle, and collided with Garcia's vehicle. Garcia sustained personal injuries and damages resulting from the collision. On December 29, 2016, Garcia offered to settle her bodily injury claims with Germania under the uninsured motorist benefits provision of her insurance policy for $36,594.00. On April 10, 2017, Garcia again offered to settle her claims with Germania for $67,500.00, which represented the "discounted" sum of her economic damages, treble damages, and attorney's fees. On May 3, 2017, Germania responded to Garcia's settlement demands by making an offer to settle her claims for $6,000.00.

On June 12, 2017, Garcia sued Germania for uninsured motorist benefits. Garcia alleged causes of action for breach of contract, bad faith, violations of the prompt payment of claims act, violations of the unfair claim settlement act, and violations of the deceptive trade practices act. See generally TEX. INS. CODE ANN. §§ 541.060, 542.003, 542.058, 542.060 (West, Westlaw through 2017 1st C.S.); TEX. BUS. & COM. CODE ANN. § 17.50 (West, Westlaw through 2017 1st C.S.).

On November 27, 2017, Garcia presented a new settlement demand to Germania seeking $75,750.00 to "fully resolve all [of her] claims." In response, on December 1, 2017, Germania reiterated its previous settlement offer of $6,000.00.

On December 1, 2017, Germania filed a motion to sever and abate Garcia's extra-contractual claims from her underlying claim for uninsured motorist benefits. Germania contended that severance and abatement was necessary because liability and damages had not been determined, and because it had engaged in settlement negotiations with Garcia and had made a settlement offer to Garcia. Germania argued, in relevant part:

Depending upon the outcome of the contractual claims, litigation of the extra-contractual claims may become unnecessary and moot. This will save significantly in terms of litigation expenses and judicial trial. Furthermore, allowing the information regarding settlement offers would unfairly prejudice the Defendant to the point where a fair trial is unlikely. As such it is logical, fair, and reasonable to sever and abate the extra-contractual claims in this matter.

Based on our review of the record, Garcia did not file a response to Germania's motion to sever and abate.

On January 23, 2018, the trial court held a non-evidentiary hearing on the motion to sever and abate and pending discovery issues regarding the deposition of Germania's corporate representative. On January 29, 2018, the trial court signed an order denying Germania's motion to sever and abate.

This original proceeding ensued. By one issue, Germania contends that the trial court abused its discretion by refusing to sever and abate Garcia's extra-contractual claims where Germania had made prior offers to settle and compromise her claims. By order issued on February 27, 2018, this Court granted temporary relief, stayed the underlying proceedings, and requested that Garcia, or any others whose interest would be directly affected by the relief sought, file a response to the petition for writ of mandamus. See TEX. R. APP. P. 52.2, 52.4. Nevertheless, Garcia did not file a response to the petition for writ of mandamus.

II. STANDARD OF REVIEW

Mandamus is an extraordinary remedy. In re H.E.B. Grocery Co., 492 S.W.3d 300, 302 (Tex. 2016) (orig. proceeding) (per curiam). Mandamus relief is proper to correct a clear abuse of discretion when there is no adequate remedy by appeal. In re Christus Santa Rosa Health Sys., 492 S.W.3d 276, 279 (Tex. 2016) (orig. proceeding). The relator bears the burden of proving both of these requirements. In re H.E.B. Grocery Co., 492 S.W.3d at 302; Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992) (orig. proceeding). An abuse of discretion occurs when a trial court's ruling is arbitrary and unreasonable or is made without regard for guiding legal principles or supporting evidence. In re Nationwide Ins. Co. of Am., 494 S.W.3d 708, 712 (Tex. 2016) (orig. proceeding); Ford Motor Co. v. Garcia, 363 S.W.3d 573, 578 (Tex. 2012). We determine the adequacy of an appellate remedy by balancing the benefits of mandamus review against the detriments. In re Essex Ins. Co., 450 S.W.3d 524, 528 (Tex. 2014) (orig. proceeding); In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 136 (Tex. 2004) (orig. proceeding).

Mandamus relief may be warranted for the refusal to order a severance of contractual claims from bad faith or extra-contractual claims. In Liberty National Fire Insurance Co. v. Akin, the Texas Supreme Court addressed this issue. 927 S.W.2d 627, 628 (Tex. 1996) (orig. proceeding). 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." Id.; see In re Allstate Tex. Lloyds, 202 S.W.3d 895, 899 (Tex. App.—Corpus Christi 2006, orig. proceeding [mand. denied]) (denying mandamus relief regarding the severance of contractual and extra-contractual claims based on the Akin standard). Ultimately, the supreme court concluded that the contractual and extra-contractual claims were interwoven, that most of the evidence was admissible on both claims, and that any prejudicial effect of a unified trial could be ameliorated by appropriate limiting instructions. Akin, 927 S.W.2d at 628. However, the supreme court placed express limitations on its holding:

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.

Id. (internal citations omitted); see In re Miller, 202 S.W.3d 922, 925-26 (Tex. App.—Tyler 2006, orig. proceeding); In re Trinity Universal Ins. Co., 64 S.W.3d 463, 468 (Tex. App.—Amarillo 2001, orig. proceeding [mand. denied]). Following Akin, numerous courts of appeals have granted mandamus relief to require severance and abatement of contractual and extra-contractual claims. See, e.g., In re Farmers Tex. Cty. Mut. Ins. Co., 509 S.W.3d 463, 467 (Tex. App.—Austin 2015, orig. proceeding); In re Allstate Cty. Mut. Ins. Co., 447 S.W.3d 497, 498 (Tex. App.—Houston [1st Dist.] 2014, orig. proceeding); In re Allstate Cty. Mut. Ins. Co., 352 S.W.3d 277, 278 (Tex. App.—Houston [14th Dist.] 2011, orig. proceeding); In re United Fire Lloyds, 327 S.W.3d 250, 256 (Tex. App.—San Antonio 2010, orig. proceeding); see also In re Farmers Tex. Cty. Mut. Ins. Co., No. 13-17-00513-CV, 2017 WL 4769112, at *2 (Tex. App.—Corpus Christi Oct. 20, 2017, orig. proceeding) (mem. op.) (denying relief, but collecting cases where mandamus relief was granted); In re Old Am. Cty. Mut. Fire Ins. Co., No. 13-12-00700-CV, 2013 WL 398866, at *1 (Tex. App.—Corpus Christi Jan. 30, 2013, orig. proceeding) (mem. op.) (granting relief).

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.; see F.F.P. Operating Partners, L.P. v. Duenez, 237 S.W.3d 680, 693 (Tex. 2007). Severance is proper when (1) the controversy involves more than one cause of action, (2) the severed claim is one that would be the proper subject of an independently asserted lawsuit, and (3) the severed claim is not so interwoven with the remaining action that the actions involve the same facts and issues. State v. Morello, No. 16-0457, 2018 WL 1025685, at *6, ___ S.W.3d ___, ___ (Tex. Feb. 23, 2018); F.F.P. Operating Partners, L.P., 237 S.W.3d at 693; 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. Operating Partners, L.P., 237 S.W.3d at 693. The trial court has "broad" discretion in the severance of causes of action. Morello, 2018 WL 1025685, at *6; Morgan v. Compugraphic Corp., 675 S.W.2d 729, 734 (Tex. 1984). 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).

Here, Germania contends that the trial court abused its discretion by refusing to sever Garcia's extra-contractual claims from her contractual claims. This case arises from a claim for uninsured motorist benefits under an insurance policy. To recover benefits under an uninsured motorist policy, a policy beneficiary must show (1) the insured has underinsured motorist coverage, (2) the underinsured motorist negligently caused the accident that resulted in the covered damages, (3) the amount of the insured's damages, and (4) the underinsured motorist's insurance coverage is deficient. See Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809, 818 (Tex. 2007); State Farm v. Nickerson, 216 S.W.3d 823, 824 (Tex. 2006); Henson v. S. Farm Bur. Cas. Ins. Co., 17 S.W.3d 652, 654 (Tex. 2000); In re Liberty Cty. Mut. Ins. Co., 537 S.W.3d 214, 220 (Tex. App.—Houston [1st Dist.] 2017, orig. proceeding); In re Progressive Cty. Mut. Ins. Co., 439 S.W.3d 422, 426-27 (Tex. App.—Houston [1st Dist.] 2014, orig. proceeding); In re United Fire Lloyds, 327 S.W.3d at 255. Accordingly, "a claim for [uninsured motorist] benefits is not presented until the trial court signs a judgment" resolving these issues. Brainard, 216 S.W.3d at 818; see In re Liberty Cty. Mut. Ins. Co., 537 S.W.3d at 220.

"An insured must first establish that the insurer is liable on the contract before the insured can recover on extra-contractual causes of action against an insurer for failing to pay or settle an underinsured motorist insurance claim." In re Liberty Cty. Mut. Ins. Co., 537 S.W.3d at 220-21; see In re Allstate Cty. Mut. Ins. Co., 447 S.W.3d at 501; In re United Fire Lloyds, 327 S.W.3d at 256. Accordingly, extra-contractual claims may require severance and abatement until the breach of contract claim is determined. See, e.g., In re Allstate Cty. Mut. Ins. Co., 447 S.W.3d at 501; In re Progressive Cty. Mut. Ins. Co., 439 S.W.3d 422; In re United Fire Lloyds, 327 S.W.3d at 256. The Fourth Court of Appeals explained its rationale for this determination as follows:

[The insurer] is under no contractual duty to pay [underinsured motorist] benefits until [the insured] establishes the liability and underinsured status of the other motorist. Therefore, [the insurer] 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 claims that could be rendered moot by the portion of the trial relating to [underinsured motorist] 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 [underinsured motorist] claim from the bad faith claims.

In re United Fire Lloyds, 327 S.W.3d at 256; see U.S. Fire Ins. Co. v. Millard, 847 S.W.2d 668, 673 (Tex. App.—Houston [1st Dist.] 1993, orig. proceeding). Further, severance of contractual claims from extra-contractual claims may be required when an offer of settlement has been made by the insurer. See Akin, 927 S.W.2d at 630; In re Am. Nat. Cty. Mut. Ins. Co., 384 S.W.3d 429, 434 (Tex. App.—Austin 2012, orig. proceeding); In re Allstate Cty. Mut. Ins. Co., 352 S.W.3d at 278; In re Miller, 202 S.W.3d at 926; In re Trinity Universal Ins. Co., 64 S.W.3d at 468. When a settlement offer has been made, the parties have conflicting and competing interests in excluding and admitting evidence of the offer of settlement:

Absent severance, an insurer is presented with a "Catch-22" in that its decision to admit or exclude evidence of a settlement offer jeopardizes the successful defense of the other claim. For instance, in defending against a contract claim, the insurer will insist on exercising its right to exclude evidence of a settlement offer to negate liability. Conversely, in defending against extra-contractual claims, an insurer will insist on exercising its right to admit evidence of a settlement offer to negate liability. Thus, by having to defend against these two types of claims simultaneously and before the same jury absent severance, an insurer is prejudiced to such an extent that a fair trial is unlikely. Under such a scenario, the trial court has no choice but to sever in order to protect the fairness of the proceedings and the interests of the parties.

In re State Farm Mut. Auto. Ins. Co., 395 S.W.3d 229, 234 (Tex. App.—El Paso 2012, orig. proceeding) (internal citations omitted); see In re Am. Nat. Cty. Mut. Ins. Co., 384 S.W.3d at 434-35; In re Allstate Ins. Co., 232 S.W.3d 340, 343 (Tex. App.—Tyler 2007, orig. proceeding); see U.S. Fire Ins. Co., 847 S.W.2d at 673.

Germania contends that this case falls within the foregoing parameters and merits extraordinary relief. We conclude that here, Germania has met its burden to obtain relief. To prevail on her extra-contractual claims against Germania, Garcia must first demonstrate that Germania was contractually obligated to pay her uninsured motorist claim. See In re Liberty Cty. Mut. Ins. Co., 537 S.W.3d at 220-21; see In re Allstate Cty. Mut. Ins. Co., 447 S.W.3d at 501. To do this, Garcia must show that she has uninsured motorist coverage, the underinsured motorist negligently caused the accident that resulted in the covered damages, the amount of her damages, and that the underinsured motorist's insurance coverage is deficient. See Brainard, 216 S.W.3d at 818; In re Liberty Cty. Mut. Ins. Co., 537 S.W.3d at 220; In re Reynolds, 369 S.W.3d 638, 653 (Tex. App.—Tyler 2012, orig. proceeding). If the causes were not severed, Germania would 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. Germania has made a settlement offer on Garcia's entire claim, and Germania should not be forced to choose between the exclusion of this evidence to negate liability on contract claims and avoid prejudice, and the admission of this evidence to negate liability on extra-contractual claims. See In re Reynolds, 369 S.W.3d at 653. A fair trial would be unlikely if Germania were forced to make this choice. See id. In reaching this conclusion, we note that this case does not appear to involve causes of action which can be resolved independently from the determination that Germania has a contractual duty to pay uninsured motorist benefits to Garcia. See In re Allstate Cty. Mut. Ins. Co., 447 S.W.3d at 503.

Based on our review of the record in this case, we conclude that Garcia's extra-contractual claims against Germania are severable, the facts and circumstances of the case require a severance, 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 by the severance. See Womack, 291 S.W.2d at 683. Therefore, under the specific facts presented here, the trial court abused its discretion in refusing to sever and abate Garcia's extra-contractual claims from her contractual claims pending the determination of Germania's liability for the uninsured motorist damages under the policy. See In re Am. Nat'l Cty. Mut. Ins. Co., 384 S.W.3d at 434-35; In re Reynolds, 369 S.W.3d at 650-55; In re United Fire Lloyds, 327 S.W.3d at 257. We also conclude that Germania does not have an adequate remedy by appeal because it stands to lose substantial rights by litigating claims that might be rendered moot and never accrue if Garcia does not prevail on her breach of contract claims, and because a fair trial is unlikely if it is forced to litigate both contractual and extra-contractual claims in one trial. See, e.g., In re Farmers Tex. Cty. Mut. Ins. Co., 509 S.W.3d at 467; In re State Farm Mut. Auto. Ins. Co., 395 S.W.3d at 234. Accordingly, we sustain Germania's sole issue.

IV. CONCLUSION

The Court, having examined and fully considered the petition for writ of mandamus and the applicable law, concludes that Germania has met its burden to obtain relief. Accordingly, we lift the stay previously imposed in this case. See TEX. R. APP. P. 52.10(b) ("Unless vacated or modified, an order granting temporary relief is effective until the case is finally decided."). We conditionally grant Germania's petition for writ of mandamus. We direct the trial court to vacate the January 29, 2018 order denying Germania's motion to sever and abate and to render an order severing and abating Garcia's extra-contractual claims from her contract claims. The writ will issue only if the trial court fails to act in accordance with this opinion.

NORA L. LONGORIA

Justice Delivered and filed the 23rd day of April, 2018.