in Re Farmers Texas County Mutual Insurance Company

NUMBER 13-21-00083-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
IN RE FARMERS TEXAS
COUNTY MUTUAL INSURANCE COMPANY
On Petition for Writ of Mandamus.
MEMORANDUM OPINION
Before Chief Justice Contreras and Justices Longoria and Tijerina
Memorandum Opinion by Justice Tijerina1
Real party in interest Carlota Lozano brought the underlying case 2 against her
automobile insurer, relator Farmers Texas County Mutual Insurance Company (Farmers),
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.”).
2 This original proceeding arises from trial court cause number C-0175-19-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.
asserting claims based on statutory violations of the Texas Insurance Code. She alleged
that her lawsuit was “derived from, but not caused by” her claim for
uninsured/underinsured motorist (UIM) benefits with Farmers “that was summarily
rejected without an adequate and/or a reasonable evaluation as required by the Texas
Insurance Code.” 3 By four issues, Farmers contends that the trial court abused its
discretion by denying Farmers’s plea to the jurisdiction and, alternatively, motion to abate,
on the basis that Lozano has not yet obtained a judgment establishing the liability and
underinsured status of the other motorist. We conditionally grant mandamus relief.
I. BACKGROUND
The underlying lawsuit arose from a motor vehicle accident that occurred on or
about January 12, 2017, involving Lozano and the underinsured driver of another vehicle.
The other driver is not a party to the lawsuit or this original proceeding. In Lozano’s “Fourth
Amended Original Petition and Written Discovery to [Farmers],” filed solely against
Farmers, Lozano alleged, in relevant part:
6. This action is derived from, but not caused by, [Lozano’s] filed claim
for UIM benefits under a UIM insurance policy [Lozano] entered into with
[Farmers] that was given short shrift, without an adequate and/or a
reasonable evaluation as required by the Texas Insurance Code. [Lozano]
was injured in a motor vehicle collision on or about January 12, 2017. She
incurred “Escobedo”[ 4]medical expenses in excess of $51,000.00, with
3 The insurance code defines “uninsured or underinsured motorist coverage” as:
[T]he provisions of an automobile liability insurance policy that provide for
coverage . . . that protects insureds who are legally entitled to recover from owners or
operators of uninsured or underinsured motor vehicles damages for bodily injury, sickness,
disease, or death, or property damage resulting from the ownership, maintenance, or use
of any motor vehicle.
TEX. INS. CODE ANN. § 1952.101(a); see also In re Luna, No. 13-16-00467-CV, 2016 WL 6576879, at *1
(Tex. App.—Corpus Christi–Edinburg Nov. 7, 2016, orig. proceeding) (mem. op.).
4 We assume that Lozano refers to Haygood v. De Escabedo, 356 S.W.3d 390, 391 (Tex. 2011),
in which the Texas Supreme Court held that damages for medical or health care expenses incurred as a
result of wrongful personal injury are limited to expenses that the provider has a legal right to be paid. See
id.2
future medical expenses estimated over $87,000.00. In addition to the
medical expenses, [Lozano] sustained significant physical and mental
injuries that she continues to suffer from to the day of this filing.
7. The third-party tortfeasor had no liability insurance to cover the
damages sustained by [Lozano] resulting from the January 12, 2017 subject
collision. [Lozano] formally notified [Farmers] on or about January 26, 2017
that the third-party tortfeasor was uninsured at the time of the subject
collision and that she was making a claim under her own uninsured policy
with [Farmers].[ 5]
9. On August 11, 2017, [Lozano] sent a package of all documents
necessary to evaluate [Lozano’s] claims to [Farmers]. On September 13,
2017, Kyla Rippey, an adjuster employed by and on behalf of [Farmers],
sent a letter offering [Lozano] a settlement that totaled less than the medical
expenses [Lozano] had incurred up to that point. In other words, Kyla
Rippey, on behalf of [Farmers] offered an amount that didn’t even cover
[Lozano’s] incurred medical expenses, let alone anything for the
documented future medical expenses [Lozano] was, within reasonable
medical probability, anticipated to incur, or past and future physical pain and
suffering and mental anguish. In that letter, Kyla Rippey failed to explain the
facts or basis for the decision made after her “evaluation” of [Lozano’s]
uninsured claim. Kyla Rippey’s dismissive, superficial and/or cursory
response to [Lozano’s] uninsured claim violated several sections of the
Texas Insurance Code, and proximately caused [Lozano] to sustain new
and independent compensable injuries and damages.
V. TEXAS INSURANCE CODE CLAIMS AGAINST DEFENDANT
10. [Lozano] is not seeking any of the proceeds of the uninsured
insurance policy entered into with [Farmers] for [Farmers’s] Texas
Insurance Code violations. To be clear, the facts giving rise to [Lozano’s]
statutory claims and damages in this case are not derived from the January
12, 2017 collision itself, but rather the adjuster’s actions and violations of
[TEX. INS. CODE ANN.] § 541.061 et seq., which resulted in new and
independent injuries and damages to [Lozano], including these specific
violations:
11. VIOLATION OF § 541.060(a)(2): Kyla Rippey is required by the
Texas Insurance Code § 541.060(a)(2) “to attempt in good faith to
effectuate a prompt, fair, and equitable settlement of a claim with respect to
which the insurer’s liability has become reasonably clear.” The liability of
[Farmers] under the uninsured policy is reasonably clear given the liability
facts in this case. What is also clear is that the final decision made by Kyla
5 The petition as contained in our record does not contain a paragraph number eight.
3
Rippey on behalf of [Farmers] was not a good faith attempt to effectuate a
prompt, fair and equitable settlement of [Lozano’s] claims given the amount
of [Lozano’s] “specials.”
12. VIOLATION OF § 541.060(a)(3): Furthermore, the letter authored by
Kyla Rippey violated § 541.060(a)(3) because she did not provide “a
reasonable explanation of the basis in the policy, in relation to the facts or
applicable law” for the decision she made. In fact, Kyla Rippey’s letter
containing the response to the 541 demand[ 6] contained an extremely
vague explanation that ‘We’ve evaluated your client’s claim based on the
information presented’ . . . and offered an amount that was less than the
medical expenses incurred without any kind of explanation as to why such
an offer was made. This is a violation of [TEX. INS. CODE ANN.]
§ 541.060(a)(3).
13. VIOLATION OF § 541.060(a)(7): Furthermore, the letter authored by
Kyla Rippey violated §541.060 (a)(7) because she refused “. . . to pay on a
claim without conducting a reasonable investigation with respect to the
claim.” Nothing in Kyla Rippey’s letter containing the response to [Lozano’s]
541 settlement demand mentioned what, if anything, was done to
investigate [Lozano’s] claim. This is a violation of [TEX. INS. CODE ANN.]
§ 541.060(a)(7).
14. The foregoing violations were committed knowingly by and on behalf
of [Farmers]. When [Lozano] was advised of [Farmers’s] Texas Insurance
Code violations, in effect failing to adhere to [Farmers’s] statutory
obligations to [Lozano] after [Lozano] honored her duties under the parties’
insurance contract, she became visibly and physically angry, upset[,] and
indignant. The foregoing violations were a producing cause of [Lozano’s]
new and independent injuries and damages.
15. RESPONDEAT SUPERIOR—At the time of the incident, Kyla
Rippey was in the scope and course of [her] employment with and furthering
the business of [Farmers]. Therefore, based on the doctrine of Respondeat
Superior, [Farmers] is liable for the insurance code violations of its
employee, Kyla Rippey.
Lozano sought actual damages under Texas Insurance Code §§ 541.151 and 541.152,
including past and future medical expenses, pain, suffering and medical anguish, and
6 Although the term “541 demand” is not defined in Lozano’s pleadings, we presume it refers to the
“prior notice of action” required by the Texas Insurance Code. See TEX. INS. CODE ANN. § 541.154(a) (“A
person seeking damages in an action against another person under this subchapter must provide written
notice to the other person not later than the 61st day before the date the action is filed.”).
4
further sought court costs, attorney’s fees, and treble damages. See TEX. INS. CODE ANN.
§ 541.151 (authorizing a private cause of action for damages); id. § 541.152 (allowing a
person who prevails in an action to obtain “the amount of actual damages, plus court
costs and reasonable and necessary attorney’s fees,” “an order enjoining the act or failure
to act complained of,” or “any other relief the court determines is proper”).
On April 24, 2020, Farmers filed a “Plea to the Jurisdiction, or in the Alternative,
Motion to Abate.” Farmers alleged that it was under no duty to pay until Lozano obtained
a judgment establishing the liability and underinsured status of the other motorist.
Farmers argued that the trial court lacked subject matter jurisdiction because Lozano had
not met the prerequisites to establish UM/UIM coverage. Farmers asserted that Lozano
lacked standing and her bad faith claims were not ripe, and thus the trial court should
dismiss the claim for lack of subject matter jurisdiction, or alternatively, abate the lawsuit
until Lozano obtained a judgment establishing the liability of the tortfeasor and the amount
of her damages, “which is a prerequisite to making extracontractual claims.”
On July 10, 2020, Lozano filed a “Response to [Farmers’s] Plea to the Jurisdiction,
or in the Alternative Motion to [Abate].” She alleged she was not raising contractual
claims, which would require that her legal entitlement to UIM benefits be established by
judicial ruling but was instead asserting extra-contractual tort claims, which did not require
such a judgment.
On August 26, 2020, the trial court denied Farmers’s plea and motion to abate.
This original proceeding ensued. By four issues, Farmers contends: (1) an insured like
Lozano does not have ripe bad-faith claims against her carrier for failure to investigate or
promptly pay her UIM claim when she has not yet established legal entitlement to UIM
5
benefits nor has she alleged an independent injury; (2) an insured does not have standing
to bring extra-contractual claims based on alleged insurance code violations on the
handling of a UIM claim before the UIM claim is legally “presented” to her carrier; (3) the
trial court abused its discretion by denying Farmers’s “Plea to the Jurisdiction, or in the
Alternative Motion to Abate” Lozano’s extra-contractual claims, allowing discovery on
unripe extra-contractual claims, prejudicing Farmers in the underlying vehicular
negligence case; and (4) Farmers lacks an adequate remedy by appeal.
This Court granted temporary relief, stayed the underlying proceedings, and
requested that Lozano, 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. Lozano filed a response to the petition for writ of mandamus, and further filed
a “Motion to Strike or Disregard Portions of Relator’s Appendix” on grounds that it
contained documents which had not been filed with the trial court in the underlying
proceeding.
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
6
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., 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).
III. MOTION TO STRIKE
As stated previously, Lozano filed a motion to strike or disregard portions of
Farmers’s appendix on grounds that portions of the appendix had not been filed in the
trial court. Farmers did not file a response to Lozano’s motion. “In determining whether a
trial court abused its discretion, a reviewing court is generally bound by the record before
the trial court at the time its decision was made.” In re M-I L.L.C., 505 S.W.3d 569, 574
(Tex. 2016) (orig. proceeding). Thus, with limited exceptions, we review the actions of the
trial court based on the record before the court at the time it makes its ruling. See Axelson,
Inc. v. McIlhany, 798 S.W.2d 550, 556 (Tex. 1990) (orig. proceeding); Sabine OffShore
Serv., Inc. v. City of Port Arthur, 595 S.W.2d 840, 841 (Tex. 1979) (orig. proceeding) (per
curiam); Hudson v. Aceves, 516 S.W.3d 529, 539–40 (Tex. App.—Corpus Christi–
Edinburg 2016, no pet.) (combined app. & orig. proceeding); In re Taylor, 113 S.W.3d
385, 392 (Tex. App.—Houston [1st Dist.] 2003, orig. proceeding). Accordingly, we grant
Lozano’s motion to strike or disregard, and we do not consider the challenged appendix
items in our review.
IV. DELAY
We next address Lozano’s contention that Farmers waived its right to mandamus
relief because Farmers delayed filing its petition for writ of mandamus. Although
7
mandamus is not an equitable remedy, its issuance is controlled largely by equitable
principles. In re Int’l Profit Assocs., Inc., 274 S.W.3d 672, 676 (Tex. 2009) (orig.
proceeding) (per curiam). One such principle is that “[e]quity aids the diligent and not
those who slumber on their rights.” Rivercenter Assocs. v. Rivera, 858 S.W.2d 366, 367
(Tex. 1993) (orig. proceeding) (quoting Callahan v. Giles, 155 S.W.2d 793, 795 (Tex.
1941) (orig. proceeding)). To invoke the equitable doctrine of laches, the moving party
ordinarily must show an unreasonable delay by the opposing party in asserting its rights
and also the moving party’s good faith and detrimental change in position because of the
opposing party’s delay. In re Laibe, 307 S.W.3d 314, 318 (Tex. 2010) (orig. proceeding)
(per curiam); Rogers v. Ricane Enters., Inc., 772 S.W.2d 76, 80 (Tex. 1989); see also In
re Mabray, 355 S.W.3d 16, 22 (Tex. App.—Houston [1st Dist.] 2010, orig. proceeding
[mand. denied]) (explaining that delay alone is insufficient to invoke laches; injury or
prejudice must also be established). Whether mandamus is barred by delay is a question
of fact that we determine by considering all the circumstances in each case. In re Mabray,
355 S.W.3d at 22–23.
The Texas Supreme Court has held that a two-month delay in seeking mandamus
relief is not necessarily unreasonable, In re Laibe, 307 S.W.3d at 318; see Strickland v.
Lake, 357 S.W.2d 383, 384 (Tex. 1962) (orig. proceeding), but a four-month delay may
be unreasonable absent adequate justification. See Rivercenter Assocs., 858 S.W.2d at
366 (unexplained delay of more than four months); see also Int’l Awards, Inc. v. Medina,
900 S.W.2d 934, 936 (Tex. App.—Amarillo 1995, orig. proceeding) (unexplained delay of
more than four months). Even a six-month delay will not invoke laches if there exists
adequate justification. In re Int’l Profit Assocs., 274 S.W.3d at 676; see In re SCI Tex.
8
Funeral Servs., Inc., 236 S.W.3d 759, 761 (Tex. 2007) (orig. proceeding) (per curiam)
(holding that a delay of slightly less than six months did not constitute laches because the
time was required to obtain records of numerous discovery hearings and brief issues for
court).
Here, the trial court signed the subject order on August 26, 2020, and Farmers
filed its petition for writ of mandamus on March 19, 2021. Farmers does not discuss or
explain the interim between the trial court’s order and the inception of this original
proceeding. We note that the specific legal issue presented here was pending in the
Texas Supreme Court when this petition was filed, and in fact, the supreme court’s opinion
was handed down the same day that this original proceeding was filed. See In re State
Farm Mut. Auto. Ins., Nos. 19-0791 & 19-0792, 2021 WL 1045651, at *1, __ S.W.3d __,
__ (Tex. Mar. 19, 2021) (orig. proceeding). We further note that, due to the COVID-19
State of Disaster, requests for relief from deadlines for appellate proceedings should be
generously granted. See, e.g., Eighth Emergency Order Regarding COVID-19 State of
Disaster, 597 S.W.3d 844, 844 (Tex. 2020) (order).
In light of this intervening authority, the context for this original proceeding, and the
specific facts and circumstances of this case as shown in the record before us, we
conclude, by a narrow margin, that the delay was not unreasonable as a matter of law.
See In re Laibe, 307 S.W.3d at 318. In this regard, we note that Lozano makes no
argument regarding any good faith and detrimental change in position because of
Farmers’s delay, which Lozano would ordinarily be required to establish as the party
asserting waiver. 7 See id. Thus, while we disapprove of the delay here, we reject Lozano’s
Lozano’s sole argument in this regard is her assertion that “[t]here is no reasonable justification
7
for [Farmers’s] delay, which the Court can reasonably infer stemmed from [Farmers’s] desire to disrupt the
9
contention that equitable considerations bar our consideration of this petition for writ of
mandamus. We now turn to the merits of this original proceeding.
V. ANALYSIS
In its first two issues, Farmers asserts that Lozano’s claims are not ripe, or stated
otherwise, Lozano lacks standing because she has not established legal entitlement to
her UIM benefits, and she has not alleged an independent injury. Farmers thus contends
that the trial court erred in denying Farmers’s plea to the jurisdiction or request for
abatement. In contrast, Lozano argues that she is seeking to recover damages for
statutory violations that caused an injury independent from the loss of the benefits, and
thus she is not required to first establish her right to policy benefits in order to bring her
claims.
To recover benefits under a UIM policy, a policy beneficiary must show (1) the
insured has UIM 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., 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., 17 S.W.3d 652, 654 (Tex. 2000);
In re Liberty Cnty. Mut. Ins., 537 S.W.3d 214, 220 (Tex. App.—Houston [1st Dist.] 2017,
orig. proceeding); In re Progressive Cnty. Mut. Ins., 439 S.W.3d 422, 426–27 (Tex. App.—
Houston [1st Dist.] 2014, orig. proceeding). Accordingly, “a claim for UIM 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 Cnty. Mut. Ins., 537 S.W.3d at 220.
April 26 trial setting and the necessary trial preparation leading up to that date.” Lozano does not otherwise
offer argument, authority, or evidence in support of her contention regarding delay.
10
“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 Cnty. Mut. Ins., 537
S.W.3d at 220–21; see In re Allstate Cnty. Mut. Ins., 447 S.W.3d 497, 501 (Tex. App.—
Houston [1st Dist.] 2014, orig. proceeding). Accordingly, extra-contractual claims may
require severance and abatement until the breach of contract claim is determined. See,
e.g., In re Allstate Cnty. Mut. Ins., 447 S.W.3d at 501; In re Progressive Cnty. Mut. Ins.,
439 S.W.3d at 426–27. The Fourth Court of Appeals explained its rationale for this
determination as follows:
[The insurer] is under no contractual duty to pay UIM 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 UIM 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 UIM claim from the bad faith claims.
In re United Fire Lloyds, 327 S.W.3d 250, 256 (Tex. App.—San Antonio 2010, orig.
proceeding) (internal citations omitted); see U.S. Fire Ins. 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 Liberty Nat’l Fire Ins. v. Akin, 927 S.W.2d 627, 630 (Tex.
1996) (orig. proceeding); In re Am. Nat’l Cnty. Mut. Ins., 384 S.W.3d 429, 434 (Tex.
App.—Austin 2012, orig. proceeding). When a settlement offer has been made, the
parties have conflicting and competing interests in excluding and admitting evidence of
the offer of settlement:
11
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., 395 S.W.3d 229, 234 (Tex. App.—El Paso 2012, orig.
proceeding) (internal citations omitted); see In re Am. Nat’l Cnty. Mut. Ins., 384 S.W.3d
at 434–35; In re Allstate Ins., 232 S.W.3d 340, 343 (Tex. App.—Tyler 2007, orig.
proceeding); see U.S. Fire Ins., 847 S.W.2d at 673.
In light of the Supreme Court of Texas’s recent opinion in In re State Farm Mutual
Automobile Insurance Co., we conclude the trial court abused its discretion in failing to
grant Farmers’s alternative request for abatement. 2021 WL 1045651, at *1–8. In State
Farm, the real parties in interest, Dodds and Nicastro, were injured in separate automobile
accidents with third parties. Id. at *1–2. They each settled with the third parties’ insurers
and then made claims with State Farm for the policy limits of their UIM coverage, $50,000
in Dodds’ case and $100,000 in Nicastro’s case. Id. State Farm paid Dodds $18,190.41,
but it did not explain the reason for the discrepancy between the amount paid and the
amount requested, and State Farm denied Nicastro’s UIM claim in its entirety. Id.Dodds and Nicastro filed lawsuits against State Farm and its adjusters alleging that
they violated the Texas Insurance Code by failing “to attempt in good faith to effectuate a
prompt, fair, and equitable settlement of a claim with respect to which the insurer’s liability
has become reasonably clear,” and failing to “promptly provide to a policyholder a
12
reasonable explanation of the basis in the policy, in relation to the facts or applicable law,
for the insurer’s denial of a claim or offer of a compromise settlement of a claim.” Id. at *2
(quoting TEX. INS. CODE ANN. § 541.060(a)(2)(A), (a)(3)). Dodds and Nicastro did not
include any claims for alleged breaches of the UIM policies. Id.
State Farm filed motions to abate the claims and to bifurcate the cases to hold
separate trials to determine the liability and underinsured status of the third parties. Id.
The trial courts denied the motions. Id. State Farm sought review by petitions for writ of
mandamus in the Fifth Court of Appeals, but that court denied relief. State Farm pursued
further review in our supreme court. The Texas Supreme Court framed the issue, and its
holding in these cases, as follows:
These original proceedings arise from suits by holders of underinsured
motorist (“UIM”) insurance seeking recovery against their insurers following
traffic accidents. Plaintiffs in such cases often bring claims for breach of
their insurance policies as well as statutory, extracontractual claims
authorized by the Insurance Code. The common practice has been to sever
and abate the Insurance Code claims while an initial trial is conducted on
the breach-of-contract claim to determine whether the underinsured
motorist was liable for the accident and, if so, the amount of damages
suffered by the insured. A plaintiff who succeeds in this first phase of the
case may then proceed to litigate its Insurance Code claims in light of the
result of the initial trial.
A wrinkle in the cases before us is that the insureds did not sue for breach
of their insurance policies. Although they seek recovery of the amount they
claim to be owed under their policies, they brought only extracontractual,
Insurance Code claims. They contend that because they brought only
statutory claims, and because there are no breach-of-contract claims to
sever and try first, no bifurcation of trial is required. As explained below, we
disagree.
Under USAA Texas Lloyds v. Menchaca, 545 S.W.3d 479 (Tex. 2018), a
plaintiff seeking recovery of benefits owed under an insurance policy must
first establish his entitlement to policy benefits as a contractual matter
before he can recover them as damages for an Insurance Code claim. As
a result, although the plaintiffs’ claims in these cases are not labeled breach
of contract, they nevertheless must establish State Farm’s liability under
13
their insurance policies as a prerequisite to recovery on their Insurance
Code claims. Just as an initial “car crash” trial is typically required to
determine the underinsured motorist’s liability and the amount of damages
when the insured brings both breach-of-contract and Insurance Code
claims, insureds who bring only Insurance Code claims seeking policy
benefits as damages must also succeed in an initial “car crash” trial in order
to lay the predicate for their statutory claims.
In re State Farm Mut. Auto. Ins., 2021 WL 1045651, at *1. In reaching its conclusion, the
supreme court reiterated that there are two paths an insured may take to establish the
damages caused by an insurer’s violation of the Insurance Code. Id. at *3. The insured
must establish either (1) “a right to receive benefits under the policy” or (2) “an injury
independent of a right to benefits.” Id. at *3 (quoting USAA Tex. Lloyds Co. v. Menchaca,
545 S.W.3d 479, 500 (Tex. 2018)). Relying on the second path, Dodds and Nicastro
alleged that State Farm caused them independent injuries by violating the insurance
code. Id. at *4. However, the supreme court explained that Nicastro and Dodds failed to
allege facts supporting an independent injury:
Relying on Menchaca’s second path, Nicastro and Dodds allege State Farm
caused them independent injuries by violating the Insurance Code. We
continue to recognize “the possibility that in denying [a] claim, the insurer
may commit some act, so extreme, that would cause injury independent of
the policy claim.” [Republic Ins. v. Stoker, 903 S.W.2d 338, 341 (Tex.
1995)]. To establish “injury independent of the policy claim,” however,
Nicastro and Dodds must show their “damages are truly independent of
[their] right to receive policy benefits.” Menchaca, 545 S.W.3d at 500. In
other words, to recover under an independent-injury theory, the insureds
must establish that State Farm’s statutory violations caused an injury apart
from State Farm’s failure to pay as much as the insureds believe they
should have been paid under their UIM policies.
Here, however, the only injury Nicastro and Dodds assert is State Farm’s
failure to adequately pay them under their UIM policies. They seek, as
damages for their Insurance Code claims, the amount they believe State
Farm should have offered or paid under the policies. This is precisely the
theory of recovery Menchaca foreclosed in the absence of a right to policy
benefits: “When an insured seeks to recover damages that are predicated
on, flow from, or stem from policy benefits, the general rule applies and
14
precludes recovery unless the policy entitles the insured to those benefits.”
Id.
Nicastro and Dodds emphasize that their claims under the Insurance Code
are not premised on the denial of benefits. Instead, they are premised on
the failure to offer a reasonable settlement and the failure to explain the
denial of benefits. True, the claims are premised on State Farm’s violations
of the Insurance Code, not its violations of the UIM policies. But as
explained in Menchaca and prior cases, when it comes to damages, the
question is not whether the insured’s claims are independent of the right to
receive policy benefits. The question is whether the alleged “damages are
truly independent of the insured’s right to receive policy benefits.” Id. at 499–
500 (emphasis added); see also [Provident Am. Ins. v. Castaneda, 988
S.W.2d 189, 198 (Tex. 1998)] (“[N]one of the actions or inactions of
Provident American was the producing cause of any damage separate and
apart from those that would have resulted from a wrongful denial of the
claim.”).
Again, the only damages claimed by Nicastro and Dodds are predicated on
State Farm’s obligation to pay them under their UIM policies. Said
otherwise, the insureds’ theory of damages is that if State Farm had
followed the Insurance Code, it would have paid more in UIM benefits than
it did. These are not “damages [that] are truly independent of the [] right to
receive policy benefits.” Id. To the contrary, the insureds’ entitlement to
these damages is entirely predicated on their entitlement to policy benefits.
They assert no injuries independent of the denial or underpayment of
benefits. Their statutory claims are merely a means to recoup damages in
the amount of a reasonable settlement offer under the policies; they are not
“truly independent” of Nicastro’s and Dodds’ rights to receive policy benefits.
See id. at 499–500. As a result, the insureds cannot recover for State
Farm’s alleged Insurance Code violations under an “independent-injury”
theory.
In re State Farm Mut. Auto. Ins., 2021 WL 1045651, at *4–5. The Texas Supreme Court
further reasoned that because the insureds did not allege damages that were
independent of their right to receive policy benefits, the insureds were required to
establish their rights to policy benefits in order to recover on their statutory claims. Id. at
*5. Accordingly, because an insurer’s contractual obligation to pay benefits does not arise
until liability and damages are determined, the insureds were first required to obtain
determinations of the third-party drivers’ liability and the amount of their damages before
15
proceeding on their statutory claims. Id. The supreme court concluded that when the
insured does not allege an independent injury, the appropriate procedure is to hold a
bifurcated trial that first determines whether the insurer breached the UIM policy and then,
if the insurer breached the policy, determine whether there was a violation of the
Insurance Code. Id. at *6–7. The court considered that bifurcation was proper because it
tends to preserve judicial resources, and evidence of the insurer’s settlement offer may
be admissible in one phase of the trial but inadmissible in the other. Id. The supreme court
thus concluded the trial courts abused their discretion by denying State Farm’s motions
for bifurcated trials and that State Farm did not have an adequate appellate remedy for
the trial courts’ failure to grant the motions. Id. at *7–8 (“When a bifurcated trial is denied
in these circumstances, the insurer lacks an adequate appellate remedy for the ‘time and
money utterly wasted enduring eventual reversal of improperly conducted proceedings.’”)
(quoting In re Prudential Ins. Co. of Am., 148 S.W.3d at 136). The supreme court
conditionally granted the petitions for writ of mandamus and directed the trial courts to
bifurcate the trials of the insurance code claims. Id. at *8.
The legal issues and substantive facts of this case are nearly identical to those in
In re State Farm. Here, Lozano has filed suit based exclusively on violations of the
insurance code and has eschewed any claim based on breach of the UIM policy. Two of
the three statutory violations that she alleges are identical to those raised in State Farm.
See TEX. INS. CODE ANN. § 541.060(a)(2)(A), (a)(3). An insurer violates § 541.060(a)(2)(A)
if it “fail[s] to attempt in good faith to effectuate a prompt, fair, and equitable settlement
of . . . a claim with respect to which the insurer's liability has become reasonably clear.”
Id. § 541.060(a)(2)(A). An insurer violates § 541.060(a)(3) by “failing to promptly provide
16
to a policyholder a reasonable explanation of the basis in the policy, in relation to the facts
or applicable law, for the insurer's denial of a claim or offer of a compromise settlement
of a claim.” Id. § 541.060(a)(3). The third violation that Lozano alleges arises under
§ 541.060(a)(7). An insurer violates this provision by “refusing to pay a claim without
conducting a reasonable investigation with respect to the claim.” Id. § 541.060(a)(7). All
three of Lozano’s claims are premised on State Farm’s violations of the insurance code,
not its violations of the UIM policy. But as explained by the Texas Supreme Court, the
question is not whether the insured’s claims are independent of the right to receive policy
benefits, but instead whether the alleged damages are truly independent of the insured’s
right to receive policy benefits. See In re State Farm Mut. Auto. Ins., 2021 WL 1045651,
at *4; Menchaca, 545 S.W.3d at 499–500; Castaneda, 988 S.W.2d at 198. Like the
insureds in State Farm, Lozano asserts no injuries independent of the denial or
underpayment of UIM benefits, and her claims are merely a means to recoup damages
in the amount of a reasonable settlement offer under the policy and are thus not truly
independent of her right to receive policy benefits.
We note that Lozano’s case concerns a request for abatement rather than a motion
to bifurcate. We conclude that this distinction does not change the analysis as framed by
the supreme court. In State Farm, the supreme court noted that “the common practice” is
to “sever and abate” insurance code claims while an initial trial is conducted on the
contract claim to determine whether the third-party motorist was liable for the accident
and, if so, the amount of damages suffered by the insured. In re State Farm Mut. Auto.
Ins., 2021 WL 1045651, at *1. And the supreme court rejected the argument that there
was no breach-of-contract claim to “sever” and no claim to “abate.” Id. at *7. The court
17
expressly found that “the logic of the commonly applied sever-and-abate rule applies with
equal force here, although the procedural machinations may be slightly different.” Id.
Further, many of the cases referenced by the supreme court in its analysis concerned
abatement rather than bifurcation. 8
Following the supreme court’s precedent, we conclude the same. Here, as in In re
State Farm, Lozano asserted various violations of the Texas Insurance Code, but did not
assert a claim for breach of contract. Nevertheless, her claim for damages is predicated
on Farmers’s obligation to pay her under her UIM policy. These are not damages “truly
independent of the right to receive policy benefits.” Id. at *5. Such statutory claims are
“merely a means to recoup damages in the amount of a reasonable settlement offer under
the polic[y].” Id. Thus, applying In re State Farm, we must conclude Lozano has not
alleged an injury independent of a right to policy benefits. Id. at *3. Therefore, the trial
court was required to first determine whether Lozano was entitled to UIM policy benefits
before determining whether she can recover those amounts as damages for violations of
8 In reaching its decision, the supreme court noted that it agreed with decisions of many of the
intermediate courts of appeals’ decisions which required bifurcation of trial in cases where the insurer’s
liability for statutory claims is predicated on its liability for breach of a UIM policy. In re State Farm Mut.
Auto. Ins., Nos. 19-0791 & 19-0792, 2021 WL 1045651, at *6 & n.4, __ S.W.3d __, __ (Tex. Mar. 19, 2021)
(orig. proceeding). The exemplar cases cited by the supreme court include cases regarding abatement.
See, e.g., In re Colonial Cnty. Mut. Ins., No. 01-19-00391-CV, 2019 WL 5699735, at *5 (Tex. App.—
Houston [1st Dist.] Nov. 5, 2019, orig. proceeding) (per curiam) (mem. op.) (concluding that the trial court
erred in refusing to abate extracontractual claims and ordering the trial court to abate the severed statutory
extracontractual claims until resolution of the breach of contract suit); In re State Farm Mut. Auto. Ins., 553
S.W.3d 557, 565 (Tex. App.—San Antonio 2018, orig. proceeding) (concluding that the “trial court erred by
not granting the abatement” of extracontractual claims); In re Germania Ins., No. 13-18-00102-CV, 2018
WL 1904911, at *5 (Tex. App.—Corpus Christi–Edinburg Apr. 23, 2018, orig. proceeding) (mem. op.)
(concluding that the trial court erred in denying a motion to sever and abate extracontractual claims pending
resolution of contract claims); In re Allstate Fire & Cas. Ins., No. 12-17-00266-CV, 2017 WL 5167350, at *4
(Tex. App.—Tyler Nov. 8, 2017, orig. proceeding) (mem. op.) (stating that “extra-contractual claims must
be severed and abated until the underinsured motorist breach of contract claim is determined”); In re State
Farm. Mut. Auto Ins., 395 S.W.3d 229, 240–41 (Tex. App.—El Paso 2012, orig. proceeding) (ordering the
trial court to sever and abate extracontractual claims pending the determination of the contract claim); In re
Am. Nat’l Cnty. Mut. Ins., 384 S.W.3d 429, 439 (Tex. App.—Austin 2012, orig. proceeding) (same).
18
the Insurance Code. See id. at *1, 6–7. Accordingly, we conclude that the trial court
abused its discretion by denying Farmers’s request for abatement. See id. at *7–8. 9 We
sustain Farmers’s first issue.
Farmers argues that it lacks an adequate remedy by appeal because without
mandamus relief: (a) Farmers will be required to expend effort and resources defending
claims that have not accrued and may be rendered moot by the vehicular negligence
case, and (b) the extra-contractual claims will be litigated simultaneously, requiring
Farmers to either waive its work product privilege and share its investigation in the
vehicular negligence case in order to defend against Lozano’s bad faith allegations, or
maintain its privilege for the sake of the vehicular negligence case and risk losing the bad-
faith causes of action and risk exposure to treble damages. We agree that Farmers lacks
an adequate remedy by appeal to address this error. Under almost identical
circumstances, the supreme court concluded that the insurer lacked an adequate
appellate remedy for the “time and money utterly wasted enduring eventual reversal of
improperly conducted proceedings.” In re State Farm Mut. Auto. Ins., 2021 WL 1045651,
at *8 (quoting In re Prudential Ins. Co. of Am., 148 S.W.3d at 136). Further, Farmers 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 Lozano does not prevail
on her breach of contract claims, and 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. Cnty.
Mut. Ins., 509 S.W.3d 463, 468 (Tex. App.—Austin 2015, orig. proceeding); In re Allstate
9 Our decision here is buttressed by the fact that this case involves pending discovery that is not
relevant to preliminary issues under review. See In re USAA Gen. Indem. Co., 624 S.W.3d 782, 791 (Tex.
2021) (orig. proceeding) (“A plaintiff may not obtain discovery on an unasserted, abated, or unripe bad-faith
claim under the guise of investigating a claim for benefits.”).
19
Cnty. Mut. Ins., 447 S.W.3d at 504; In re United Fire Lloyds, 327 S.W.3d at 256; see also
In re Germania Ins., No. 13-18-00102-CV, 2018 WL 1904911, at *5 (Tex. App.—Corpus
Christi–Edinburg Apr. 23, 2018, orig. proceeding) (mem. op.). We sustain Farmers’s
fourth issue. Having done so, we need not address its remaining issues. See TEX. R. APP.
P. 47.1; id. R. 47.4.
VI. CONCLUSION
The Court, having examined and fully considered the petition for writ of mandamus,
the response, and the applicable law, is of the opinion that Farmers has met its burden to
obtain relief. See In re State Farm Mut. Auto. Ins., 2021 WL 1045651, at *1; In re State
Farm Mut. Auto. Ins., 623 S.W.3d 526, 530 (Tex. App.—Dallas 2021, orig. proceeding)
(concluding that the trial court abused its discretion by denying the insurer’s motion for
separate trial and abatement of the plaintiff’s UIM claims). Accordingly, we lift the stay
previously imposed in this case. We conditionally grant relators’ petition for writ of
mandamus. We direct the trial court to vacate its August 26, 2020 order denying
Farmers’s request for abatement and direct the trial court to proceed as indicated herein.
We are confident the trial court will comply, and the writ will issue only if the trial court
fails to do so.
JAIME TIJERINA
Justice
Delivered and filed on the
31st day of August, 2021.
20