DIANE M. HENSON, Justice.
Relator American National County Mutual Insurance Company seeks a writ of mandamus compelling the trial court to (1) vacate its order denying American National's motion for severance and abatement and (2) enter an order severing and abating real party in interest Connie Cole's extra-contractual claims until her breach of contract claim has been resolved. We conditionally grant the writ.
The lawsuit underlying this original proceeding arises from an automobile accident that occurred on November 24, 2009, between Cole and another driver, Estelline Bullock. Cole sued Bullock and eventually
Mandamus will issue only to correct a clear abuse of discretion when there is no adequate remedy by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135 (Tex.2004). A trial court abuses its discretion when it reaches a decision so arbitrary and unreasonable that it amounts to clear and prejudicial error of law. Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex.1992); see also Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 242 (Tex.1985). With respect to resolution of factual issues or matters committed to the trial court's discretion, we may not substitute our judgment for that of the trial court. Walker, 827 S.W.2d at 840. The relator must establish that the trial court reasonably could have reached only one decision. Id. On the other hand, the trial court has no discretion in determining what the law is or applying the law to the facts. Id. Thus, the trial court abuses its discretion when it fails to analyze the law correctly. Id.
A severance divides a lawsuit into separate and independent causes, which then proceed to individual judgments.
In the context of insurance coverage cases, it is well established that extra-contractual claims, such as bad faith claims, and contract claims related to insurance coverage are by their nature, independent claims that are subject to severance. See Akin, 927 S.W.2d at 629 ("Insurance coverage claims and bad faith claims are by their nature independent."); In re Allstate Ins. Co., 232 S.W.3d 340, 343 (Tex.App.-Tyler 2007, orig. proceeding) (noting that extra-contractual claims can be severed from breach of contract claims in insurance cases); U.S. Fire Ins. Co. v. Millard, 847 S.W.2d 668, 672-73 (Tex.App.-Houston 1993, orig. proceeding) ("A breach of an insurance contract claim is separate and distinct from bad faith, [i]nsurance [c]ode or [deceptive trade practices act] causes of action."). Thus, the issue in this case is not whether the trial court could have ordered severance of Cole's extra-contractual claims, but whether the trial court was required to do so. American National argues that because it made an offer to settle Cole's UIM claim, trying Cole's breach of contract claim together with her extra-contractual claims would unduly prejudice American National. Consequently, American National argues, the trial court abused its discretion in failing to sever Cole's extra-contractual claims.
A trial court has broad discretion in determining whether to sever a lawsuit into separate suits. Akin, 927 S.W.2d at 629. However, that discretion is not unlimited. In re General Agents Ins. Co. of Am., Inc., 254 S.W.3d 670, 673 (Tex.App.-Houston [14th Dist.] 2008, orig. proceeding). A trial court's refusal to order a severance constitutes an abuse of discretion "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." See Womack v. Berry, 156 Tex. 44, 291 S.W.2d 677, 682-83 (1956) (orig. proceeding); In re Hochheim Prairie Farm Mut. Ins. Ass'n, 296 S.W.3d 907, 912 (Tex.App.-Corpus Christi 2009, orig. proceeding); In re General Agents Ins. Co. of Am., 254 S.W.3d at 673-74.
In Liberty National Fire Insurance Company v. Akin, the Texas Supreme Court was confronted with the same issue presented in this case — whether the trial court abused its discretion when it denied the insurer's motion to sever and abate the insured's bad faith claim pending a determination on the insured's breach of contract claim. 927 S.W.2d at 628. While the supreme court held that severance was not required in that case, it recognized that severance of extra-contractual claims from contractual claims may be necessary in certain cases. Id. at 630. The supreme court explained:
Id. (citations omitted).
Following Akin, a majority of intermediate courts of appeals have concluded that it is an abuse of discretion for a trial court to refuse to grant a severance of contractual claims from extra-contractual claims when an offer of settlement has been made by the insurer. See In re Allstate Cnty. Mut. Ins. Co., 352 S.W.3d 277, 278 (Tex. App.-Houston [14th Dist.] 2011, orig. proceeding) (citing State Farm Mut. Auto. Ins. Co. v. Wilborn, 835 S.W.2d 260, 262 (Tex.App.-Houston [14th Dist.] 1992, orig. proceeding)); In re Miller, 202 S.W.3d 922, 926 (Tex.App.-Tyler 2006, orig. proceeding); In re Trinity Universal Ins. Co., 64 S.W.3d 463, 468 (Tex.App.-Amarillo 2001, orig. proceeding); Texas Farmers Ins. Co. v. Stem, 927 S.W.2d 76, 80 (Tex. App.-Waco 1996, orig. proceeding); see also In re State Farm Mut. Auto Ins. Co., No. 08-12-176-CV, 2012 WL 3195099, 2012 Tex.App. LEXIS 6537, at *5-6 (Tex. App.-El Paso Aug. 8, 2012, orig. proceeding); In re Allstate Prop. & Relator Cas. Ins. Co., No. 02-07-141-CV, 2007 WL 1574964, at *1, 2007 Tex.App. LEXIS 4328, at *2-3 (Tex.App.-Fort Worth May 30, 2007, orig. proceeding) (mem. op.); In re Progressive Cnty. Mut. Ins. Co., No. 09-07-00011-CV, 2007 WL 416553, at *1, 2007 Tex.App. LEXIS 889, at *1-2 (Tex.App.-Beaumont Feb. 8, 2007, orig. proceeding) (mem. op.); In re Maryland Cas. Co., No. 04-06-413-CV, 2006 WL 2135052, at *1, 2006 Tex.App. LEXIS 11209, at *4-5 (Tex. App.-San Antonio Aug. 2, 2006, orig. proceeding) (mem. op.); but see Allstate Ins. Co. v. Evins, 894 S.W.2d 847, 850 (Tex. App.-Corpus Christi 1995, orig. proceeding) (denial of motion to sever contractual and extra-contractual claims was proper because it was assumed that jury would follow limiting instruction to limit their consideration of settlement offers in determining bad faith claims). In reaching this conclusion, many of these courts of appeals have explained that, when the insurer has made an offer of settlement on a disputed contract claim, a court's refusal to sever contractual claims from extra-contractual claims creates an irreconcilable conflict between the parties' competing interests at trial. See, e.g., In re Allstate Ins. Co., 232 S.W.3d at 343; Millard, 847 S.W.2d at 673; Wilborn, 835 S.W.2d at 261; see also In re State Farm Mut. Auto Ins. Co., 2012 WL 3195099, 2012 Tex.App. LEXIS 6537, at *6-7 ("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."). More specifically, a conflict arises from the parties' competing interests in excluding and admitting evidence of the insurer's offer of settlement, and only a severance can adequately protect their rights. See, e.g., Wilborn, 835 S.W.2d at 261-62.
Under rule 408 of the Texas Rules of Evidence, settlement offers are not admissible to prove liability for, or invalidity of, the claim or its amount, but may be admissible for another purpose. Tex.R. Evid. 408. This exclusion of settlement
Based on the record before us, there can be no dispute that American National offered to settle Cole's entire UIM claim, and Cole does not claim otherwise. Because we agree that severance is necessary to avoid the unfair dilemma that American National would face in simultaneously defending Cole's contractual and extra-contractual claims, we conclude that the trial court abused its discretion in denying American National's motion for severance. See In re Republic Lloyds, 104 S.W.3d 354, 358 (Tex.App.-Houston [14th Dist.] 2003, orig. proceeding) ("Thus, pursuant to Akin, a severance is required when the insurer has made a settlement offer on the entire breach of contract claim.").
In most circumstances, a trial court's decision to grant or deny a motion to abate is within the court's discretion. In re Allstate Cnty. Mut., 209 S.W.3d 742, 746 (Tex.App.-Tyler 2006, orig. proceeding). In this case, American National contends that the trial court abused its discretion in failing to abate Cole's extra-contractual claims because, according to American National, both severance and abatement are required whenever "a plaintiff has filed a breach of contract claim as well as extra-contractual claims, and a settlement offer has been made." American National argues that absent an abatement it will "be put through the effort and expense of answering discovery, producing documents and witnesses, engaging experts and preparing for trial on issues that are not ripe for litigation and may be rendered moot by the trial." In response, Cole argues that the trial court did not abuse its discretion in failing to abate her extra-contractual claims. Specifically, Cole argues that there is no bright-line rule requiring the abatement of extra-contractual claims in insurance cases, even when the insurer has made an offer of settlement, and there is no necessity for the trial court to abate her extra-contractual claims in this case.
In support of her argument, Cole relies on the Texas Supreme Court's decision in Akin. In Akin, the supreme court rejected the assertion that a separate trial on extra-contractual claims required, as a matter of law, that the court also abate those extra-contractual claims pending a final judgment on the contract claims. 927 S.W.2d at 630-31. The supreme court explained:
Id. at 631. Based on this language, we agree that the abatement of extra-contractual claims is not necessarily required, as a matter of law, in every insurance case where the insurer has offered to settle the insured's contract claim. But see In re Allstate Cnty. Mut. Ins. Co., 352 S.W.3d at 278 ("In cases in which contractual and extra-contractual claims are being pursued simultaneously, this court repeatedly has held that extra-contractual claims must be severed and abated when the insurer has made a settlement offer on the contract claim.").
However, consistent with Akin, a number of our sister courts have held that abatement of extra-contractual claims is required when, under the circumstances, both parties would incur unnecessary expenses if the breach of contract claim were decided in the insurer's favor. See Millard, 847 S.W.2d at 673 (noting that abatement was necessary because insured's bad faith, insurance code, and deceptive trade practices act claims depended on outcome of contractual cause of action); see In re Progressive Cnty. Mut. Ins. Co., 2007 WL 416553, at *1, 2007 Tex.App. LEXIS 889, at *3 ("Abatement of the bad faith claim necessarily accompanies severance because the scope of permissible discovery differs in the two types of claims and without abatement the parties will be put to the effort and expense of conducting discovery on claims that may be disposed of in a previous trial."); In re Allstate Prop. & Relator Cas. Co., 2007 WL 1574964, at *1, 2007 Tex.App. LEXIS 4328, at *3 (holding that abatement was required, noting that "the court, as well as the parties, would be put to the expense and effort of preparing and trying extracontractual claims that may be disposed of in the resolution of the breach of contract claim"). In these cases, the courts of appeals concluded that abatement was necessary because a determination on the contract claim in favor of the insurer would have negated the insured's extra-contractual claims. See, e.g., Millard, 847 S.W.2d at 673. Without abatement, the parties would be put to the effort and expense of conducting discovery and preparing for trial of claims that may be disposed of in a previous trial. Id.; see Akin, 927 S.W.2d at 629 ("[I]n most circumstances, an insured may not prevail on a bad faith claim without first showing that the insurer breached the contract.").
In addition, in the context of UIM cases specifically, several courts of appeals have recently concluded that abatement of extra-contractual claims is necessary as a consequence of the unique hurdles faced by plaintiffs asserting UIM contract claims. See In re United Fire Lloyds, 327 S.W.3d 250, 256 (Tex.App.-San Antonio 2010, orig. proceeding) (discussing Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809, 818 (Tex.2006)); see also In re Old Am. Cnty. Mut. Fire Ins. Co., No. 13-11-00412-CV, 2012 WL 506570, at *4-5, 2012 Tex.App. LEXIS 1293, at *12-13 (Tex.App.-Corpus Christi Feb. 16, 2012, orig. proceeding) (mem. op.) (following In re United Fire Lloyds). In a UIM case, "[t]he UIM insurer is obligated to pay damages which the insured is `legally entitled to recover' from the underinsured motorist."
Though Brainard involved a determination as to when presentment of a contract claim was made in order to determine when a party was entitled to attorney's fees, the San Antonio court of appeals subsequently applied the rationale presented in Brainard to the issue of abatement. See id.; In re United Fire Lloyds, 327 S.W.3d at 253, 256. In In re United Fire Lloyds, the San Antonio court of appeals concluded that, given the clear holding in Brainard, the insurer should not be required to incur litigation expenses on claims that could be rendered moot by the portion of the trial related to UIM benefits and may not have even yet accrued. 327 S.W.3d at 253, 256 (concluding that insured's bad faith claims based on insurance code violations, including failure to properly investigate and evaluate claim, could be rendered moot by portion of the trial related to UIM benefits); see also In re Old Am. Cnty. Mut. Fire Ins. Co., 2012 WL 506570, at *5, 2012 Tex.App. LEXIS 1293, at *13; but see In re State Farm Mut. Auto. Ins. Co., 2012 WL 3195099, 2012 Tex.App. LEXIS 6537, at *20 (distinguishing UIM case from In re United Fire Lloyds, explaining that there was no dispute that uninsured motorist was negligent and underinsured). Accordingly, the court held that abatement of the insured's extra-contractual claims was required in order to "do justice, avoid prejudice, and further convenience." In re United Fire Lloyds, 327 S.W.3d at 265. In light of the supreme court's holding in Brainard, we agree that if a decision rendered in favor of American National on Cole's contract claim would render her extra-contractual claims moot, the trial court abused its discretion in refusing to abate her extra-contractual claims.
In this case, Cole contends an abatement is not necessary in order to prevent the parties from incurring unnecessary litigation expenses. Cole argues that, unlike most cases involving abatement of extra-contractual claims, at least some of her extra-contractual claims against American National are not premised on a finding that American National wrongfully denied her claim. Instead, according to Cole, these claims are related to American National's conduct in handling her claim and consequently, would not be rendered moot if she did not prevail on her contract claim. Upon reviewing Cole's pleadings in this case, we disagree.
Cole's pleadings reveal that she has asserted, in essence, that American National breached its common-law duty of good faith and fair dealing and committed insurance code violations by
To prevail on her extra-contractual claims against American National, Cole must necessarily demonstrate that American National was contractually obligated to pay her UIM claim. To do this, Cole must first prove that the other driver negligently caused the accident and that her recoverable damages exceed the driver's liability insurance.
We conclude that the trial court abused its discretion in denying American National's motion for severance and abatement of Cole's extra-contractual claims. If mandamus relief is not granted, American National would lose substantial rights related to the exclusion of the settlement offer as evidence at trial and by being required to prepare and try claims that may be rendered moot. See Millard, 847 S.W.2d at 675. Thus, American National does not have an adequate remedy by appeal. See id. Accordingly, we conditionally grant the writ of mandamus. The trial court is ordered to vacate that portion of its June 4, 2012 order denying American National's alternative motion for severance and abatement. Further, the trial court is ordered to grant American National's alternative motion for severance and abatement, severing and abating Cole's extra-contractual claims pending resolution of the breach of contract claim. The writ will issue only if the trial court fails to comply within fourteen days.
Tex. Ins.Code Ann. § 1952.106 (West 2009) (emphasis added).