in Re Loya Insurance Company

Opinion issued August 11, 2011.

In The

Court of

Appeals

For The

First District

of Texas

————————————

NO. 01-10-01054-CV

———————————

IN RE Loya Insurance Company , Relator

Original Proceeding on Petition for Writ of Mandamus

MEMORANDUM OPINION

In this insurance coverage dispute, Loya

Insurance Company seeks mandamus relief from the trial court’s order partially

severing its insureds’ breach of insurance contract claim from the insureds’ extra-contractual

claims, but refusing to sever the insureds’ prompt payment claim or to abate any

of the extra-contractual claims pending resolution of the breach of contract

claim. [1]

Background

Fabian and Martha Jagrup sued Loya

for breach of their homeowner’s insurance policy, violations of the Texas Insurance

Code and its Chapter 542 prompt payment provisions, violations of the

common-law duty of good faith and fair dealing, and fraud. Loya offered to settle the Jagrups’ claims. After the Jagrups rejected Loya’s offer, Loya

then moved to sever and abate the Jagrups’ breach of insurance contract claim

from their extra-contractual claims. The

trial court denied the motion.

Loya filed a petition for a writ of

mandamus, prompting the Jagrups to ask the trial court to modify its order. The Jagrups agreed to sever their breach of

contract claim from their extra-contractual claims, except their statutory

claim for prompt payment. They continued

to contest Loya’s motion to abate. Pursuant

to the Jagrups’ request, the trial court (1) vacated its earlier order, (2)

severed the Jagrups’ breach of contract and Chapter 542 prompt payment claims

from the remainder of their claims, and (3) denied Loya’s request for abatement

of any extra-contractual claim. Loya

seeks mandamus relief from the modified order, contending that the trial court

erred by refusing to sever the prompt payment claim along with the other

extra-contractual claims and to abate the severed claims pending resolution of

the contract claim.

Discussion

Standard of Review

An order denying severance

and abatement of a breach of contract claim from extra-contractual claims in

the insurance context is reviewed for abuse of discretion; it is well settled

that an improper denial is a basis for mandamus relief. See

F.A. Richard & Assocs. v. Millard , 856 S.W.2d 765 , 766 - 67 (Tex.

App.—Houston [1st Dist.] 1993, orig. proceeding); U.S. Fire Ins. Co. v. Millard , 847 S.W.2d 668 , 671 - 72 (Tex.

App.—Houston [1st Dist.] 1993, orig. proceeding).

Severance

When an insurer offers to settle a

breach of contract claim, the trial court must sever the insured’s extra-contractual

claims from the contractual claims to avoid prejudice to the insurer in its

defense of the coverage dispute. See F.A. Richard & Assocs. , 856

S.W.2d at 767 ; U.S. Fire Ins. Co. ,

847 S.W.2d at 673 . This is because,

ordinarily, an offer to settle a coverage dispute is inadmissible to prove the

merit of a coverage claim, but such evidence nevertheless may be admissible on

the extra-contractual claims to rebut evidence that the insurer acted in bad

faith. See Liberty Nat’l Fire Ins. Co. v. Akin , 927 S.W.2d 627, 629 (Tex.

1996) (orig. proceeding); U.S. Fire Ins. ,

847 S.W.2d at 673 . Under such

circumstances, the trial court can reach only one decision that will protect

all interests involved, and that is to order severance of the two types of

claims. See State Farm Mut. Auto. Ins. Co. v. Willborn , 835 S.W.2d 260, 262

(Tex. App.—Houston [14th Dist.] 1992, orig. proceeding).

Loya

asserts that the trial court’s order severing only some of the Jagrups’

extra-contractual claims — while

maintaining their prompt payment claim in the lawsuit with their coverage claim — is contrary to the principles of law set forth

above. It observes that the Jagrups

could seek to admit Loya’s settlement offer as evidence of Loya’s belated attempts

to resolve the disputed insurance claim to support Loya’s prompt payment

liability; but the admission of such evidence would undermine Loya’s coverage defense

of the underlying insurance claim. The

Jagrups respond that prompt payment claims are not separate causes of action;

rather, a prompt payment claim combines an insurer’s contractual and statutory

liability into a single cause of action.

In support, the Jagrups rely on the Amarillo Court of Appeals’ holding

in Lusk v. Puryear , 896 S.W.2d 377,

379 (Tex. App.—Amarillo 1995, orig. proceeding). There, the claimant alleged that the

insurance company “had refused to pay her personal injury protection claim in

full within 30 days of presentment, which ‘constitute[d] a breach of [the]

insurance contract,’ and a violation of article 21.55.” Id.

at 380 . The court of appeals determined

that the trial court abused its discretion in severing and abating the insured’s

causes of action for breach of contract and violations of article 21.55

(Chapter 542’s statutory predecessor). Id.

The court reasoned:

Although the damages and

attorney’s fees provided by the article do not arise from the insurance

contract, they are recoverable for the insurer’s failure to timely pay any loss

for which it may be liable under the contract.

Thus, when [the insured] alleged [the insurer] failed to timely pay her

claim and pleaded for damages and attorney’s fees provided by article 21.55,

the entire liability of [the insurer], both on the insurance policy and under

article 21.55, was put in issue as one cause of action.

Id.

We decline to follow the Amarillo

Court of Appeals’ holding in Lusk because

the claims asserted here are different.

In Lusk , the claimant asserted

that the insurer breached its insurance contract in one way only — by failing to pay insurance benefits within 30

days, after the insured had presented her claim. Id.

at 379 . There was no other underlying

coverage dispute. The Jagrups’ assertion

of breach of contract, in contrast, is broader.

The Jagrups allege that Loya failed to adequately compensate the

Jagrups’ loss. In the Jagrups’

separately pleaded violations of Chapter 542, they allege not only that Loya unreasonably

delayed payment of the claim but also that Loya failed to timely perform a

number of additional duties imposed by Chapter 542. Also, unlike the facts of this case, the

insurer in Lusk had not offered to

settle the relator’s claims, which makes Lusk

similar to Akin , where the Texas

Supreme Court found no harm from trying the claims together. Compare

Akin , 927 S.W.2d at 630 (noting

that prejudice was not likely to result from trying claims together when

insurer paid uncontested portion of claim), with

Lusk , 896 S.W.2d at 380 (noting that because entire liability of insurer

was put in issue in one cause of action trial court erred in ordering severance). We conclude that the Jagrups’ breach of

contract and prompt payment claims present distinct claims. The Amarillo Court of Appeals has itself

recognized this distinction. See In re Trinity Universal Ins. Co. , 64

S.W.3d 463, 467 (Tex. App.—Amarillo 2001, orig. proceeding) (severing contract

claim from prompt payment claim; declining to follow Lusk when prompt payment claim hinged on resolution of coverage

dispute). We hold that the Jagrups’

breach of contract claim must be severed from their prompt payment claim. See U.S.

Fire Ins. Co. , 847 S.W.2d at 673 .

Abatement

In most circumstances, a

decision to grant or deny a motion to abate is within the discretion of the

trial court. See Project Eng’g USA Corp. v. Gator Hawk, Inc. , 833 S.W.2d 716,

724 (Tex. App.—Houston [1st Dist.] 1992, no writ). An order on a plea in abatement ordinarily is

an incidental ruling that is not subject to mandamus review. Abor v.

Black , 695 S.W.2d 564, 567 (Tex. 1985).

Both Houston Courts of Appeals have long concluded, however, that where an

insured has filed a breach of contract claim as well as extra-contractual

claims, and the carrier has made a settlement offer, the trial court should abate

the latter claims to prevent unfair prejudice.

See U.S. Fire Ins. Co. , 847 S.W.2d at 673 ; Wilborn , 835 S.W.2d at 262 ; see

also In re Allstate Ins. Co. , No. 01-02-01235-CV, 2003 WL 21026877 , at *2

(Tex. App.—Houston [1st Dist.] May 8, 2003, orig. proceeding). We hold that Loya is entitled to a separate

trial of the Jagrups’ extra-contractual claims.

We further conclude that Loya does not have an adequate remedy by appeal

because, absent such an order, the parties will be put to the expense and the

effort of preparing and trying extra-contractual claims that may be disposed of

by resolution of the breach of contract claim.

U.S. Fire Ins. Co. , 847 S.W.2d at 675 - 76. We note,

however, that the trial court has discretion in managing its docket. Loya has made no argument to support its

request for a complete abatement, nor any showing of prejudice or burden

relating to parallel discovery of contractual and extra-contractual claims in

this case. A bifurcated trial of the

extra-contractual claims, should the Jagrups prevail in their coverage claim,

may serve as well as an abatement to protect the underlying policy

concerns. Absent any showing of

prejudice, we leave discovery and management of the separate trials to the

trial court’s discretion.

Conclusion

We

direct the trial court to order the severance of the Jagrups’ prompt payment claim. Our writ of mandamus will issue only if the

trial court does not comply.

Jane

Bland

Justice

Panel

consists of Justices Bland, Massengale, and Brown.

[1]

The underlying case is Fabian Jagrup and Martha Jagrup v. Loya

Insurance Co., IAS Claim Services, Inc., and Albert Russell Callaway , No. 2009-64454

in the 11th District Court of Harris County, the Honorable Mike Miller

presiding.