Bad Faith claims will sometimes require a separate trial. This is illustrated in a 2020, Tyler Court of Appeals opinion styled, In Re: Progressive Casualty Insurance Company.
This case is a mandamus action resulting from the trial court refusing to sever and abate the extra-contractual claims and compelling discovery.
The real party in interest is Phillip Davidson. Davidson had submitted a claim to Progressive for hull damage to his boat. Progressive denied the claim. Progressive later offered to settle the disputed claim for the costs of the repairs in the amount of $11,500. Davidson filed suit seeking damages for breach of contract, Insurance Code violations and DTPA violations.
Progressive argues that the trial court abused its discretion when it denied Progressive’s motion to sever and abate Davidson’s extra-contractual claims and compelled discovery. Davidson argues that a bifurcated trial is sufficient to protect Progressive’s interests.
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.
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. Thus, abatement is necessary when a determination on the breach of contract claim in favor of the insurer will negate the insured’s extra-contractual claims. Without the 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.
Pursuant to Texas Rule of Civil Procedure 41, any claim against a party may be severed and proceeded with separately. Claims are properly severable if the controversy involves more than one cause of action, the severed claim is one that would be the proper subject of a lawsuit if independently asserted, and the severed claim is not so interwoven with the remaining action that it involves the same facts and issues. The controlling reasons to allow a severance are to avoid prejudice, do justice, and promote convenience.
In the context of insurance cases, a breach of an insurance contract claim is separate and distinct from bad faith, Insurance Code, or DTPA causes of action and each might constitute a complete lawsuit within itself. In most circumstances, an insured may not prevail on a bad faith claim without first showing that the insurer breached the contract.
Here, Progressive offered to settle Davidson’s breach of contract claim for $11,500. Progressive contends that this is the estimated cost of the repairs required for the boat. A settlement offer ordinarily is inadmissible in the trial of a disputed breach of contract claim but may be admissible on the extra-contractual claims to rebut evidence that the insurer acted in bad faith. But Progressive would be unfairly prejudiced by the admission of its settlement offer in the trial of the breach of contract claim, and Davidson would be unfairly prejudiced by the exclusion of the settlement offer in the trial of the extra-contractual claims.
Based upon the Court’s review of the record, it held that Davidson’s extra-contractual claims against Progressive are severable. It also concluded that all of the facts and circumstances of the case unquestionably require a severance to prevent manifest injustice, 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.