Proof Required of Liability and Underinsured Nature of Defendant Before Suit Against Insurer
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In the case In Re United Financial Casualty Company, Relator, No. 14-22-00502-CV the Court of Appeals of Texas, Fourteenth District (November 3, 2022) ordered the issuance of a writ of mandate if the trial court refuses to follow its instructions to abate a premature extra contractual claims against the insurer.
United Financial Casualty Company (“United Financial”) filed a petition for writ of mandamus asking the Court of Appeals to compel the Honorable Lauren Reeder, presiding judge of the 234th District Court of Harris County, to vacate the trial court’s June 6, 2022 order denying United Financial’s motion to abate the real party in interest Elizabeth Echeverria’s (“Echeverria”) extra-contractual claims in an uninsured/underinsured motorist coverage suit.
Echeverria was involved in a motor vehicle accident as a passenger in a vehicle operated by Uber driver Samir Tachbaroute (“Tachbaroute”). Carlos Lanausse-Ramos (“Lanausse-Ramos”) allegedly rear-ended Tachbaroute’s vehicle. Echeverria alleges that she sustained physical injuries as a result of this accident.
At the time of the accident, United Financial insured Tachbaroute under a commercial auto policy with uninsured/underinsured (“UM/UIM”) coverage. Echeverria made uninsured bodily injury claims under this policy. Before Echeverria and United Financial resolved the claim, Echeverria filed suit against United Financial.
In the lawsuit, Echeverria seeks declaratory relief to establish entitlement to UIM motorist benefits and for alleged violations of Insurance Code chapters 541 and 542; breach of the duty of good faith and fair dealing; violations of the Texas Deceptive Trade Practices-Consumer Protection Act (“DTPA”); and fraud.
Although Echeverria has not yet obtained a legal determination that Lanausse-Ramos is liable for the accident and is underinsured, Echeverria sued United Financial for the alleged violations.
The trial court denied the motion to abate Echeverria’s extra-contractual claims.
In this original proceeding, United Financial asserts that the trial court abused its discretion by denying United Financial’s motion to abate Echeverria’s extra-contractual claims. The Court of Appeal requested that Echeverria file a response to the petition for writ of mandamus; however, no response was filed.
MANDAMUS STANDARD OF REVIEW
Ordinarily, to be entitled to a writ of mandamus, the relator (the insurer) must show that the trial court clearly abused its discretion, and that the relator lacks an adequate remedy by appeal. Most such applications are refused because of the high requirement of proving abuse of discretion. However, if a trial court abuses its discretion if it acts arbitrarily, unreasonably, or without regard to guiding legal principles. The trial court’s failure to analyze or apply the law correctly constitutes an abuse of discretion.
Relator also must demonstrate that it does not have an adequate remedy at law, such as a remedy by an appeal. The Court of Appeal determines the adequacy of an appellate remedy by balancing the benefits of mandamus review against the detriments. Mandamus relief is appropriate when a trial court abuses its discretion in denying a motion to abate extra-contractual claims in an UIM case.
ABATEMENT OF EXTRA-CONTRACTUAL CLAIMS
Abatement of Echeverria’s extra-contractual claims is required until the declaratory judgment action and breach-of-contract claim have been decided. An insured’s claim for breach of an insurance contract is distinct and independent from claims that the insurer violated its extra-contractual common law and statutory duties.
UIM claims and bad-faith claims have been recognized as separate and distinct claims, which might each constitute a complete lawsuit within itself. A UIM insurer has no contractual duty to pay benefits until the liability of the other driver and the amount of damages sustained by the insured are determined. To recover benefits under a UIM policy, a policy beneficiary must show:
- the insured has UIM coverage;
- the other driver negligently caused the accident that resulted in the covered damages;
- the amount of the insured’s damages; and
- the other driver’s insurance coverage is deficient.
An insured first must establish that the insurer is liable on the contract before the insured can recover on extra-contractual claims against an insurer for failure to pay or settle a UIM insurance claim. Texas insurance law generally conditions recovery for bad faith and extracontractual claims on a recovery for breach of the insurance contract itself.
ABUSE OF DISCRETION
Echeverria alleged that, pursuant to the policy, United Financial was obligated to pay Echeverria UIM benefits for bodily injury caused by Lanausse-Ramos and Tachbaroute. Echeverria further alleged that, although she gave notice that she was seeking UIM benefits under the policy, United Financial failed to provide coverage. Yet, United Financial has no contractual obligation to pay Echeverria UIM benefits until Echeverria establishes the liability and underinsured status of Lanausse-Ramos.
The introduction of information on Echeverria’s extra-contractual claims during the trial on Echeverria’s breach-of-contract claim would be manifestly unjust. Requiring United Financial to try the extra-contractual claims with the breach-of-contract claim would not do justice, avoid prejudice, or further convenience. Therefore, the court of appeals concluded that the trial court abused its discretion by not abating Echeverria’s extra-contractual claims from her breach-of-contract claim.
NO ADEQUATE APPELLATE REMEDY
United Financial will lose the important right to have Echeverria’s extra-contractual claims tried with her breach-of-contract claim. An appellate court may consider whether mandamus will preserve important substantive and procedural rights from impairment or loss in determining whether the relator has adequate remedy by appeal.
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.
The Court of Appeal concluded that the trial court abused its discretion by denying United Financial’s motion to abate Echeverria’s extra-contractual claims and that United Financial does not have an adequate remedy by appeal. Accordingly, the Court of Appeal determined that United Financial is entitled to the requested relief and order the trial court to vacate its June 6, 2022 order denying United Financial’s motion to abate Echeverria’s extra-contractual claims and grant United Financial’s motion to abate the extra-contractual claims.
When a person brings a tort action against a person who allegedly rear-ended the car in which she was riding and claims underinsured motorist benefits before proving the defendant was underinsured it was manifestly unjust to claim bad faith when she failed to prove the other driver was underinsured. Bad faith claims do not belong in a trial seeking tort damages from a third party.
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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.
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