Austin Court Reiterates “Texas Two-Step” in UM/UIM Cases: Severance of Declaratory and Extra-Contractual Claims Required

In an Opinion by Chief Justice Darlene Byrne, the Austin Court of Appeals recently granted mandamus requiring severance in an underinsured (“UIM”) case against Allstate after a parking lot collision. See Cause No. 03-21-00515-CV, In re Allstate Fire and Cas. Ins. Co. (Tex. App.–Austin Jan. 12, 2022, orig. proceed.). Plaintiff had asserted negligence and gross negligence claims against the tortfeasor as well as declaratory and Insurance Code “extracontractual” claims against Allstate.  The Insurance Code claims included alleged misrepresentations, an unreasonable investigation, failure to settle when liability was reasonably clear, and an alleged failure to explain the coverage denial.  Slip op. at 1-2.

The trial court denied Allstate’s motion for severance without explanation and the Austin Court granted mandamus reiterating the dictates of the Texas Supreme Court’s recent decision in In re State Farm Mut. Auto. Ins., 629 S.W.3d 866, 876 (Tex. 2021) (emphasizing the declaratory “car wreck” claims had to be tried first before any litigation of the extracontractual Insurance Code claims).  Slip op. at 4-5.  The Austin Court in Allstate was unequivocal on this point: “severance and abatement is appropriate when . . . an insured seeks a determination as to entitlement to UIM benefits and also brings extracontractual claims against the insured.”  Slip op at 6.  The Court reasoned that because resolution of the “claim for declaratory relief . . . could moot at least some of [the] Insurance Code claims and because trying the Insurance Code claims would involve evidence of settlement efforts inadmissible in trial of the contract claims, the contract claims should be tried first.”  Id.

 This new Allstate case is yet another in a consistent line of Texas UM/UIM cases recognizing a Texas Two-Step:  following severance there must first be a trial of the “car wreck” case addressing the liability of the tortfeasor and the amount of damages and only then can there be consideration of any remaining “extracontractual” claims (if any).

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