Opinion ID: 1297343
Heading Depth: 2
Heading Rank: 4

Heading: Motion to Bifurcate the Proceedings

Text: State Farm argues that if there were valid causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing, those causes of action and other issues should have been tried separately from the portion of the trial dealing with the liability of the uninsured motorist. The argument State Farm presented at the district court in favor of bifurcated proceedings contained several components. Many of those issues have already been addressed; therefore, we need only address issues related to the introduction of evidence of insurance and evidence of settlement offers. In certain circumstances, the district court may order a bifurcated trial: (b) Separate trials. The court, in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy, may order a separate trial of any claim, cross-claim, counterclaim, or third-party claim, or of any separate issue or of any number of claims, cross-claims, counterclaims, third-party claims, or issues. W.R.C.P. 42(b). The decision to order separate trials is within the discretion of the district court and will not be disturbed on appeal unless an abuse of discretion is found. Carlson v. Carlson, 836 P.2d 297, 305 (Wyo. 1992); Tremblay v. Reid, 700 P.2d 391, 398 (Wyo.1985). On appeal, this court considers an abuse of discretion to have occurred when a court exceeds the bounds of reason or commits an error of law. Combs v. Sherry-Combs, 865 P.2d 50, 55 (Wyo.1993); Martinez v. State, 611 P.2d 831, 838 (Wyo.1980). State Farm asserts that evidence of insurance was not admissible in the portion of the trial in which the liability of the uninsured motorist was determined. State Farm contends it suffered prejudice by the introduction of evidence of insurance because of the automatic bias of a jury against insurers. We disagree. Our rules of evidence prohibit the introduction of evidence to the jury of liability insurance in certain circumstances: Evidence that a person was or was not insured against liability is not admissible upon the issue whether he acted negligently or otherwise wrongfully. This rule does not require the exclusion of evidence of insurance against liability when offered for another purpose, such as proof of agency, ownership, or control, or bias or prejudice of a witness. W.R.E. 411. The purpose of this rule is to prevent the introduction of evidence of insurance in tort actions premised on negligence. Carlson v. BMW Indus. Service, Inc., 744 P.2d 1383, 1388 (Wyo.1987). We hold W.R.E. 411 does not prohibit the introduction of evidence of insurance in a direct action on a disputed claim for uninsured motorist benefits brought by the insured against the insurer. State Farm misconceives the determination of the uninsured motorist's liability to be a negligence action. The substance of the Shraders' complaint against State Farm is a coverage dispute under terms of the State Farm policy. Considered from this perspective, the determination of the liability of the uninsured motorist is but an element of the prima facie case for breach of contract. The Shraders had to establish they were legally entitled to collect or recover damages to seek indemnification under the contract. The terms of the insurance coverage are material to the determination of the right to indemnification. Winner, 505 P.2d at 612; Cannon, 536 P.2d at 922-23. Other courts have permitted evidence of insurance to be introduced when the insured has stated a direct cause of action for negligence against the uninsured motorist and a cause of action against the insurer for breach of contract in the same trial. The court in Wheeler v. Creekmore, 469 S.W.2d 559, 563 (Ky.1971) observed: It is our opinion that the considerations which have prompted the rule against mention of ordinary liability insurance in an automobile negligence case must yield in uninsured-motorist cases to the procedural desirability of letting the jury know who are the parties to the litigation where the uninsured motorist carrier elects to participate actively in the trial. In Stanfield v. Kroll, 484 S.W.2d 603, 608 (Tex.Civ.App.1972), the court ruled that evidence of insurance did not require reversal of a case in which all parties were joined including the uninsured motorist and the insurer. The court said that facts concerning liability insurance coverage were relevant to a material issue and admissible. We hold that the introduction of evidence of insurance did not result in prejudice to State Farm. The terms of coverage issues were not distinct and independent issues which would permit bifurcation under W.R.C.P. 42(b). Carlson, 836 P.2d at 305. Next, State Farm maintains the introduction of evidence of settlement offers required separate trials on the cause of action for breach of contract and the cause of action for breach of the implied covenant of good faith and fair dealing. We agree. W.R.E. 408 provides: Evidence of (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount. Evidence of conduct or statements made in compromise negotiations is likewise not admissible. This rule does not require exclusion when the evidence is offered for another purpose, such as proving bias or prejudice of a witness, negativing a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution. The purpose of W.R.E. 408 is to encourage the settlement, outside the courthouse, of disputes. Hursh Agency, Inc. v. Wigwam Homes, Inc., 664 P.2d 27, 36 (Wyo.1983). The reason evidence of settlement negotiations is irrelevant in most proceedings is that the offer of settlement may be motivated by a desire to avoid litigation time and expenses, rather than by any concession of weakness. Id. State Farm admits that the evidence of settlement negotiations was relevant to the cause of action for breach of the implied covenant of good faith and fair dealing to refute claims of undue delay. However, State Farm argues that it suffered prejudice from the introduction of evidence of settlement negotiations during the breach of contract portion of the trial when it was determined that the Shraders were legally entitled to indemnification under the State Farm policy. State Farm asserts that the jury's verdict on the breach of contract claim was impermissibly influenced by the settlement offers. The Shraders respond by broadly contending that bifurcation in this case would have resulted in a special procedural advantage for State Farm and would have produced a hardship for the Shraders by requiring additional proceedings. In State Farm Mut. Auto. Ins. Co. v. Wilborn, 835 S.W.2d 260, 261 (Tex.App.1992), the court considered whether evidence of settlement offers required separate trials for causes of action of breach of contract and breach of the implied covenant of good faith and fair dealing. An insured sued State Farm to recover a disputed claim for uninsured motorist benefits. State Farm argued that the introduction of evidence of settlement offers during the breach of contract phase of the trial would be highly prejudicial. However, State Farm admitted that the introduction of evidence of settlement offers would be relevant and admissible during the portion of the trial dealing with breach of the implied covenant. The court agreed with State Farm and held that the introduction of evidence of settlement offers would be prejudicial to a defense of the breach of contract claim. Id. at 262. Separate trials were ordered. Id. Accord U.S. Fire Ins. Co. v. Millard, 847 S.W.2d 668, 673 (Tex.App.1993). Separate trials are not automatically required when an insured brings an action against an insurer for breach of contract and breach of the implied covenant of good faith and fair dealing. Allstate Insurance Co. v. Hunter, 865 S.W.2d 189, 193 (Tex.App.1993). Prejudice is only found when the trial of all causes of action unfairly forces the insurer to choose between 1) insisting on its right to exclude evidence of settlement negotiations and coverage determinations (thereby losing the advantage of showing that it was attempting to be reasonable in defense of the bad faith claims) and 2) putting on such evidence and risking a prejudicial inference that it has admitted liability on the contract action. Id. at 193-94. The Hunter court determined that severance was not required in that instance because the insurer had failed to meet its burden of alleging specific settlement negotiations or offers which would result in prejudice. Id. at 194. The Hunter court relied upon the holding of the court in Progressive County Mut. Ins. Co. v. Parks, 856 S.W.2d 776, 779 (Tex.App.1993), which ruled that separate trials were not required in an action where there was no evidence of settlement offers. There is no dispute that State Farm presented the Shraders with several offers to settle their claim for benefits. Under W.R.E. 408, State Farm had a right to exclude evidence of the settlement offers to avoid possible prejudice from the seeming admission that the Shraders were legally entitled to at least some indemnification under the terms of the State Farm policy. This is the essence of the breach of contract claim. On the other hand, State Farm had a right to introduce evidence of settlement offers during the trial to refute the claims of unreasonable delay inherent in the cause of action for breach of the implied covenant of good faith and fair dealing. W.R.E. 408. The introduction of evidence of settlement offers in a single trial, therefore, was sufficiently prejudicial to State Farm to require bifurcation under W.R.C.P. 42(b). We hold, under Wyoming law, a cause of action for breach of a contract of insurance and a cause of action for breach of the implied covenant of good faith and fair dealing sounding in tort are sufficiently distinct and independent to permit bifurcation of the proceedings when the admission of evidence of settlement negotiations would be prejudicial. Carlson, 836 P.2d at 305; W.R.E. 408. See Hunter, 865 S.W.2d at 194 and Wilborn, 835 S.W.2d at 262. We do not agree with the Shraders' contention that bifurcation results in a special procedural advantage for the insurer. The exclusion of evidence of settlement negotiations also operates to prevent the jury from making an impermissible inference that the amount of damages claimed by the insured for breach of contract is excessive or that the claim for benefits was excessive because the insurer did not offer a comparable amount. W.R.E. 408. We also do not agree that separate trials on the cause of action for breach of contract and the cause of action for breach of the implied covenant of good faith and fair dealing create a hardship. While some insurers have not objected to a single trial on all issues, see Arnold, 707 P.2d at 163-64, separate trials heard by the same jury will not create an undue hardship. Carlson, 836 P.2d at 306. We hold the district court committed an error of law and, therefore, abused its discretion in failing to order bifurcation of the cause of action for breach of contract and the cause of action for breach of the implied covenant of good faith and fair dealing. As we noted in Carlson, fairness, logic and case law support a decision to remand the entire case for retrial due to the failure to grant separate trials. Carlson, 836 P.2d at 306-07. To facilitate the retrial, we find it necessary to address some of the remaining claims of error. Rhoades v. K-Mart Corp., 863 P.2d 626, 631 (Wyo.1993); Danculovich v. Brown, 593 P.2d 187, 194 (Wyo.1979).