Court Opinion

ID: 4096341
Source: CourtListenerOpinion
Date Created: 2016-11-08 15:16:28.952801+00
Date Added: 2024-06-11T07:45:27.611198
License: Public Domain

Opinion issued November 8, 2016

                                      In The

                              Court of Appeals
                                     For The

                          First District of Texas
                             ————————————
                              NO. 01-16-00552-CV
                            ———————————
    IN RE ESSEX INSURANCE COMPANY AND HECTOR ALDANA,
                           Relators

            Original Proceeding on Petition for Writ of Mandamus

                                  OPINION

      This original proceeding arises from an insurer’s request for a severance from

a personal injury action. The insurer was joined as a third-party defendant after it

denied insurance liability coverage to a defendant in the case for the plaintiff’s

personal injury claims. The defendant sued the insurer, seeking a defense and

coverage for its liability for the personal injury claims asserted against it. The

defendant also sought extra-contractual damages.
      The trial court denied the insurer’s motion to sever. The court determined that

it could remedy any prejudice with a bifurcated trial, in which the personal injury

claims against the defendant would be tried first, followed by a trial of the

defendant’s claims against the insurer for breach of the insurance agreement and

extra-contractual claims. The insurer seeks mandamus relief, challenging the trial

court’s denial of its motion to sever. Because joinder of the insurer as a third-party

defendant in the liability action was improper under the Texas Rules of Civil

Procedure, severance was required. We therefore conditionally grant the petition.

                                     Background

      Israel Lopez sued Murphy Industrial, Inc. d/b/a Interstate Industrial Services,

alleging that he was injured due to Murphy’s negligence, gross negligence, and

premises liability. Lopez sustained injuries during his employment as a temporary

worker at Murphy’s facility. Lopez alleged that a pressurized paint gun that he was

using malfunctioned; the gun shot epoxy into one of his fingers, later requiring

amputation of that finger. Lopez later alleged that he was an invitee or, alternatively,

a trespasser, for purposes of his premises liability claim.

      After it was sued, Murphy filed a third-party petition against its insurer, Essex

Insurance Company, and Essex’s adjuster, Hector Aldana (collectively, “Essex”),

alleging that Lopez’s premises liability claims triggered Murphy’s coverage for

defense and indemnity under Murphy’s commercial general liability policy. Murphy

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further alleged that Essex had wrongfully denied coverage under the policy. Murphy

sought (1) declaratory relief that Essex is obligated to defend and indemnify it from

the Israel’s claims, (2) damages for breach of the insurance contract, (3) unfair

settlement practices under Section 541.060 of the Texas Insurance Code, (4) failure

to promptly pay the claim under Chapter 542 of the Texas Insurance Code, and (5)

breach of the duty of good faith and fair dealing.

      Essex answered and moved to sever, requesting that Murphy’s claims against

it be severed from the personal injury suit. Murphy and Lopez opposed the motion

to sever, arguing that any prejudice could be resolved by instead bifurcating the trial

into (1) a first phase for Lopez’s tort claims against Murphy in which insurance

would not be admissible; and (2) a second phase for Murphy’s insurance claims

against Essex. Essex filed a reply, arguing that (1) Essex would still have to prepare

a defense to a claim that may be rendered moot if Murphy had no coverage for the

claim and was not entitled to a defense; and (2) using the same jury that determined

that Murphy was liable for Lopez’s injuries and entitled to compensation would

prejudice its determination whether Essex was liable to pay that compensation.

      The trial court denied severance but granted separate trials. Essex filed this

petition for writ of mandamus challenging the order. We granted a stay of the

underlying proceedings.

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                                      Discussion

I.    Standard of Review

      We grant mandamus relief to correct an abuse of discretion or violation of a

duty imposed by law when no adequate remedy by appeal exists. See Walker v.

Packer, 827 S.W.2d 833, 839 (Tex. 1992) (orig. proceeding). Because a trial court

has no discretion in determining what the law is, a trial court abuses its discretion if

it fails to apply the law correctly. See id. at 840. In that event, the relator must show

“that the trial court could reasonably have reached only one decision.” Liberty Nat’l

Fire Ins. Co. v. Akin, 927 S.W.2d 627, 630 (Tex. 1996) (orig. proceeding) (quoting

Walker, 827 S.W.2d at 840). “In determining whether appeal is an adequate remedy,

[we] consider whether the benefits outweigh the detriments of mandamus review.”

In re BP Prods. N. Am., Inc., 244 S.W.3d 840, 845 (Tex. 2008) (orig. proceeding).

We also consider “whether mandamus will spare litigants and the public ‘the time

and money utterly wasted enduring eventual reversal of improperly conducted

proceedings.’” In re Team Rocket, L.P., 256 S.W.3d 257, 262 (Tex. 2008) (orig.

proceeding) (quoting In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 136 (Tex.

2004) (orig. proceeding)).

II.   Analysis

      The Texas Rules of Civil Procedure provide two trial procedures to avoid

expense or prejudice resulting from conflicting claims being tried together—

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severance and separate trials. See TEX. R. CIV. P. 41 (“actions which have been

improperly joined may be severed and each ground of recovery improperly joined

may be docketed as a separate suit between the same parties”), 174(b) (“The court

in furtherance of convenience or to avoid prejudice 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.”).

Severance divides the lawsuit into separate and independent causes, while an order

for separate trials leaves the lawsuit intact but results in one trial with separate parts.

Hall v. City of Austin, 450 S.W.2d 836, 837–38 (Tex. 1970); In re Reynolds, 369
S.W.3d 638, 654 (Tex. App.—Tyler 2012, orig. proceeding).

      Claims are properly severable if: (1) the controversy involves more than one

cause of action; (2) the severed claim is one that would be the proper subject of a

lawsuit if independently asserted; and (3) the severed claim is not so interwoven with

the remaining action that it involves the same facts and issues. See Guar. Fed. Sav.

Bank v. Horseshoe Operating Co., 793 S.W.2d 652, 658 (Tex. 1990); RSL-3B-IL,

Ltd. v. Prudential Ins. Co. of Am., 470 S.W.3d 131, 140 (Tex. App.—Houston [1st

Dist.] 2015, pet. denied).

      Thus, in determining whether the trial court erred in denying severance, we

address whether the claims were properly severable and, if so, whether the

circumstances of the case required the trial court to grant severance. See In re Ben

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E. Keith Co., Inc., 198 S.W.3d 844, 850 (Tex. App.—Fort Worth 2006, orig.

proceeding).

      A. The rules of civil procedure preclude suits for insurance coverage to
         be joined in the same suit as the underlying third-party liability claim.

      Essex was joined as a third-party defendant in the underlying liability case

that gives rise to the claims against Essex. But Rule 38 of the Texas Rules of Civil

Procedure, governing third-party practice, provides that a liability insurer may not

be joined as a third-party defendant in a tort case “unless such company is by statute

or contract liable to the person injured or damaged.” TEX. R. CIV. P. 38(c). Similarly,

Rule 51 of the Texas Rules of Civil Procedure, governing joinder of claims and

remedies, provides in part:

      . . . two claims may be joined in a single action; but the court shall
      grant relief in that action only in accordance with the relative
      substantive rights of the parties. This rule shall not be applied in tort
      cases so as to permit the joinder of a liability or indemnity insurance
      company, unless such company is by statute or contract directly liable
      to the person injured or damaged.

TEX. R. CIV. P. 51(b). Both longstanding rules reflect the settled law in Texas that

an insurer cannot be joined in an action in which it is not directly liable to the injured

plaintiff. See Bluth v. Neeson, 127 Tex. 462, 465, 94 S.W.2d 407, 408 (1936)

(holding that under “settled law of this state,” joinder of defendant’s casualty insurer

in car accident suit was improper). In Texas, the general rule is that an injured party

may not sue the tortfeasor’s insurer directly, unless the tortfeasor’s liability has been

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finally determined. In re Essex Ins. Co., 450 S.W.3d 524, 525 (Tex. 2014) (per

curiam) (quoting Angus Chem. Co. v. IMC Fertilizer, Inc., 939 S.W.2d 138, 138

(Tex. 1997) (per curiam)); State Farm Cnty. Mut. Ins. Co. of Tex. v. Ollis, 768
S.W.2d 722, 723 (Tex. 1989) (per curiam) (“However, [the plaintiff] cannot enforce

the policy directly against the insurer until it has been established, by judgment or

agreement, that the insured has a legal obligation to pay damages to the injured

party.”). Thus, a suit brought by a third-party directly against an insurer before

liability has been determined is subject to abatement or dismissal until liability is

determined. See Essex, 450 S.W.3d at 526–28.

       The parties do not dispute that Essex is not directly liable to Lopez by statute

or contract. Because Essex was not directly liable to Lopez, Rule 38(c) and 51(b)

prohibited Murphy from joining Essex in the underlying case.

       Our sister court’s decision in In American Economy Insurance Company is

instructive. See In re Am. Econ. Ins. Co., 202 S.W.3d 361 (Tex. App.—Beaumont

2006, orig. proceeding). In American Economy, one of the defendants in a personal

injury action filed a third-party petition against its liability insurer. Id. at 362-63. The

insurer moved to sever. Id. The trial court denied the motion, observing that joint

discovery would promote judicial economy and that it would revisit the severance

issue after discovery was completed. Id. at 363. In granting mandamus relief, the

Beaumont Court of Appeals held that the trial court abused its discretion in denying

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severance because Texas Rules of Civil Procedure 38(c) and 51(b) “clearly prohibit

the joinder of an insurer as a third-party defendant unless the insurer is directly liable

to the plaintiff in the underlying case.” Id. at 364.

      Murphy and Lopez argue that Lopez’s premises liability allegations, and the

facts developed in proving those allegations relating to his employment status, are

inextricably linked to Essex’s insurance coverage defenses. They note that Essex

asserts that an endorsement in the Essex policy issued destroys coverage if Lopez is

a “contractor, self-employed contractor, and/or subcontractor you hire to perform

work on your behalf, or any of their employees or workers, whether leased,

contracted, temporary or volunteer.” They further note that the same medical records

and expert testimony used to support Lopez’s damages will form part of the basis of

Murphy’s claim for indemnity. But the general rules that allow for joinder of parties

and claims in the case of overlapping elements do not apply because those same

rules expressly prohibit joinder of an insurance carrier in these circumstances,

namely: a tort case, in which the insurer (Essex) is not directly liable to the person

injured or damaged (Lopez). See TEX. R. CIV. P. 51(b) (“This rule shall not be

applied in tort cases so as to permit the joinder of a liability or indemnity insurance

company, unless such company is by statute or contract directly liable to the person

injured or damaged.”).

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      Lopez and Murphy observe that the trial court in this case ordered separate

trials, whereas the trial court in American Economy did not. Given that Rules 38 and

51 prohibit the joinder that they seek, however, the denial of the severance is not

ameliorated by the trial court’s order of separate trials. The facts in American

Economy and in this case stand in contrast to cases in which the parties dispute

severance versus separate trials for insurance coverage claims and related extra-

contractual claims, housed together in a direct action against an insurer by the

insured. It is in the latter cases that the Texas Supreme Court has determined that a

combination of factors may demonstrate whether separate trials or severance is

necessary. See Akin, 927 S.W.2d at 629 (noting several factors for determining when

severance from contract claims required for extra-contractual claims against

insurer).

      Because Essex’s joinder in the case was prohibited by Texas Rules of Civil

Procedure 38(c) and 51(b), we hold that the trial court erred in denying severance of

the claims against Essex from the underlying personal injury liability action.

      B. The relators lack an adequate remedy by appeal.

      Because Texas Rules of Civil Procedure 38(c) and 51(b) prohibited Essex

from being joined in the underlying case, Essex has demonstrated that its joinder

was improper. Absent mandamus relief, Essex would be required to participate in

discovery and monitor a separate liability trial in the face of the prospect that Murphy

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may not prevail on its suit for coverage and a defense, and with the prejudice that

could result from having the same jury that determines Murphy’s liability also

determine Murphy’s insurance coverage for that liability. The ultimate outcome of

the separate trials would be subject to challenge based on improper joinder at the

outset. Accordingly, we conclude that the benefits of mandamus review in this case

outweigh its detriments and Essex lacks an adequate remedy by appeal. See Am.

Econ., 202 S.W.3d at 364 (insurer improperly joined as third-party defendant lacked

adequate remedy by appeal from denial of severance).

                                      Conclusion

      We conditionally grant the petition for writ of mandamus and direct the trial

court to vacate its order denying Essex’s motion for severance and to grant the

motion to sever the relators into a separate cause. We are confident that the trial court

will promptly comply; our writ will issue only if it does not. We lift the stay of

proceedings. We deny any other pending motions as moot.

                                                Jane Bland
                                                Justice

Panel consists of Justices Bland, Massengale, and Lloyd.

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