Texas Supreme Court Defines Procedures for UM/UIM Bad Faith Litigation

The Texas Supreme Court in In Re State Farm Automobile Insurance Co. and Lindsey Nicole Dessart clarified the litigation process for bad faith claims associated with uninsured/underinsured motorist (UM/UIM) coverage. The case arose after Mara Lindsey was injured in a rear-end collision and, following a settlement with the liable party's insurer, sought UIM benefits from State Farm. A dispute over minimal settlement offers led Lindsey to file suit, triggering a legal examination of the proper procedures for UM/UIM claims and related bad faith allegations.

Texas law necessitates proving entitlement to UIM benefits by establishing the tortfeasor's liability and the extent of damages with a judgment, leading to bifurcated litigation phases: liability/entitlement and bad faith. While both parties agreed to bifurcation, disagreements emerged concerning discovery scope, particularly on whether bad faith discovery should pause until entitlement is established.

The trial court initially permitted discovery to proceed on bad faith claims despite bifurcation, but the Texas Supreme Court reversed this approach. The ruling mandates not only bifurcation but also abatement of bad faith discovery until the insured proves coverage entitlement, aiming to reduce unnecessary litigation costs and burden.

The Court scrutinized State Farm's objection to a deposition of its corporate representative, considering the proportionality principle in discovery. Given State Farm’s prior disclosure of the claim file, stipulations about policy and underinsured status, and affidavit detailing deposition preparation hardships, the Court concluded the marginal benefit of the deposition did not outweigh its burdens.

This decision establishes clear procedural boundaries for UM/UIM bad faith claims, emphasizing the sequencing of entitlement determination before bad faith discovery commences. The ruling is significant for insurers and legal practitioners managing UM/UIM litigation strategy and compliance with Texas procedural standards. It reflects broader regulatory and market priorities to streamline litigation and control costs in liability insurance claims.