Archive for the 'PA – Bifurcate/Sever & Stays' Category

1. GOOD NEWS AND BAD NEWS IN DEFINING SCOPE OF STATUTORY BAD FAITH; 2. MOTION TO SEVER AND STAY DENIED; 3. COURT OUTLINES PROPER PRIVILEGE LOG AND CHALLENGE PROCESS (Middle District)

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The good news: The court in Ferguson v. USAA General Indemnity takes on the issue of whether a statutory bad faith claim can survive if the insured’s breach of contract claim fails, and does an historical analysis of the statute and case law to reach a conclusion.

The bad news: The court does not address the Pennsylvania Supreme Court’s decision in Toy v. Metropolitan Life. As we have observed over the years, Toy requires the denial of a benefit as a necessary predicate for statutory bad faith claims. Yet, numerous courts have applied pre-Toy case law, or cases rooted in pre-Toy case law, in holding that bad faith might exist outside of that context, e.g., solely for unfair claims handling or unreasonable failures to communicate. These courts have not directly addressed the argument that Toy apparently rejected that possibility, and that poor conduct may be evidence of bad faith, but not cognizable bad faith in itself where no benefit is denied.

We are not speaking of the situation where there is a contractually due benefit that the insurer belatedly pays. As Toy itself makes clear, there is little dispute that delay in paying a benefit can still support a bad faith case on the basis that this denies a benefit. Rather, we are speaking of the situation where there is no indemnity or defense of any kind contractually due, and the insurer prevails on the breach of contract count. Attached here is an article addressing Toy’s distinction between bad faith conduct that is necessary to make out a cognizable cause of action, and bad faith conduct that is only evidentiary in nature.

The Ferguson court, and similar cases, are concerned with dishonest claims handling and unreasonable delay even in cases where no coverage was ultimately due. They may want to inhibit poor conduct on the claims handling end that is driven by a presently unsubstantiated hope that there will be no coverage at the end of the day. In the court’s words, statutory bad faith exists to “generally regulate dishonest conduct by insurers….” This dishonest conduct still can be punished even if no coverage is due because “[h]olding otherwise could potentially result in insurers taking the gamble that a denial based on a cursory review will be rescued by a clever trial lawyer.”

Arguably, this interpretation runs counter to the Supreme Court’s decision in Toy, which concludes that there must be a denial of a benefit accompanying such poor claims handling. This reading of Toy implies that dishonest conduct where no coverage is due and no benefit denied is left to regulation by the Insurance Commissioner, not the courts.

In one of the few cases addressing this aspect of Toy, previously summarized on this Blog, another district court states:

Even assuming that the bad faith denial of the benefits claimed by plaintiff was properly alleged in the Complaint, plaintiff’s argument fails because plaintiff does not allege the denial of any benefits within the meaning of the statute. “‘[B]ad faith’ as it concern[s] allegations made by an insured against his insurer ha[s] acquired a particular meaning in the law.” Toy v. Metro. Life Ins. Co., 593 Pa. 20, 928 A.2d 186, 199 (Pa. 2007). Courts in Pennsylvania and the Third Circuit have consistently held that “[a] plaintiff bringing a claim under [§ 8371] must demonstrate that an insurer has acted in bad faith toward the insured through ‘any frivolous or unfounded refusal to pay proceeds of a policy.'” Wise v. Am. Gen. Life Ins. Co., 459 F.3d 443, 452 (3d Cir. 2006) (emphasis added); see also Nw. Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005); Toy, 593 Pa. at 41. None of the “benefits” that defendant allegedly denied plaintiff concern the refusal to pay proceeds under an insurance policy. To the contrary, plaintiff concedes that he “does not allege bad faith for refusal to pay benefits.”

Motion to sever claims and stay discovery denied

As stated, the Ferguson court determined a bad faith claim could proceed independently of the breach of contract claim, even if the breach of contract claim failed. The court reached this conclusion in the context of a motion to stay discovery and sever the breach of contract and bad faith claims. After reaching this conclusion, the court reviewed and denied the motion to sever and stay.

Even if conceptually distinct, the breach of contract and bad faith claims are “significantly intertwined from a practical perspective.” By way of example, the court states that both claims will involve discovery on “the nature of Plaintiffs’ injuries; and … what efforts did the insurer make to investigate Plaintiffs’ injuries.”

Trying to separate the two claims and stay discovery “would potentially create a discovery mess, requiring truncated depositions, interrogatories, and requests for production, only to have them all re-started following the conclusion of the first leg. This risk of judicial inefficiency warrants denial of Defendant’s request.” In sum, “Defendant’s request is, at root, asking the court to manipulate this case’s procedural framework in a way that will make litigation convenient for insurers, which the court will not do.”

This is how to handle the privilege and work product process

The court did observe there might still be legitimate attorney client privilege or work product issues. The court outlined how the parties should address this issue:

“This issue, however, is not properly before the court at this time. Defendant has not filed a protective order, nor has Plaintiff yet moved to compel. While Plaintiffs have requested the court conduct an in camera review of Defendant’s claims file, it will only do so if Plaintiffs show which parts of the claims file they may legally be entitled to. While Plaintiffs’ brief fails to do as much, they were unable to in part because Defendant has not provided an adequate privilege log.”

An adequate privilege log requires the party asserting the privilege to set forth sufficient facts as to each document at issue, and is further required to “establish each element of the privilege or immunity that is claimed. The focus is on the specific descriptive portion of the log, and not on conclusory invocations of the privilege or work-product rule.”

The court instructed the insurer “to provide an amended privilege log supplying some of the underlying factual bases for its privilege and work product claims—but not so much that it effectively discloses any such privileged information—so that Plaintiffs may raise, by brief, the parts of the privilege log they believe Defendant has failed to show are privileged.” After these steps are taken, the “court can then decide whether to conduct an in camera inspection of certain portions of the insurer’s claim file.”

Date of Decision: December 5, 2019

Ferguson v. USAA General Indemnity Co., U. S. District Court Middle District of Pennsylvania Civil No. 1:19-cv-401, 2019 U.S. Dist. LEXIS 209579 (M.D. Pa. Dec. 5, 2019) (Rambo, J.)

BAD FAITH CLAIM BIFURCATED AND STAYED; REQUEST TO DEPOSE INSURER’S COUNSEL QUASHED AS COVERAGE COUNSEL COMMUNICATING WITH INSURED IS COMMONPLACE AND DOES NOT MAKE COUNSEL A FACT WITNESS (Middle District)

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In this first-party property damage case, Judge Conner addressed a motion to sever and stay a bad faith claim, as well as a motion for a protective order to quash the deposition of the carrier’s coverage counsel, who was also defending the breach of contract and bad faith action.

Motion to Sever and Stay Results in Bifurcation and Stay

Judge Conner first noted the difference between a Rule 21 motion to sever and stay, and a Rule 42 motion to bifurcate, observing that severance results in two separate and distinct actions, resulting in separate judgments. In this case, the insurer had moved to sever, but also included in its motion bifurcation as a form of relief.

“Severance is appropriate when the claims are ‘discrete and separate,’ each capable of resolution without dependence or effect on the other.” Factors include whether the two claims will require different evidentiary proof, judicial economy, and party prejudice. Judge Conner observed the wealth of case law addressing severance and bifurcation in insurance bad faith cases, but noting that the cases go both ways.

As in other cases, the insurer here argued, “irreparable prejudice from premature and potentially unnecessary disclosure of otherwise privileged information, inefficiency in litigating a secondary claim of bad faith that may be mooted by resolution of the coverage claim, and jury confusion and the potential loss of [the insurer’s] chosen counsel if the claims proceed together.”

  1. The court agreed that the breach of contract claim and bad faith claim are separate and distinct, with only minor overlap. For example, “[i]nformation concerning how [the insurer] investigated and evaluated the coverage claim, its claims-handling policies, and its attorney and personnel communications regarding denial of coverage … are simply immaterial to the issue of whether coverage is required under the policy.”

  2. The court also found the prejudice element favored the insurer’s position. The insurer focused on revealing its attorneys’ advice, opinions and strategy as providing an undue advantage in the insured’s contract case, where such information would not otherwise be discoverable. The insured focused on increased litigation expenses.

Judge Conner found “that although both parties have proffered potential prejudice, [the insurer’s] likely injury from denying separation of these claims outweighs the possible increased costs identified by [the insured]. As [the insurer] correctly notes, attorney-client privilege and the work product doctrine are long-held, venerated components of our legal system. …. Such protections are not absolute, but they should not be disregarded lightly. We do not dismiss [the insured’s] legitimate concern regarding litigation costs, but ultimately conclude that this factor also favors [the insurer].”

  1. On the judicial economy element, the court rejected the notion that a ruling denying coverage would moot the bad faith claim; instead observing that a bad faith claim can exist independently of a coverage denial. [Note: As recently reiterated on this Blog, there is a longstanding issue as to whether statutory bad faith can be pursued in Pennsylvania simply for poor claims handling, if there is no benefit due under the policy.] The court also rejected the notion that the likelihood of more complex discovery disputes if both actions are litigated together requires severance.

After weighing all factors, Judge Conner chose to bifurcate, rather than sever; and to stay discovery on the bad faith claim. He recognized other courts had ruled differently in insurance bad faith cases, but highlighted the fact that each case is unique, that judges have broad discretion, and that in “this” case bifurcation and stay were warranted.

Court denies insured’s request to depose the insurer’s counsel

The insured sought to depose the insurer’s defense counsel in the case, who was also involved in the underlying coverage dispute. The insurer moved to quash the deposition. As the only pending case was now the breach of contract claim, Judge Conner viewed the issue through that prism.

The insured argued that counsel acted as a claim investigator, and was thus a fact witness. However, it offered no support for that position. It sought to depose counsel to obtain his: “’thoughts and reasoning as to why certain information was or was not included in the denial letters,’ knowledge of the cause and extent of the loss, and reasons why ‘certain information was disregarded” and the claim ultimately denied.’” The court found this “either irrelevant to the breach of contract claim, privileged, discoverable through other means, or a combination thereof.”

“Furthermore, that [the insurer’s counsel] authored letters denying coverage and setting forth [the insurer’s] reasons for its denial has no bearing on whether his deposition is necessary on the breach of contract claim. The practice of insurers consulting with their attorney regarding coverage and having their attorney communicate with the insured is quite commonplace and does not transform [coverage counsel] into a fact witness.”

The court further recognized the potential issue that the deposition could result in counsel’s disqualification. This was another reason to quash the deposition in connection with the contract claim. Judge Conner did leave the door open for the insured to reassert its request to depose counsel in the bad faith case.

Dated: July 25, 2019

McFarland, LP v. Harford Mutual Insurance Cos., U. S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 1:18-CV-1664, 2019 U.S. Dist. LEXIS 124038 (M.D. Pa. July 25, 2019) (Conner, J.)

Our thanks to Dan Cummins of the excellent Tort Talk Blog for bringing this case to our attention.

1. SUPREME COURT GRANTS APPEAL IN BERG V. NATIONWIDE, ASSURING THIS EXTRAORDINARY BAD FAITH CASE WILL GO INTO ITS THIRD DECADE. 2. UPDATE ON UIM BAD FAITH SEVERANCE AND STAY CASE LAW.

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After 20 Years, Berg v. Nationwide is Headed to the Supreme Court.

We once again note that the Supreme Court has granted an appeal in the long running Berg v. Nationwide bad faith litigation.  Our original post can be found here.

The Court’s Order focuses the appellate issues on the Superior Court’s review of the trial judge’s evidentiary findings and mindset, as well the issue of whether the insurer assumed a specific additional responsibility under its duty of good faith and fair dealing.

There is always the possibility, however, that the Court could go beyond the proper scope of appellate review or the potential specific duty assumed, and into more fundamental issues of what constitutes bad faith.

UIM/Bad Faith Severance and Stay Granted.

The excellent Tort Talk Blog, authored by Attorney Daniel Cummins, continues to be the leading resource on severance/bifurcation and stay issues in post-Koken UIM/UM litigation. The most recent post summarizes a Pike County opinion granting a motion to sever and stay, and can be found here.

Split in the Courts on Severance and Stays in UIM Bad Faith Cases

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Dan Cummins of the excellent Tort Talk Blog has provided the latest on the split in opinions on granting or denying severance and stays in the UIM bad faith context. This is a split of authority within the Allegheny County Court of Common Pleas.  Tort Talk’s Post-Koken Scorecard  indicates “a vast majority of the county courts have ruled in favor of severing the bad faith claims.”

DECEMBER 2018 BAD FAITH CASES: JUDGE BAYLSON DENIES MOTION TO SEVER AND STAY BAD FAITH CLAIM IN UIM CASE, CITING AND DISTINGUISHING HIS AND OTHER PRIOR PRECEDENTS (Philadelphia Federal)

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The insurer moved to sever and stay the plaintiffs’ UIM bad faith claim. In ruling against the insurer, Judge Baylson reviewed four cases he has previously decided on this issue, Zinno (2016), Corley (2016), Reeves (2017), and Jones-Silverman (2017).

First, the Court observed generally that bifurcation is not routine, and a court must balance the parties’ convenience, avoiding prejudice, and promoting expeditious resolution. The four factors to consider on a Federal Rule 42 motion to sever claims include: “(1) [W]hether the claims sought to be tried separately are significantly different from one another, (2) whether the claims require different evidentiary proof, (3) whether the non-moving party will be prejudiced by severance, and (4) whether the moving party will be prejudiced by proceeding to one trial.”

Of Judge Baylson’s four prior cases, only one severed and stayed the bad faith claim. In that case, discovery was essentially complete on the contract claim, but at least a year from completion on bad faith. Thus, focusing on the expediency factor, it made sense to hold the trial on the contract issue instead of waiting a year or more to complete discovery on bad faith. In the other three cases, however, there was no similar expediency issue as neither claim was ready for trial. Further, the evidence needed on both claims overlapped.

Applying these precedents and principles, the court denied the motion to sever and stay the bad faith claim in this case.

COURT REFUSES TO SEVER BAD FAITH CLAIM

First, severance would not promote economy or an expeditious result. The case was not complex. Rather it was a personal injury auto accident case, and not a commercial or property damage case.

Second, the court rejected the argument that a judge must decide the bad faith claim, while a jury would decide the contract claim. While true in Pennsylvania state court, this did not apply in the present federal action.

Third, the court rejected the notion that the claims should be severed because resolving the contract claim would moot the bad faith claim, and thus be a more expeditious course. The court followed the line of reasoning that the potential for such a result did not outweigh the inefficiencies of having two discovery periods, two dispositive motion schedules, and two trials.

The court also cited cases finding that success on the insurer’s contract claims might not resolve the bad faith claims, e.g., if there is a delay in paying benefits or there is some form of bad faith that goes beyond a refusal to provide coverage. [As set forth previously in this blog, there is an argument over whether a bad faith claim can in fact proceed if the insurer has no duty to defend or indemnify the insured, and thus has not denied the insured any benefits under the policy.]

Fourth, the court found no prejudice in denying the motion. The insurer’s chief concern was that facts concerning bad faith would prejudice the jury on the contract claim. Judge Baylson observed, however, that even though the jury would be required to address two different legal issues in deciding on bad faith and contract issues, there would be an overlap in the facts presented going to both breach of contract and bad faith and to present the same facts twice would waste resources.

COURT CAN ADDRESS RISK OF JURY CONFUSION DOWN THE ROAD

The court would not presume in advance that the jury would become confused in deciding the contract and bad faith issues, or would fail to disregard certain irrelevant evidence from the bad faith case in deciding the contract claim. If, however, the “concern were deemed valid as trial approaches, there are adequate procedures available in federal court to address it, such as bifurcated trials and jury verdicts.”

COURT REFUSES TO STAY DISCOVERY

The court did not agree that the potential for discovery disputes in bad faith litigation was a sufficient basis to stay bad faith discovery. Rather, in opposing a stay and bifurcation, the plaintiff accepts the risk that delay over discovery disputes may arise.

Date of Decision: November 28, 2018

Goldstein v. American States Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-3163, 2018 U.S. Dist. LEXIS 201100 (E.D. Pa. Nov. 28, 2018) (Baylson, J.)

SEPTEMBER 2018 BAD FAITH CASES: MOTION TO SEVER AND STAY UIM BAD FAITH CLAIMS DENIED (Blair County Common Pleas)

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As we have noted before, the excellent Tort Talk Blog keeps close tabs on post-Koken motions to sever and stay UIM bad faith claims. In its interesting post today, a Blair County Common Pleas Court is described as giving an overview of state and federal case law on the subject: “In its decision, the court reviewed the split of authority and case law in the various state and federal courts on the issues of severance and stay of bad faith claims in post-Koken matters. The court noted that the federal courts in Pennsylvania tend to deny such motions and that the state trial courts have varying results, including conflicts within some same counties.”

 

 

SEPTEMBER 2018 BAD FAITH CASES: UIM BAD FAITH CLAIM SEVERED, BUT DISCOVERY TO PROCEED (Luzerne County Common Pleas)

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The excellent Tort Talk Blog has posted a recent Luzerne County Common Pleas decision, severing a UIM bad faith claim from the breach of contract claim, but allowing discovery to proceed.  The Court’s Opinion also includes specific instructions on how that discovery is to proceed.

JUNE 2018 BAD FAITH CASES: SEVERANCE AND STAY GRANTED IN UIM BAD FAITH CASE

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The Tort Talk Blog has posted a recent Luzerne County decision where the court severed and stayed a UIM Bad Faith Claim.  This excellent blog keeps close track of post-Koken UIM decisions.

POST-KOKEN SEVERANCE AND STAY DENIED, BUT BAD FAITH CLAIM BIFURCATED FOR TRIAL (Lackawanna County)

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In keeping with its leading place in reporting post-Koken UIM bad faith law, the excellent Tort Talk Blog has summarized Judge Nealon’s opinion out of Lackawanna Common Pleas denying a motion to sever and stay bad faith claims, but ruling that the bad faith claim would be bifurcated for trial.  The opinion gives a thoroughgoing analysis of these issues.

As always, thanks to Dan Cummins for his good work in keeping all of us up to date on these issues.

NOVEMBER 2017 BAD FAITH CASES: NO CLAIM SEVERANCE BECAUSE (1) EXTRA LITIGATION STEPS PREJUDICE INSURED AND BURDEN COURT; (2) LOSING UIM COVERAGE CLAIM DOES NOT AUTOMATICALLY RESOLVE BAD FAITH CLAIM; (3) AND DISCOVERY AND EVIDENTIARY ISSUES COULD BE HANDLED DURING DISCOVERY PROCESS AND/OR AT TRIAL (Middle District)

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The Court denied a motion to sever and stay in this UIM bad faith case.

The tortfeasor’s insurer had paid its policy limits, the insured sought her $300,000 UIM limit, but her carrier offered $40,000 to settle. The insured brought breach of contract and bad faith claims. The insurer sought to sever and stay the insured’s bad faith claim.

The federal court found under the Federal Rules that “both the convenience of the parties and judicial economy weigh against severance.” Specifically, the court found that “if the bad faith claim is severed, Plaintiff would have to bear the costs of two trials and the resolution of both claims would be delayed.”

Further, “although Defendant argues that resolution of the breach of contract action will greatly impact and potentially moot the bad faith claim, it is sufficient to note that ‘litigation on the bad faith claim is not contingent upon the success of the breach of contract claim.’”

The court stated that an insured could “’simultaneously prevail on a bad faith claim and lose on a UIM claim.’”

The court went on that “severance would hinder judicial economy by requiring separate cases and separate trials instead of handling these claims in a single action.” The court did not “see how [bifurcation] is reasonable given the circumstances.

Discovery, dispositive motions, pre-trial motions, and trial place a substantial burden on any party. Bifurcation would essentially double the life of this action requiring a second discovery period, more dispositive motions, more pre-trial motions, and a completely separate second trial.’” Any potential prejudice from simultaneous litigation of contract and bad faith claims did not outweigh “countervailing interests of judicial economy and the prompt resolution of this entire matter.”

“Additionally, the potential evidentiary problems identified by Defendant do not provide a sufficient basis for severing the claims in this matter.” Under the Federal Rules of Evidence, “documents and testimony to be entered for narrow purposes[, and at] this point it is premature to determine whether specific pieces of evidence would be admissible wholly or on a limited basis. The best way to make that determination is to keep the matters joined, allow discovery to proceed, and bring both claims to trial as quickly as possible. Any discovery disputes or questions of privilege can be handled through the discovery dispute procedures employed by the court.” The insurer’s “proffer of prejudice does not outweigh the interests of convenience and judicial economy, nor does it justify the severance and stay of Plaintiff’s bad faith claim.”

Date of Decision: October 11, 2017

Mulgrew v. Government Employees Insurance Co., No. 3:16-CV-02217, 2017 U.S. Dist. LEXIS 167770 (M.D. Pa. Oct. 11, 2017) (Caputo, J.)