COURT ADDRESSES DISCOVERY RE: (1) RESERVES (2) OTHER CLAIMS/DISPUTES; (3) CLAIM LOGS; (4) CLAIM STATUS REPORTS; (5) POLICY AND PROCEDURE MANUALS; (6) EMPLOYEE INCENTIVES; (7) ANTICIPATION OF LITIGATION/WORK PRODUCT; AND (8) OVERBROAD DISCOVERY LANGUAGE (Middle District)

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This case addresses a number of discovery issues in this first party benefit denial breach of contract and bad faith case.

RESERVES (BAD FAITH ON COVERAGE VS. REFUSAL TO SETTLE/VALUE DISPUTES)

Magistrate Judge Carlson observed courts in the Third Circuit are split on whether reserves are discoverable in bad faith cases. He first states that when the bad faith case is about a failure to settle or dispute over a claim’s value, the prevailing view is that reserves are discoverable. “However, when the bad faith claim is based on a denial of coverage and ‘does not involve the value of the claim or [the plaintiff’s] estimation of liability… the reserve information requested is neither relevant nor reasonably calculated to lead to the discovery of admissible evidence.”

The alleged bad faith in this case is based on denying coverage through a biased and unfair review process, and not a dispute over value. Thus, reserves are irrelevant to the bad faith claim, and production is not required.

OTHER MATTERS NOT RELEVANT OR DISCOVERABLE

The alleged basis of the bad faith claim was that the insurer intentionally used a biased peer review organization and doctor to terminate plaintiff’s medical benefits unfairly. Plaintiff served interrogatories concerning virtually all matters in which the same PRO and doctor were selected by the insurer. Magistrate Judge Carlson did not permit this discovery.

The court first looked at prior case law denying discovery on the issue of the size of an adjuster’s case load, finding it both irrelevant and of marginal utility compared to the burden imposed on the insurer to make production. In the present case, Magistrate Judge Carlson found that “the number of times that this PRO and/or doctor decided in favor of the insurer, whether on initial review or on reconsideration, will not necessarily speak to any such bias.” If, e.g., a PRO found for the insurer 98 out of a 100 times, “those 98 claims may very well have been legitimately decided on their merits, which could not be known without an extensive post hoc evaluation of the merits of each claim.”

The court was not going to carry out that kind of evaluation, and observed that “courts in this circuit have held that ‘discovery of other insureds’ claims in bad faith cases is generally improper, as such information is irrelevant.”

ADDITIONAL RULINGS ON CLAIMS LOGS, CLAIMS STATUS REPORTS, ANTICIPATION OF LITIGATION, OVERBROAD DISCOVERY LANGUAGE, EMPLOYEE INCENTIVES, AND POLICY/PROCEDURE MANUALS

Magistrate Judge Carlson made the following additional points and rulings:

  1. Magistrate Judges have broad discretion in resolving discovery disputes.

  2. Plaintiff alleged there was a biased peer review process used to deny medical benefits. The court found the portions of the insurer’s policy manuals on the peer review process, and employee procedures or policies for handling inquiries about insurance policies, must be produced.

  3. A request for “all communications of any nature whatsoever” concerning the complaint are vague and overbroad, as are requests for communications regarding “any matters raised by Plaintiff’s and Defendants’ initial disclosures”.

  4. The work product doctrine kicked in when plaintiff’s counsel wrote to the insurer expressing dissatisfaction with the outcome of the PRO process. Actual suit or even the threat of suit are not required to trigger the insurer’s anticipation of litigation. Thus, claim notes created after the date of that letter received work product protection, but claim notes before that date had to be produced.

  5. Claim log entries indicating an employee simply looked at the file or generically uploaded a document are not protected work product.

  6. The insurer was required to respond to an interrogatory asking for “the nature and amount of any employee incentive to close out insureds’ claims”.

Date of Decision: February 6, 2019

Barnard v. Liberty Mutual Insurance Corp., U. S. District Court Middle District of Pennsylvania Civil No. 3:18-CV-01218, 2019 U.S. Dist. LEXIS 18660 (M.D. Pa. Feb. 6, 2019) (Carlson, M.J.)

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