JANUARY 2012 BAD FAITH CASES: MOTION TO DISQUALIFY DEFENSE COUNSEL DENIED - COUNSEL DID NOT RECEIVE INFORMATION RELATED TO BAD FAITH LITIGATION (Philadelphia Federal)

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A bad faith action was raised in federal district court. The present issue is plaintiff’s motion to disqualify defense counsel in the federal action.

The motion to disqualify had its roots in a claim made by the decedent-insured’s estate for uninsured motorist (“UM”) benefits under a policy with the carrier. An arbitration panel awarded the insured $90,000, but found that the carrier was only obligated to pay a third of the award if it was determined that the insured had other available insurance coverage. As such, the carrier rejected the award.

After several years, the insured petitioned the Court of Common Pleas of Philadelphia County to confirm the award. The court granted the petition and entered judgment in the amount of $90,000 plus interest in the insured’s favor. The carrier appealed to Pennsylvania’s Superior Court. This case involves a separate bad faith action based on diversity jurisdiction.

Plaintiff moves to disqualify current defense counsel based on the actions of an attorney now in the defense firm, who was previously employed by the carrier, and who had appeared as counsel on the insurer’s behalf in the Court of Common Pleas action. However, he withdrew his appearance in the state court action on August 2, 2011 and has never appeared on behalf of the carrier during the pending federal court litigation.

The insured first argues that the defense counsel is engaged in a “dual advocacy role” by reason of one of the firm’s attorney’s past involvement in the underlying state court action. The insured also claims that the defense counsel “has acquired confidential information from plaintiffs which is material to the defense in the present bad-faith litigation.”

Contrary to the insured’s assertions, there is no reason to believe that defense counsel has “acquired confidential information from plaintiffs” through one of its attorney’s involvement in the state court action. That attorney did not represent plaintiff in the first action, and any information provided by that attorney could not have been privileged or “confidential” because he was opposing counsel.

The court also held that there is no reason to disqualify defense counsel based on the insured’s statement that the attorney and possibly other members of the firm will be “necessary witnesses” at trial. The insured claims that defense counsel should be disqualified because of “its own potential liability exposure.” He argues that defense counsel will be exposed to a malpractice action by the controverted attorney’s omissions while working as an employee of the defendant.

The court flatly rejected this claim, ruling that the “mere possibility of a potential malpractice claim against an attorney does not result in automatic disqualification.” Where claims against an attorney are largely speculative, the court held, disqualification is not necessary. Therefore, the insured’s motion was denied.

Date of Decision: December 6, 2011

Feingold v. Liberty Mutual Group, NO. 11-5364, United States District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 140336 (E.D. Pa. Dec 6, 2011) (Bartle III, J.)

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