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.)

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