Archive for the 'Discovery and Evidence' Category

MAY 2012 BAD FAITH CASES: COURT CAN CONSIDER OTHER STATUTES IN FINDING BAD FAITH, CLAIMS HANDLING DELAYS IN BENEFIT CANNOT BE OBVIATED BY LATER PAYMENT, MANUAL ON LITIGATION AND LEGAL FEES ADMISSIBLE AND COURT NEEDS TO CONDUCT IN CAMERA REVIEW (Superior Court)

Published on May 16, 2012 in Claims Handling Procedures, Discovery and Evidence, Lawyer's - Attorney's Fees and Procedural Issues. Closed
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In Berg v. Nationwide Mut. Ins. Co., the Superior Court reversed the trial court’s grant of a directed verdict to the carrier on the insured’s bad faith claim. This was a first party claim against an insurer under Pennsylvania’s bad faith statute, among other claims.
The suit stemmed from faulty repairs to the insured automobile conducted by the carrier’s preferred repair facility. There was a bifurcated trial, the first part being Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) claims before a jury, and the second the issue of treble damages under the UTPCPL and statutory bad (42 Pa.C.S. § 8371) before the judge. The jury found for the insured on the UTPCPL claims, and for the auto repairer and the carrier on the fraud claims and conspiracy claims. The jury awarded $1,925 against the car repair shop and $295 against the insurer.
In the second phase, after a 4 day trial, the trial judge granted a directed verdict to the carrier on statutory bad faith claim and the insured appealed. The crux of the insured’s claim was that the carrier acted in bad faith by “interfering with a total loss appraisal on their vehicle and later returning it to them despite known structural deficiencies that left it in a potentially dangerous condition.” Part of the trial court’s rationale for declining to find for the insured was that such a claim does not “arise under an insurance policy.” The lower court also found that there was no ultimate denial of a benefit. The Superior Court specifically found that such a claim does in fact arise under the insured’s policy with respect to its contractual duties, including good fair and fair dealing, and the carrier’s failure to effectuate a “prompt, fair, and equitable” settlement in the face of a clear statutory and contractual duty.
The Superior Court also found that the violation of other statutes can be used as evidence of violation of the bad faith statute because bad faith conduct may be “defined by reference to violations of statutes related to insurance practices.” Thus, in this case, the jury’s finding that the carrier violated Pennsylvania’s UTPCPL should have been considered as evidence of bad faith, and weighed under the clear and convincing evidence standard applicable to the bad faith statute, rather than the judge ruling on the issue as a matter of law.
The Superior Court also cited additional factors to consider. The carrier had the insured’s car sent to a different repair shop after the initial choice found that the insured’s car could not be repaired. Further, the manner in which the carrier discharged its duty of good faith during the pendency of the carrier’s insurance claim was subject to a bad faith analysis because of allegations that it was the carrier’s practice to vigorously defend small claims regardless of merits to discourage others from bringing suit. The appellate court would have permitted evidence in connection with carrier’s manual concerning that strategy and legal billing.
Further, the appellate court found that the lower court erred in not doing an in camera review on documents that were alleged to be privileged and had been redacted.
Date of Decision: April 17, 2012
Berg v. Nationwide Mut. Ins. Co., No. 12-MDA-2008, 2012 PA Super 88, Superior Court of Pennsylvania (Pa. Super. Ct. Apr. 17, 2012) (Donohue, J.)

FEBRUARY 2012 BAD FAITH CASES: FEDERAL COURT WILL NOT CONSIDER UIPA VIOLATIONS IN EVALUATION BAD FAITH OR UTPCPL CLAIMS (CONTRA THE SUPERIOR COURT) (Philadelphia Federal)

Published on February 28, 2012 in Discovery and Evidence. Closed
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In Purcell v. State Farm Mutual Automobile Insurance Company, the court faced an insurance carrier’s motion to dismiss a complaint alleging bad faith and violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) brought by its insured. The claim stemmed from a car accident in which one of the insured claimants was injured as a passenger in another person’s vehicle. Both the negligent party and the driver of the vehicle in which the insured was injured were underinsured motorists (“UIM”). The negligent driver tendered his full liability policy benefits to the insured in the amount of $50,000. The same carrier insured all three parties in this case.
However, the insureds now claim that they should be awarded UIM benefits under their own two stacked automobile policies and the $100,000 policy held by the driver of the car in which one of the insureds rode on the day of the accident. The carrier offered and paid $17,500 of UIM benefits, but the insureds demanded the remainder of the UIM benefits available to them. After the insureds filed suit in Chester County, the carrier removed the case to federal court and filed a motion to dismiss.
First, the court addressed the insureds’ contention that the carrier’s motion to dismiss was untimely. They claimed that, under Federal Rule of Civil Procedure 12(a), the carrier had twenty-one days after the service of the complaint to file its motion to dismiss. However, the carrier took longer than the allotted time to file its motion. The court disagreed, citing Rule 81(c)(2) for the proposition that the carrier has until seven days after the notice of removal is filed to seek dismissal. As such, the court rejected the insureds’ timeliness argument.
Second, the court addressed the motion to dismiss the insureds’ bad faith claims. The insureds argue that the carrier acted in bad faith during the overall handling of their UIM claim, but fail to make any specific allegations to support this claim. However, the insureds did include “boilerplate assertions cut and pasted directly from the “UIPA statute.
To gauge this claim, the court examined the conflict between Pennsylvania state and federal courts with respect to the applicability of the UIPA in bad faith claims. While Pennsylvania state courts have allowed for consideration of UIPA claims in evaluating bad faith claims, the Third Circuit has predicted that the Pennsylvania Supreme Court would not allow a suit to proceed under a theory that a UIPA violation is a per se violation of the bad faith statute (or the UTPCPL). Therefore, the court dismissed the insureds’ complaint without prejudice, allowing them time to amend the complaint.
As set forth in footnote 17 of the Pennsylvania Supreme Court’s Toy Opinion, and as discussed in the federal cases, the Superior Court considers UIPA violations as evidence of bad faith, not as bad faith per se; but this is still a position the federal courts reject.
Lastly, the court turned to the UTPCPL claims brought by the insureds. Specifically, the parties allege that the carrier engaged in deceptive acts and conducted itself improperly, creating confusion and misunderstanding. However, the court again ruled that such skeletal allegations would not support an actionable claim under the UTPCPL. The court also dismissed this portion of the complaint, but allowed time to amend the underlying complaint.
Date of Decision: February 10, 2012
Purcell v. State Farm Mutual Automobile Insurance Company, No. 11-7004, 2012 U.S. Dist. LEXIS 17110 (E.D. Pa. Feb 10, 2012) (Kelly, J.)

FEBRUARY 2012 BAD FAITH CASES: FEDERAL COURT DENIES NON-PARTY (INSURER) OBJECTIONS TO REINSURER’S RULE 45 SUBPOENA ISSUED IN CONNECTION WITH OUT OF STATE BAD FAITH CASE (Middle District)

Published on February 18, 2012 in Discovery and Evidence. Closed
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In Allied World Assurance Company v. Lincoln General Insurance Company, the court addressed a subpoena requesting documents relating to a bad faith case proceeding in the Middle District of Florida. The underlying bad faith action was brought by the guardian of an accident victim, who was hit by a driver during the scope of the driver’s employment. For the purposes of litigation, the insured-employer also assigned its rights to the victim’s guardian. Following the accident, the victim filed a personal injury claim against the driver and employer. The employer’s primary insurer investigated the claim and defended the insured-employer. The primary insurer also hired an adjuster to investigate the facts and an attorney to represent the insured driver and employer.
In May, 2008, the insurers offered a combined $2 million of coverage to the accident victim. The victim rejected the offer and on March, 20, 2009, a jury returned a $65 million verdict against the negligent driver and employer. After the judgment was returned, a series of mediations took place that involved all of the parties to the litigation. As a result, the judgment was satisfied as to the driver and partially satisfied as to the employer, whose primary insurer paid more than its $1 million policy limit. Thereafter, the guardian-assignee commenced the underlying bad faith action, seeking to recover the balance of the judgment from the excess insurer.
The insured-employer’s excess insurer issued the subpoena in question out of the Middle District of Pennsylvania, serving the employer’s primary carrier — a non-party in the bad faith action. The subpoena requested twenty-one documents relating to the bad faith lawsuit, including settlement reserve authority requests, the underwriting file held by the primary insurer, and the personnel file of the insurance adjuster hired by the primary insurer. The primary insurer objected and the court issued an opinion, grouping the objections into several categories.
First, the court addressed technical objections to the subpoena. The primary insurer argued that Federal Rule of Civil Procedure 45(a)(3) required the excess carrier’s attorney to be admitted to the district court where the subpoena was to be served. The court rejected this argument because the attorney that issued the subpoena was admitted in Florida, where the bad faith litigation was pending. The court also rejected an argument that the service of process itself was flawed because the person upon whom service was made is an agent of the primary insurer. Moreover, Rule 4(h) allows a corporation to be served in the same manner as a person.
Second, the primary insurer objected on the grounds of work-product, arguing that the excess insurer did not make a showing of “substantial need” or “undue hardship” as required by Rule 26(b)(3). The court ruled that, under Florida law, “work product material generated in the adjustment of an underlying claim . . . is discoverable in a third-party bad faith case.” Moreover, in the previous litigation, the primary insurer owed a fiduciary duty to the insured parties and the excess insurer seeking the documents. Accordingly, the court found that the work-product doctrine was inapplicable.
Third, the primary insurer argued that the attorney-client privilege rendered documents undiscoverable because the interests of the two parties are not aligned. However, the court reasoned that, during the previous personal injury suit, their interests were aligned in defense of the insured driver and employer. Because the parties’ interests were essentially the same in the prior dispute, the court held that “any correspondence between the insurer and the insurer’s retained counsel concerning the insured’s cases was not privileged and must be produced by the insurance company.” The parties shared a common interest in defending against the personal injury claim in the underlying litigation, rendering the privilege inapplicable.
Fourth, the primary insurer objected under Florida’s Mediation and Privilege Act, which states that “[a] mediation participant shall not disclose a mediation communication to a person other than another mediation participant or participant’s counsel.” The court reasoned that the privilege is inapplicable in this case because both insurers “were mediation participants and there has been no effort to disclose the communications to persons other than mediation participants.” The court also rejected the primary insurer’s objection to disclosing communications that occurred outside the mediation process.
Fifth, the excess insurer sought the employment file of the primary insurer’s adjuster who handled the personal injury claim. The court disagreed with the excess insurer that this request was overly broad. The court repeated its rationale that the primary insurer “was a party to, and assumed the responsibility of defending against claims made in the underlying litigation which led to the bad faith claim,” rendering the privilege inapplicable.
Sixth, the excess insurer observed that some of the documents produced by the primary insurer were redacted, seeking a privilege log from its opposition. The primary insurer defended that that no privilege log was necessary because of a prior comment by the excess insurer that it would not seek privileged information. The court again found for the excess insurer. It reasoned that Rule 45(d)(2)(A) allows a party to assess a claim of privilege through examining a general description of the sought after documents.
Lastly, the court held that, under Rule 45(c)(1), the excess insurer has “a duty to take reasonable steps to avoid imposing an undue burden or expense” upon the primary insurer.
Date of Decision: February 2, 2012
Allied World Assur. Co. v. Lincoln Gen. Ins. Co., NO. 1:11-mc-00342, 2012 U.S. Dist. LEXIS 12883 (M.D. Pa. Feb. 2, 2012) (Rambo, J.)

JANUARY 2012 BAD FAITH CASES: COURT PROVIDES WORK PRODUCT PROTECTION TO ADJUSTER'S MENTAL IMPRESSIONS, CONCLUSIONS AND OPINIONS (LACKAWANNA)

Published on January 3, 2012 in Discovery and Evidence. Closed
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In Church of the Forgotten Souls v. NGM Insurance Company, the insured brought breach of contract and bad faith claims. At issue in this opinion is the insured’s seeking discovery of the insurer’s adjustment agent’s mental impressions, conclusions or opinions and whether this was protected from discovery under Pa.R.C.P. 4003.3. The issue was whether such arose in anticipation of litigation.

The insured argued that the filing of suit should provide a bright line test for when anticipation of litigation is triggered. The court cited Judge Wettick’s decision in Mueller v. Nationwide Mutual Ins. Co., 31 D. & C.4th (C.C.P. Allegheny 1996) in rejecting that test, as “Rule 4003.3 protects any mental impressions, conclusions, or opinions respecting the value or merit of a claim or defense.” Such could have been developed where the insurer and adjuster clearly envisioned litigation could be instituted, even prior to any initiation of suit.

Thus, the key issue is when the insurer and adjuster envisioned litigation vs. a time when they had not contemplated that litigation could arise. The burden would be on the carrier, as the party opposing discovery, to make its case. The court ordered the carrier and adjuster to create a privilege log as to any such materials as to which they were asserting work product, with the matter being remanded to the discovery master to review such materials for the work product privilege in the first instance.
Date of Decision: October 5, 2011
Church of the Forgotten Souls d/b/a Heaven Help Us Thrift Store v. NGM Ins. Co., C.C.P. Lackawanna No. 10 CV 7078 (Oct. 5, 2011).

JANUARY 2012 BAD FAITH CASES: MOTION TO COMPEL DISCOVERY OF RESERVE INFORMATION GRANTED, BUT REQUEST FOR DOCUMENTS RELATING TO COUNSEL DENIED (Western District)

Published on January 2, 2012 in Discovery and Evidence. Closed
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In Craker v. State Farm Mutual Automobile Insurance Company, the court heard a motion to compel discovery related to an insured’s claim for underinsured motorist benefits (“UIM”). Specifically, the insured moves to compel the carrier to release documents related to reserve information and information regarding the attorney actions as an insurance adjuster.
The court previously granted a similar motion on the reserve information, wherein the carrier had argued that such discovery, as well as discovery of mental impressions and evaluations, was premature because the UIM claim should be decided first; an argument the court rejected. In this second round, the carrier argued that the reserved information was irrelevant under any circumstances. The court rejected that second effort as well, and required production of reserve information, as well as the mental impressions and evaluations of the UIM claim, just as it did the first time.
However, the insureds were not successful on the second part of their motion, wherein they took the position that the carrier’s communications with counsel were not privileged because counsel was acting as an adjuster, not an attorney. This was based on the theory that the attorney “was not acting as an attorney before the complaint was filed, and was only discussing underlying facts at the time.”
The court ruled that the motion was both untimely and unsound. First, in connection with raising this motion at the end of the discovery period, the plaintiff had the carrier’s privilege log for some time and there were no new facts that justified any basis to raise this argument late in the day, rather than promptly upon receiving the privilege log. The court reasoned that “no further explanations from [the carrier] on subsequent Privilege Logs could change the fact that the communications occurred before the complaint was filed.” As such, the court disagreed with the insured because it had no reason to wait more than two months before filing a motion to compel on this basis.
The court also held that this portion of the insured’s motion was “substantively baseless.” Although the insured did not file a complaint in state court until 2011, they had been represented by counsel in this dispute since at least 2007. The insured’s attorney has communicated with the carrier and its counsel since that time. Therefore, this factual backdrop indicates that both parties were represented by counsel and preparing for litigation as early as 2007. There is no dispute that all of the controverted communications that the insured now seek occurred months after they sent their formal demand to the carrier in February of 2008.
Therefore, the court granted the insured’s motion to compel on the reserve information, but denied the insured’s request for additional documents relating to communications with the carrier’s attorney.
Date of Decision: December 9, 2011
Craker v. State Farm Mutual Automobile Insurance Company, No. 11-0225, United States District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 141811 (W.D. Pa. Dec. 9, 2011) (Lancaster, J.)

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

Published on January 2, 2012 in Discovery and Evidence. Closed
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In Feingold v. Liberty Mutual Group, 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.)

DECEMBER 2011 BAD FAITH CASES SUPERIOR COURT AFFIRMS DENIAL OF BAD FAITH BECAUSE CARRIER RIGHTFULLY DELAYED INVESTIGATING CLAIM UNTIL KEY TESTIMONY AVAILABLE (Superior Court)

Published on December 30, 2011 in Discovery and Evidence. Closed
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In Portside Investors, L.P. v. Northern Insurance Company, the Superior Court heard cross appeals from the Court of Common Pleas of Philadelphia County, which awarded the insured $1.2 million dollars following a non-jury trial. The insured argued that the court erred by finding for the carrier on its bad faith claim. The carrier’s cross-appeal challenges the verdict awarded to the insured in a jury trial on the breach of contract claim. Specifically, the carrier argues that the evidence fails to support various factual findings, that the insured’s valuation expert was unqualified and articulated an improper formula for determining value, and that the court erred by estopping the carrier from asserting the policy’s limitation of suit provision.
The initial suit arose from the collapse of pier 34 on the Delaware River in Philadelphia. After the insured was denied coverage, it sought a bifurcated trial for bad faith, tried by a judge, and breach of contract, tried by a jury. (See this blog). The judge in the bad faith action rejected the insured’s bad faith allegations, but a jury awarded the insured $1.2 million dollars for the carrier’s breach of contract.
The court first examined the insured’s sole claim on appeal, which challenged the summary judgment entered in favor of the carrier on the insured’s bad faith count. The carrier had originally claimed that it could not proceed with the claim without an examination under oath of Michael Asbell, the owner of the pier that had recently been indicted for his pre-collapse knowledge of the pier’s underwater decay. Asbell had chosen to exert his Fifth Amendment rights and did not testify at all during the course of his criminal case. However, under the insured’s policy, coverage was unavailable for a loss caused by “decay” unless the decay was “hidden decay.” As the criminal indictment gave reason to believe that Pier 34’s collapse resulted from something other than “hidden decay,” the carrier’s decision to insist on a statement from Asbell as to what he knew prior to collapse was not an exercise in statutory bad faith. Therefore, the court denied the insured’s appeal.
Turning to the carrier’s cross-appeal, the court first examined the contention that the carrier is entitled to judgment notwithstanding the verdict regarding the Actual Cash Value (“ACV”) of the damaged portion of Pier 34 because the insured’s expert, an insurance adjuster, neither was qualified to offer an informed opinion on ACV nor actually offered one at trial.
At trial, the expert testified that the replacement value of the pier was $13 million. However, in light of the policy limit of $4.9 million, replacement would be impossible. Therefore, the expert sought to determine the ACV of the lost section of the pier. He listed several factors to consider when making such a calculation, including depreciation, maintenance, and replacement cost value, and gave a thorough explanation to the court. The carrier’s cross-examination at trial consisted of attacks upon the expert’s training and experience. The carrier also introduced testimony to prove that the ACV was really $0.
However this court reasoned that the carrier’s cross-examination and experts never established that the insured’s ACV/depreciation methodology was unreliable, lacked a foundation in fact, or, most important, conflicted with either accepted industry practice or the insurance policy’s specific definition of ACV. The court therefore denied the carrier’s post-trial motion for a judgment notwithstanding the verdict.
Next, the court focused on the carrier’s argument that the two-year statute of limitation period was applicable to the insured’s lawsuit. The policy stated that (1) the insured has complied with all terms of the “Coverage” part; and (2) the action is brought within two years after the date on which direct physical loss or damage occurred. It is undisputed that the December 6, 2002 date on which the insured commenced the breach of contract action was more than two years after the May 18, 2000 collapse in question. The court examined statements made by the carrier that implied that it would consider the insured’s claim without the suit limitation clause. This correspondence was part of the record established at around the time of Ashbell’s criminal trial. The carrier essentially was telling the insured that it would resume action in the civil case after the criminal trial had concluded.
Lastly, the carrier alleged that the trial court erred by awarding pre-judgment interest to the insured. That party contended that the insured caused several delays in moving forward on its claim by: deferring suit until almost 14 months after the carrier refused to pay on the claim without an EUO of Michael Asbell; obtaining a stay of two years and eight months to accommodate criminal proceedings against Michael Asbell; and waiting another 11 months to resume discovery after the stay was lifted. The court agreed with this contention and remanded the issue solely for calculation of pre-judgment interest. As for the rest of the claims, the court affirmed the judgment of both the non-jury and jury trials.
Date of Decision: November 23, 2011
Portside Investors, L.P. v. Northern Insurance Company, 2011 PA Super 252 (Pa. Super. Ct. Nov. 23, 2011) (Stevens, P.J.)

NOVEMBER 2011 BAD FAITH CASES
CARRIER’S CLAIMS MANUAL IS DISCOVERABLE AS IT IS PERTINENT TO INSURED’S BAD FAITH CLAIM (Philadelphia Federal)

Published on November 29, 2011 in Discovery and Evidence. Closed
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In Platt v. Fireman’s Insurance Fund Company, the court was faced with an insured’s motion to overrule the carrier’s objection to discovery requests. Specifically, the insured sought to discover manuals that the carrier used to process its claims. The carrier objected on grounds that the discovery request was overly broad, burdensome, and irrelevant to the proceedings.

The original suit stemmed from a car accident during which the insured was struck by a car driven by an individual insured by the carrier. The injured party sought damages under Pennsylvania’s Motor Vehicle Financial Responsibility Law, 75 Pa. C.S. § 1701 and Pennsylvania’s Bad Faith Statute, 42 Pa. C.S. § 8371.

With respect to the parties’ discovery issues, the insured claims the “manuals and desk books” pertaining to her claims are discoverable. Her counsel also pledged to keep these materials confidential. However, the carrier objected, arguing that the discovery request contained nothing more than boilerplate language.

The district court examined several pertinent cases as precedent. First, under Garvey v. National Grange Mutual Insurance Company, 167 F.R.D. 391 (E.D. Pa. 1996), the district court previously held that claims manuals were not discoverable to prove that the carrier may have “strayed from its internal procedures” because this alone does not “establish bad faith on the part of the [carrier] in handling the [insured’s] loss.”

However, in other circumstances, the court has specifically acknowledged that claims manuals are pertinent to bad faith claims. In Kaufman v. Nationwide Mutual Insurance Company, 1997 WL 703175 (E.D. Pa. Nov. 12, 1997), the court recognized the rule in Garvey, but held that “there may be circumstances when such discovery would be relevant,” such as situations where “a claims manual…requires an adjustor to take certain investigative steps before adjusting a claim and [the insured] can show that these steps were deliberately omitted.” The court recognized that “this fact alone would not be enough to establish bad faith,” but it would be “probative evidence” for the insured to ultimately prove bad faith.

Since Garvey, the district court has specifically ruled that, “any material which pertains to instructions and procedures for adjusting claims and which was given to the adjusters who worked on plaintiffs’ claim may be relevant to the action and must be produced.”

The court in the instant case held that the insured’s request closely mirrored that in Kaufman and overruled the carrier’s objection to the insured’s discovery requests. Because the insurance claims manual might be relevant to the insured’s bad faith claim, the court permitted discovery, pending absolute confidentiality on behalf of the insured.

Date of Decision: November 16, 2011

Platt v. Fireman’s Insurance Fund Company, NO. 11-4067, United States District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 132570 (E.D. Pa. Nov. 16, 2011) (Buckwalter, J.)

OCTOBER 2011 BAD FAITH CASES
COURT ADDRESSES DISCOVERY ON INSURER’S UIM FILE, INCLUDING PRIVILEGE, WORK PRODUCT, ADVISE OF COUNSEL, LOGS (Western District)

Published on October 11, 2011 in Discovery and Evidence. Closed
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In Craker v. State Farm Mutual Automobile Insurance Company, the court was presented with an insured’s motion to compel discovery and a carrier’s motion to sever and stay a bad faith claim.  The parties were engaged in discovery during the pendency of these motions, which stem from a dispute over $200,000 in alleged underinsured motorist benefits (UIM) arising from a car accident that injured the insured.  The insured party sued the carrier for its benefits after being denied its UIM benefits.  The insured also brought a bad faith claim.  The carrier later removed to federal court.

Discovery was originally to be completed by August, but the insured successfully moved to extend the discovery phase.  The court set December 1, 2011 as the new deadline.  At the same time, the insured also moved to compel discovery relating to its bad faith claim.  The carrier filed a motion to sever and stay the bad faith claim until after the UIM claim was decided.  According to the carrier, it would suffer irreparable harm if forced to disclose its mental impressions and evaluation of the insured’s claim.  Such information, it argued, was only relevant to the bad faith claim and not the UIM litigation.

The court addressed the carrier’s objectives in pushing back discovery on the bad faith claim.  It therefore reasoned that the carrier was not really moving to bifurcate the trial, under Federal Rule 42(b), but to obtain a phased discovery plan under Rule 26.  After identifying “the true issue to be decided,” the court rejected the carrier’s motion to phase discovery.  It so held because such a motion was not mentioned in the parties’ Rule 26(f) Report, used to anticipate necessary disclosures and discovery.

Aside from these procedural difficulties, the court also rejected the carrier’s motion on the merits.  Because postponing discovery on the bad faith claim would delay the resolution of the case, it was inappropriate.  It is inefficient, the court held, to create a new discovery plan after the UIM claim is decided.  Moreover, such a situation would increase costs for the parties and require witnesses to be re-deposed.  The court concluded that the carrier identified no benefit to proceeding as it proposed, other than its own attempt to shield unfavorable evidence.

Furthermore, the court rejected the carrier’s objections that were based on confidentiality grounds.  While the court did acknowledge that some of the discoverable materials were sensitive, it noted that “confidentiality agreements and protective orders” were a more appropriate means of proceeding.

The court also questioned the carrier’s strategy.  It noted that the carrier really wanted the advantage of “favorable rulings made by state court judges in this judicial district regarding the administration of bad faith claims.”  However, the carrier removed the case to federal court and chose its desired venue.  Although a state court may have granted this motion, it was too late to seek a phased discovery plan under the Federal Rules.

The insured’s motion to compel alleged that the carrier failed to adequately respond to its interrogatories.  In opposition, the carrier claimed that the motion was premature, called for a violation of privilege and work product doctrines, sought confidential information, and sought irrelevant information.  The court agreed with the carrier’s first objection, recognizing that the insured failed to meet and confer prior to its filing.  However, the court opted to advise the insured, rather than sanction them.

The court also noted that several of the objections had been discussed by the parties and resolved.  For instance, the carrier provided the insured with several privilege logs and agreed to produce confidential materials subject to entry of a protective order.  As such, the court ordered the carrier to provide a “log explaining its assertions of the attorney-client privilege and the work product doctrine, and that the parties enter into an appropriate protective order to permit the exchange of confidential information.”

The only remaining issue for the court was the insured’s claim that the carrier waived its attorney-client privilege by asserting an advice of counsel defense.  Yet, the insured failed to identify what statements lead to this assumption, prompting the court to reject this claim on the basis that it lacked adequate information.

The court concluded by denying the carrier’s motion to sever and stay, without prejudice, so that it might seek bifurcation of the trial at the post-discovery status conference.  The court also summarized that the insured’s motion to compel has been resolved in some respects due to agreement between the parties, granted in some respects as a result of the denial of the carrier’s motion, and denied as to the advice of counsel issue, without prejudice to the insured’s ability to file a properly supported motion in light of the impending discovery cut-off date.

Date of Decision:  September 29, 2011

Craker v. State Farm Mutual Automobile Insurance Company, No. 11-0225, U.S. District Court for the Western District of Pennsylvania,
2011 U.S. Dist. LEXIS 111862 (W.D. Pa. Sept. 29, 2011) (Lancaster, J.)

August 2011 BAD FAITH CASES
COURT FOUND THAT ISSUES WERE DISPUTED AND THUS SUBJECT TO DISCOVERY (Western District)

Published on August 16, 2011 in Discovery and Evidence. Closed
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In Liberty Insurance Corporation v. PGT Trucking, Inc., and Sudbury Express, Inc., the court was faced with cross-motions stemming from a dispute over the insurer’s claims handling process and the insured’s self-administration of worker’s compensation claims.  The insurer initially challenged the insured’s practice of forcing its employees to sign conditional employment agreements and sought a declaration of its rights under the parties’ retrospective insurance premium arrangement as to the amount of premiums owed.  The insured brought a counter-claim alleging that the insurer’s inflated retrospective premiums amount to bad faith and breach of its fiduciary duties.  Those claims were dismissed, but a contract claim survived.

The issue before the court was whether the insured would be permitted to take discovery on certain issue that the insurer argued were basically not in controversy.  The discovery related to:  (1) any aspect of Plaintiff’s claims handling that relates to decisions with which Defendants agreed (such as settlements or reserve charges or significant claims handling decisions); (2) issues relating to Defendants’ own improper conduct (such as requiring their truck driving employees to sign, as a condition of employment, an improper employment agreement the intent of which was to require the employees to waive their rights relating to workers’ compensation claims); and (3) Defendants’ self-administration of workers’ compensation claims.”

The court found that the carrier’s legal theory did not preclude the viability of the insured’s legal theory, and so there were legal issues in dispute.  The court stated, among other things, that “retrospective premium arrangements . . . create a unique duty of good faith and reasonableness for the insurer which extends to claims handling.” Thus, the court denied the insurer’s motion seeking to preclude the insureds from challenging any aspect of its claims handling relating to settlements, reserve changes, and/or significant claims handling decisions with which the insureds had agreed; and/or from challenging the insurer’s claims handling with regard to any issue that arose from or relates to the insureds’ self administration of workers’ compensation claims and/or from the improper employment agreements that defendants required their truck driving employees to sign as a condition of employment.

Date of Decision: August 8, 2011

Liberty Insurance Corporation v. PGT Trucking, Inc., and Sudbury Express, No. 2:11-cv-151, U.S. District Court for Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 87419 (W.D. Pa. Aug. 8, 2011) (McVerry, J.)