DECEMBER 2017 BAD FAITH CASES: MEDIATION PRIVILEGE INAPPLICABLE TO MOST COMMUNICATIONS; REINSURANCE INFORMATION DISCOVERABLE EVEN IF NOT ULTIMATELY ADMISSIBLE (Western District)

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The insured was involved in a deadly motor vehicle accident. The insurer could have settled the case within the $11,000,000 policy limit, but declined to do so. The case was mediated before two different mediators and the judge held a settlement conference. The case went to trial and the jury awarded $32,000,000. The insured sued for breach of contract and bad faith.

During the bad faith litigation, the insured sought discovery concerning the mediations and reinsurance. The insurer asserted the mediation privilege and that the reinsurance documents were not relevant. The insured argued that the purpose of Pennsylvania’s mediation privilege is to enable the parties to be frank and honest with the mediator and/or opposing parties without fear of reprisal in a subsequent bad faith lawsuit for doing so.” The insurer had the burden in asserting this privilege.

MEDIATION PRIVILEGE

As a practice point, the court observed the insurer “did not specify on its privilege log whether its decision to redact or withhold a document was because a portion of a document was ‘a mediation communication’ or a ‘mediation document’ as those terms are defined. Instead, [the insurer] merely opted to cite the statute and then let this Court attempt to discern what [it] meant by the following entry on its privilege log: ‘Mediation and/or settlement conference privilege pursuant to 42 Pa.C.S. §5949, F.R.E. 408, and/or applicable law.’” The court then stated that the insurer had reciting the statutory definitions of mediation communication and mediation document and then argued that “‘[a]ll of the documents withheld and/or redacted … and submitted to the Court in camera qualify as mediation documents or mediation communications.’” The court went on to describe this as a lack of pointed argument.

Pertaining to documents redacted or withheld, the court found that “none of the redacted or withheld documents qualify as ‘a mediation document’ under the plain meaning of Pennsylvania’s mediation privilege statute except for” a single document. As to that document, it should only have been “redacted where the mediator … wrote an email ….” Under 42 Pa.C.S. 5949, “mediation document” is defined as: “Written material, including copies, prepared for the purpose of, in the course of or pursuant to mediation. The term includes, but is not limited to, memoranda, notes, files, records and work product of a mediator, mediation program or party.”

The court then went on to address mediation communications within the documents, which the statute defines as: “A communication, verbal or nonverbal, oral or written, made by, between or among a party, mediator, mediation program or any other person present to further the mediation process when the communication occurs during a mediation session or outside a session when made to or by the mediator or mediation program.” The court refused to apply the mediation privilege to statements made outside the mediation that did not in some way include the mediator.

The court did protect communication from the insured’s expert consultant relaying something the mediator said. However, it did not protect “redacted statements a mediator or a party may have said during the course of a mediation” in other circumstances. Specifically, it did not protect these communications where the documents including those statements “are nothing more than reports and/or claims notes. These redacted documents contain statements which were made by a person who may have been present at the mediation session to someone (not the mediator) outside the mediation session. Thus, they do not meet the plain meaning of the definition of ‘mediation communication’ and therefore, are not protected by Pennsylvania’s mediation privilege.” (Emphasis in original)

REINSURANCE DISCOVERY

On the reinsurance documents, the court observed that there “is no absolute exclusion of reinsurance information, as discovery of such information has been readily permitted,” citing at least one case on the issue of reserves being discoverable in bad faith litigation to support this position. The court also quoted case law that “the purpose of permitting discovery of the existence of and content of any insurance agreement is to equalize the knowledge of both parties and give the plaintiff ‘assurance that there can be recovery in the event of a favorable verdict to justify the time, effort and expense of preparing for trial.’ … Although the discovered information may not be admissible at trial, it would allow parties to fairly evaluate settlement offers and foster a just, speedy and inexpensive determination.”

Relying on these cases, the court concluded that: “Given the nature of this case, and the allegations brought by Golon, this Court finds that all of [insurer’s] documents which were either withheld or redacted because the document either referenced or discussed reinsurance should be produced in their entirety.  However, this does not guarantee that these documents will be admissible at the time of trial. The Court is ordering them produced so that [the insured] can evaluate what [the insurer] did or did not do, and when [the insurer] took action with its own reinsurer, in relation to the underlying claim.”

The Court subsequently denied two emergency motions for reconsideration.

Date of Decision: December 7, 2017/December 14, 2017

Golon, Inc. v. Selective Ins. Co., No. 17cv0819, 2017 U.S. Dist. LEXIS 201792 (W.D. Pa. Dec. 7, 2017) (Schwab, J.)

Golon, Inc. v. Selective Ins. Co., No. 17cv0819, 2017 U.S. Dist. LEXIS 213966 (W.D. Pa. Dec. 14, 2017) (Schwab, J.)

 

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