Archive for the 'PA – Discovery and Evidence' Category

SUPERIOR COURT AFFIRMS TRIAL COURT’S BAD FAITH VERDICT, AND ITS REFUSAL TO AWARD PUNITIVE DAMAGES (Superior Court of Pennsylvania) (Non-precedential)

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After a non-jury trial, the Blair County Court of Common Pleas found the insurer violated the bad faith statute, and awarded statutory damages in the form of attorneys’ fees and super-interest. It declined, however, to award punitive damages under the statute.  The insurer appealed the bad faith verdict, and the insured appealed the decision not to award punitive damages.  The Superior Court rejected both appeals and affirmed the lower court.

Facts

This is another UIM bad faith case.

The accident occurred in 2000, and the driver’s carrier agreed with the insured that the other driver was 100% liable, and paid its full $100,000 UIM limits to the insured.  The tortfeasor’s carrier paid $50,000.

Over two years later, the insured sought UIM coverage from her mother’s carrier, the defendant insurer in this action. The defendant was affiliated with the driver’s own insurer, and had access to its investigation files.  Its UIM limit was $600,000. It valued the claim at $200,000 and offered $50,000 to settle the claim ($150,000 already having been paid by the tortfeasor’s carrier and the first UIM insurer).

The insured rejected the offer, and initiated a bad faith action in 2003, which it held in abeyance while the UIM case was pending. The insurer paid the undisputed $50,000.

Later in 2003, the insured received a PTSD diagnosis and send additional medical records to the insurer.  The insurer received the medical records, but denied having received them. The defendant insurer took the position that the diagnosis was unrelated to the 2000 accident, and its $200,000 remain unchanged, having failed to receive any medical records (which it in fact had received, however). It then initiated the UIM arbitration process in 2004.

The defendant carrier informed its arbitration defense counsel the other driver was 100% at fault.  Months later the carrier’s counsel said he had spoken to the other driver, based on that interview the accident could have been the insured’s fault, and the arbitrator might rule for the carrier on the UIM claim.  The attorney’s opinion was based solely on the other driver’s rendition of the facts, and not any expert report or investigation other than interviewing the other driver.  The carrier itself did not obtain a reconstruction expert report on the accident.

The carrier, however, was sufficiently persuaded. It took the position in late 2004 that the insured might have comparative negligence up to 50%, but not more. By early 2005, however, the carrier took the position that the accident was 100% the insured’s fault.

The carrier delayed the arbitration by filing a declaratory judgment action seeking to limit the range of damages the arbitrator could award. This case was dismissed on preliminary objections. The carrier further delayed the arbitration by seeking evidence of the insured’s post-accident motor vehicle record, fall-downs, alcoholism and depression.

Eight years later, in 2013, the case finally went to arbitration, i.e., over 13 years after the accident and 8-9 years after the UIM arbitration process began. The arbitrator valued the insured’s injuries at $599,000, and awarded her $399,000. The arbitrator found no comparative negligence. [This was the same position the carrier had taken before late 2004.]

Arguments at trial

The bad faith case went to a non-jury trial in 2018, with a claim handler and the insurer’s UIM arbitration counsel as the sole witnesses.

The insured argued the carrier acted in bad faith when changing its position on the drivers’ comparative negligence, based solely on defense counsel’s interview of the other driver. The insured asserted that the carrier should have known the other driver was not credible, and should not have relied on his rendition of the facts to change its position because the other driver contradicted his own earlier statements to the investigators as to the accident’s cause. In response, the carrier appears to have asserted an advice of counsel defense.

The insured also argued bad faith in the carrier’s blanket refusal to consider subsequent psychological treatments, failure to conduct a full investigation by interviewing the investigating police officer before the UIM arbitration, failing to hire an accident reconstruction expert, and prolonging the proceedings for years in order to selectively reevaluate the claim after it learned the insured had various substance abuse issues, and a history of fall-downs, after the date of the underlying accident.

The trial court’s verdict

The trial court “found [the insurer] had acted recklessly and without a reasonable basis in continually valuing [the] claim at $200,000.” Further, the insurer “had improperly failed to reevaluate the claim to consider [the insured’s] psychological damages.” It was significant to the court that the insurer refused to consider the psychological claims based on the insured’s failure to transmit PTSD related documents, but “admitted at trial that it had received the medical records.”

The court also ruled against the carrier based on its changing positions as to the insured’s responsibility, rejecting the advice of counsel defense because the other driver’s 2004 rendition of the facts to defense counsel should not have been deemed credible based on that driver’s initial statements after the accident.

For nearly four years, after its own investigation and earlier interviewing the other driver, the insurer took the position that the insured bore no responsibility for the accident. The defendant insurer only began altering its liability position after defense counsel interviewed the underlying tortfeasor, who had changed his story.  Then, over a period of months, the insurer went from no comparative negligence, to maybe 50% comparative negligence at most, to a 100% negligence on the insured, solely based on the other driver’s interview with defense counsel.

The trial court observed the arbitrator ruled the other driver was not credible. Further, “[t]he trial court stated that although the arbitrator’s decision did not bind it, it recognized that the arbitrator was a ‘neutral, detached fact-finder’ and had not found [the insured] comparatively negligent at all.” The arbitrator also found substantial injuries. Thus, the “change of position on liability ‘represents a significant failure by [the insurer] in their ongoing responsibility to investigate and reconsider [its] position during [its] entire management of the claim.’”

The trial court further found the refusal to go above its $200,000 valuation for over a decade “was done with a purpose motivated by self-interest.” For example, the carrier failed to consider the psychological medical records admittedly in its possession.  It also failed to carry out a proper investigation and follow-up by not contacting the investigating police officer until the arbitration hearing, or hiring a reconstruction expert. Finally, the trial court found the carrier prolonged the proceedings in filing the declaratory judgment action based on the insured’s substance abuse and fall-downs after the 2000 accident.

Damages

The trial court awarded $24,650 in attorneys’ fees for the bad faith litigation, $125,000 in attorneys’ fees in connection with the UIM claim, and $125,000 in interest. It refused to award punitive damages.

Bad faith legal standards where insurer delays in paying benefits due

The Superior Court observed the following legal principles in rendering its verdict:

  1. “Ultimately, ‘[w]hen an insured obtains a bad faith verdict in a bench trial, appellate courts should only reverse in the most egregious of cases when the trial court has committed reversible error.’”

  2. “’The analysis of an insurance bad faith claim ‘is dependent on the conduct of the insurer, not its insured.’”

  3. Because ‘bad faith’ in this context stems from the duty of good faith and fair dealing implied in every insurance contract, the plaintiff need not prove the insurer acted with self-interest or ill-will.”

  4. “In order to prevail under the bad faith statute, 42 Pa.C.S.A. § 8371, ‘the plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis.’”

  5. “An action for bad faith is not restricted to the outright denial of a claim, but rather encompasses ‘all instances of bad faith conduct by an insurer.’”

[Note: The Court cited the Superior Court’s decision Rancosky v. Washington National Insurance Co., and not the Supreme Court’s Rancosky decision, to support this point.  As discussed many times on this Blog, there is a real issue as to whether section 8371 encompasses claims that do not involve the denial of a benefit actually due, i.e., is there any cognizable statutory bad faith cause of action when the insurer does not actually owe the insured any duty to pay first party benefits, or to defend or indemnify third party claims.  See, e.g., this post.]

  1. The Superior court then added examples of bad faith, where a claim was not outright denied: “This includes a lack of good faith investigation, as well as ‘evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.’”

[Note: In this case, there is no dispute that some benefit was due from the insurer, just a dispute of how much was due and when.  In effect, the insured is arguing that there was a decade plus delay in paying a benefit actually due; and the court’s bad faith verdict is made in light of the insurer actually owing a benefit substantially greater than what the insurer offered to pay.]

  1. “An insurer must make a timely investigation in response to the claim, and not just for arbitration.”

  2. “Indeed, an insurer must reevaluate a claim when presented with new information.”

  3. “An insurer’s mere negligence does not constitute bad faith, and an insurer may make a low estimate of an insured’s claim, so long as it has a reasonable basis.”

  4. “[A]n insurer has committed bad faith where it ‘acted in a dilatory manner, and forced the insured into arbitration by presenting an arbitrary ‘low-ball’ offer which bore no reasonable relationship to the insured’s reasonable medical expenses,’ particularly where the ‘low-ball’ offer proved to be significantly lower than the arbitration award.”

Facts supporting the bad faith verdict

The Superior Court held the following facts supported the trial court’s finding of bad faith:

The insurer never changed its claim valuation over a ten year period from the claim’s submission through a UIM arbitration, “despite mounting evidence that [the insured’s] damages surpassed [that] $200,000 [valuation].” The trial court properly rejected the insurer’s argument that there was no valuation change over time because the insurer went from taking the position that the insured had no responsibility for her own injury, to being partially responsible, and finally to being deemed wholly at fault for her own injury.  The Superior Court agreed that the evidence did not show the valuation claim ever hinged on the insured’s alleged comparative negligence.

Rather, the record demonstrated that as the insurer’s “position on liability evolved, its valuation of the claim did not change. Rather, it put a $200,000 value on [the] claim from the outset, failed to consider evidence of her psychological damages, refused to modify the valuation, and now cites subsequent developments to justify its failure to adjust the valuation in light of the information it disregarded. That it may not have failed to consider the evidence and adjust the valuation purposefully or because of ill will does not undermine the trial court’s conclusion, as [the insured] did not need to prove such states of mind.”

Other factors collectively favoring bad faith were the insurer did not change its comparative liability position until preparing for the UIM arbitration; the insurer did not interview the police officer on the scene; and that the insurer “was unable hire a reconstruction expert for arbitration because too much time had passed is further indicative that it did not make adequate inquiry into the accident in a timely manner.”

The facts did not require the trial court to award punitive damages

The Superior Court ruled: “Although the [trial] court found [the insurer] acted in bad faith, and awarded attorneys’ fees and interest accordingly, we cannot say that it abused its discretion in not awarding punitive damages. The evidence was not such that we conclude that the court’s decision was manifestly unreasonable or the result of partiality, prejudice, bias, or ill will.”

The Superior Court made the point that section 8371 does not compel the Courts of Common Pleas to award punitive damages simply because there is a bad faith verdict.  Rather, punitive damages remain within the trial judge’s discretion.  Ill-will, reckless indifference, or some other sign of malign action might provide evidence in proving statutory bad faith, but this level of intent is not a required element of a statutory bad faith claim.
Thus, just an insured can make out a bad faith claim without having to prove the level of evil intent or outrageous conduct that forms the basis for punitive damages, a finding of bad faith does not automatically encompass conduct that would mandate a finding of punitive damages.   Here, the trial judge did not find the carrier’s intent was so outrageous that punitive damages were warranted, even though the court found the carrier knew or recklessly disregarded the fact that it was unreasonably denying the insured benefits due her.

No error in limiting discovery of “post-denial” conduct

Finally, the insurer appealed the trial court’s granting a protective order as to certain requests for admissions concerning “post-denial” conduct, covering a time period beginning with the April 2004 initiation of the UIM arbitration process.  The trial court found this conduct irrelevant to the insurer’s bad faith in denying the claim. The Superior Court affirmed, finding no abuse of discretion.

The insurer had the burden to show how it was prejudiced by the trial court’s excluding this evidence, but it never “specified what evidence it sought under the admissions requests that it did not receive, and how that alleged evidence would have affected its case.”

Date of Decision:  February 4, 2021

Sartain v. USAA, Superior Court of Pennsylvania No. 4 WDA 2020, 2021 WL 401954 (Pa. Super. Ct. Feb. 4, 2021) (Bender, McLaughlin, Musmanno, JJ.) (Non-precedential)

INSURER NOT REQUIRED TO PRODUCE PERSONNEL FILE, BUT IS REQUIRED TO (1) PROVIDE CORPORATE DESIGNEE FOR DEPOSITION, (2) PRODUCE MANUALS AND TRAINING MATERIALS WITHIN CERTAIN TIME/GEOGRAPHIC LIMITS, AND (3) PROVIDE CLAIMS FILES TO THE COURT FOR IN CAMERA REVIEW ON PRIVILEGE AND WORK PRODUCT (Philadelphia Federal)

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The instant dispute involves the depositions of the claims handler and a corporate designee, as well as the scope of document discovery. The insurer made extensive objections to document requests accompanying the notices of deposition, and the any deposition of a corporate designee.  These are described in detail below.

This UIM bad faith case survived an earlier motion to dismiss, and was now proceeding on the merits before Magistrate Judge Perkin.  (Judge Leeson’s 2020 decision allowing the case to proceed is summarized here.)

General Discovery Principles

Magistrate Judge Perkin set out the basic principles guiding his decision:

  1. Rule 26 allows parties to “obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case[.]”

  2. “Relevance is a broad concept that encompass[es] any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case.”

  3. “As an initial matter, therefore, all relevant material is discoverable unless an applicable evidentiary privilege is asserted. The presumption that such matter is discoverable, however, is defeasible.”

  4. “While the discovery rules are meant to be construed liberally, the responses sought [by a party] must comport with the traditional notions of relevancy and must not impose an undue burden on the responding party.”

  5. “To determine the scope of discoverable information under Rule 26(b)(1), the Court looks initially to the pleadings.”

  6. “In deciding which materials are discoverable and which are not, a district court must further distinguish between requests that ‘appear[ ] reasonably calculated to lead to the discovery of admissible evidence’ … and demands that are ‘overly broad and unduly burdensome.’”

Documents Requested in Connection with the Claim Handler’s Deposition

The insured did not object to the claim handler’s deposition, but did make multiple objections to the document requests accompanying the notice of deposition.

Manuals and Training Documents Subject to Limited Discovery

Plaintiff’s first request was for “[a]ny and all documents, policies, procedures, rules, regulations, manuals, training documents, or other documents or things relevant to the handling and/or evaluation of Underinsured Motorists claims during the period of 2015-2020.”

Plaintiff’s second request was for “[a] true and correct copy of the complete “Claims Manual/Claims Office Manual” or other such similar document(s) by whatever name or title used by Defendants for the handling of Underinsured Motorists benefits for the years 2015 through and including 2020.”

Plaintiff’s third request was for “[a] true and correct copy of the complete “Training Manual” or other such similar document(s) by whatever name or title used by Defendant for the purpose of training its employees in the handling of Underinsured Motorists benefits claims for the years 2015 through and including 2020.”

Plaintiff’s fourth request was for “[t]rue and correct copies of any and all claims bulletins, internal memoranda, letters, notices, or similar documents sent by management to the claims staff relating to the handling of Underinsured Motorists benefits claims for the years 2015 through and including 2020.”

The court found the first request relevant to both the breach of contract and bad faith claims, specifically ruling that manuals and other training materials are relevant to bad faith claims “where they contain instructions concerning procedures used by employees in processing claims.” Magistrate Judge Perkin added that “[t]raining materials ‘relevant to processing the claim in question’ are discoverable, as they may show, inter alia, ‘that agents of an insurance company recklessly disregarded standard interpretations of a particular contractual provision in denying coverage or deliberatively omitted certain investigatory steps.’”

However, Magistrate Judge Perkin agreed with the insurer that plaintiff’s requests were “overly broad in time, and should be limited to the period from when Defendant was first on notice of a UIM claim through the present.” First notice was when the insurer received correspondence from Plaintiff’s counsel informing Defendant of an anticipated underinsured motorist claim.

Magistrate Judge Perkin limited the geographic scope as well, “to those documents and materials governing underinsured motorist claims in Pennsylvania,” where the underlying accident occurred, where plaintiff resided, and the policy provided for UIM benefits under Pennsylvania law.

Magistrate Judge Perkin rejected the argument that the materials were trade secrets or proprietary in nature, pointing out there was no showing made to this effect but only “bare allegations that the information requested falls under this definition” which were insufficient “to protect such information from discovery.”

The court used the same analysis to address document requests 2-4.

Court Permits Discovery, with Limitations, of Claim Handling and Investigation Files

Plaintiff requested “[t]rue and correct copies of any and all letters, correspondence, documents, reports, or other records which relate to review, evaluation, and/or assessment of the causation or lack thereof of Plaintiff’s injuries following the underlying motor vehicle accident which was relied upon in the handling, assessment, investigation, and/or evaluation of Plaintiff’s UIM claim.”

Plaintiff also requested “[a]ny and all claims, notes, correspondence, records, recordings, documents, letters, phone logs, emails, or other communication writings or things pertaining to [the claim] from October 12, 2016 through present.”

Magistrate Judge Perkin observed that “an insurer, is not permitted to shield the discovery of its entire claims handling and investigation under the attorney-client privilege and work-product doctrine by hiring an attorney to perform its services. As Plaintiff noted in her brief, a bad faith claim may include “evidence of the insurer’s bad faith that occurred after the filing of the complaint.” The court reviewed the insurer’s privilege log and redacted documents, but could not determine whether the attorney-client privilege or work product doctrine actually applied. Thus, Magistrate Judge Perkin ordered the insurer to make the full documents available for in camera review, including “internal file notes regarding communications with legal counsel … ; UIM strategy and evaluation; claim handling[;] Amount of reserves and legal expenses on the UIM and Medical Payment claims[;] … Evaluation Report for Plaintiff’s UIM claim [;] … internal emails regarding receipt of this lawsuit, and assignment to legal counsel … [;] ISO Claim Search report[; and] Asset report regarding [the tortfeasor driver], for consent to settle/waiver of UIM subrogation purposes[.]”

The second request quoted above was also subject to in camera review for the same reasons. The court added that “[t]o the extent that Defendant maintains any of the requested material outside of the web-based system, it shall produce such information immediately to Plaintiff unless it is appropriately protected by a privilege.”

These were limited to the time period from the date the insurer first had notice, as described above.

The insurer also requested “[a]ny and all claim files concerning Plaintiff’s claim for underinsured motorist benefits, in paper, electronic, and/or other available format.” Magistrate Judge Perkin ruled that “[a]s with the previous two requests, this Court will conduct an in camera review to determine if Defendant properly withheld documents related to this request. Defendant is not required to perform forensic investigation into its computing devices or systems to locate information existing prior to when Defendant’s duty to preserve evidence arose which is no longer accessible. Similarly, Defendant does not need to produce the same ESI in more than one form. Fed. R. Civ. P. 34(b)(2)(E)(iii). If Defendant maintains any information responsive to the above request in non-electronic forms, it shall produce such information immediately to Plaintiff unless it duplicative of what has already been produced or properly protected by a privilege.” [Emphasis in original]

Insurer not Compelled to Produce Personnel Files

The insured requested “[p]ersonnel file, including applications for employment, evaluations, awards, commendations, complaints, reprimands, resumes, attendance records for the period of 2016-2018, tests, performance appraisals, documents reflecting job performance and/or employee conduct, letters of commendation, reprimands, letters of termination, personnel action notices, investigative files and reports concerning or substantially concerning [the specific] Claims Specialist, only.”

Magistrate Judge Perkin ruled “[t]he request for personnel information implicates the strong public policy against disclosure of such materials.” Thus, “[w]hile information relating to [the claim handler’s] employment and job performance may be relevant to Plaintiff’s bad faith claim, Plaintiff may learn this information through less invasive means, such as by deposition or interrogatory. … Accordingly, while Plaintiff may obtain the employment information it seeks by deposing [the claim handler], or through interrogatories, Defendant is not compelled to produce the materials relating to the above request.”

Deposition of Corporate Designee Permitted

The court observed that corporate designees are called to testify about their personal knowledge only, but also to speak for the corporation “about matters to which the corporation has reasonable access.” In this case, the insured’s bad faith claim included allegations beyond valuation, “but also claims that defendant mishandled, failed to properly investigate and evaluate the claim and otherwise acted in bad faith.” Plaintiff wanted the 30(b)(6) designee “to represent the collective knowledge of the corporation and to present its positions on certain topics [,] including … “the manner and method of how Defendant instructs, advises, directs, and incentivizes its employees to handle claims is directly related to what, if anything, the adjuster(s) did in handling this claim and why.”

Magistrate Judge Perkin refused to quash the corporate designee’s deposition, finding the insured was “entitled to depose the corporate representative and obtain an official explanation of the claims-handling policies used by” the insurer.

He did not, however, stop there.  Rather, Magistrate Judge Perkin addressed objections to individual matters designated for examination and individual document requests accompanying the subpoena.

  1. “1st Matter for Examination: The thoughts, analysis, evaluation(s), rationale(s), investigation, actions, research, review, and reasoning of the handling adjuster’s supervisor at Defendant insurance company who personally participated in the decision to offer $6,000 on or about October 25, 2019, to resolve Plaintiff’s claim. (The term “participated” as used in this paragraph includes, without limitation, reviewed any documents, analyzed and/or discussed the matter with anyone, approved the offer of compromise or provided any information or input whatsoever into the decision).”

Magistrate Judge Perkin reserved ruling on this area of examination until after he had conducted the in camera review described above.

  1. “2nd Matter for Examination: The existence and content of any writings, files, procedures, claims-handling procedures, guidelines, claims manuals, or documents of any kind including any material contained in any computer which existed at any time from 2015 to the present, applicable to the handling and adjustment of Plaintiff’s claim.”

Magistrate Judge Pekin permitted this area of examination, to allow for questioning on “[t]he existence and content of any writings, files, procedures, claims-handling procedures, guidelines, claims manuals, or documents of any kind which existed from March 16, 2017 through 2020, applicable to the handling and adjustment of Plaintiff’s claim.”

  1. “3rd Matter for Examination: Defendant’s claims handling manuals, guidelines, or any other documents used to instruct personnel on the claims handling and/or adjustment practice used by State Farm to instruct/train/educate/direct or otherwise teach its claims adjusters to adjust first-party Underinsured Motorists (“UIM”) claims as of October 1, 2015.”

The court found this area of questioning relevant, within time and geographic limits, stating “[d]efendant’s claims handling manuals, guidelines, or any other documents used to instruct personnel on the claims handling and/or adjustment practice used by [the insurer] to instruct/train/educate/direct or otherwise teach its claims adjusters to adjust first-party Underinsured Motorists (“UIM”) claims in Pennsylvania from March 16, 2017 through 2020.”

  1. “4th Matter for Examination: State Farm’s policy, practice and procedure for promotion of claims representatives and/or adjusters within State Farm as of October 1, 2015 through the present.”

The court found the insurer’s “policies, practices, and procedures for promotions of claims representatives and adjusters is relevant to its claim of bad faith. To the extent that there are employee incentives to close out insureds’ claims, or handle claims in a particular manner, such information could reveal facts relevant to the motivations of the employees who handled Plaintiff’s claim.” Discovery was thus allowed, within a limited time frame.

  1. “5th Matter for Examination: Defendant’s training materials, practices, and procedures for claims adjusters handling UIM claims as of October 1, 2015 through the present.”

The court permitted discovery within time and geographic limits, “Defendant’s training materials, practices, and procedures for claims adjusters handling UIM claims in Pennsylvania as of March 16, 2017 through 2020.”

  1. “6th Matter for Examination: Defendant’s methods, policies, procedures, and practices used to calculate the value of damages in a UIM claim as of October 1, 2015 through the present.”

Again, the court permitted discovery within time and geographic limits, “Defendant’s methods, policies, procedures, and practices used to calculate the value of damages in a UIM claim in Pennsylvania as of March 16, 2017 through 2020.”

  1. “7th Matter for Examination: Any and all materials provided to claims adjusters handling UIM claims for the purpose of training claims adjusters and/or representatives as to calculating, evaluation, assessing, and determining value of damages as of October 1, 2015 through the present.”

Again, the court permitted discovery within time and geographic limits, “Any and all materials provided to claims adjusters handling UIM claims in Pennsylvania for the purpose of training claims adjusters and/or representatives as to calculating, evaluation, assessing, and determining value of damages as of March 16, 2017 through 2020.”

  1. “8th Matter for Examination: The policies and procedures for evaluating, assessing, and investigating personal injuries to an insured in a UIM claim as of October 1, 2015 through the present.”

Again, the court permitted discovery within time and geographic limits, “The policies and procedures for evaluating, assessing, and investigating personal injuries to an insured in a UIM claim in Pennsylvania as of March 16, 2017 through 2020.”

The court next addressed the document requests accompanying the corporate designee’s notice of deposition.

  1. “Request 1: Any and all claims manuals, reference materials, training manuals, and/or guidelines for interpretation of the relevant insurance policy.”

Following his analysis in addressing the document requests accompanying the claim handler’s notice of deposition, Magistrate Judge Perkin found the request relevant to the bad faith claim, within the limited time period.  To the extent the response would be identical to the other request, however, he would not require a separate production; rather, the defendant could cross reference that earlier production to bates numbers.

  1. “Request 2: Any and all documents, materials, manuals, guides, claims manuals, handbooks, training materials or other items relating to the topics set forth above.”

Again following the same request to the claim handler, the documents were relevant to the bad faith claim within a limited time period, and the same process of cross-referencing to bates numbers could be followed.

  1. “Request 3: The personnel files of all company employees who worked on Plaintiff’s UIM claim.”

Again following the earlier analysis, the insurer was not required to produce written materials, leaving the insured to pursue that employment information through the deposition or interrogatories.

Date of Decision:  January 22, 2021

SOLANO-SANCHEZ v. STATE FARM MUTUAL AUTO INSURANCE COMPANY, U.S. District Court Eastern District of Pennsylvania No. CV 19-4016, 2021 WL 229400 (E.D. Pa. Jan. 22, 2021) (Perkin, M.J.)

INSURER COMPELLED TO PRODUCE “BEST PRACTICES” GUIDE (Western District)

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In this case, Western District Magistrate Judge Kelly ordered production of the insurer’s claim handling guidelines.

The insurer denied UIM coverage, claiming the insureds waived their benefits. The carrier conceded its UIM waiver forms did not comply with Pennsylvania law, but took the position it still properly denied the claim under the circumstances.  The insureds sued for breach of contract and bad faith.

The insured’s document requests sought “all written policies, claims and manuals, company manuals, operational guidelines, and/or any other policies, procedures, guidelines, manuals, and/or instructional/educational material pertaining to the handling of underinsured motorist claims ….” The insurer objected on the basis that these documents were confidential and proprietary, but that “if plaintiffs’ counsel will agree to sign a confidentiality order, [the insurer] will produce a copy of the Table of Contents for its claims manual and the plaintiffs can identify which chapter or chapters they believe they need to review.”

The carrier later stated there were no claim manuals, but rather the insurer maintained a “Best Practices” guide. The insurer produced part of its Best Practices guide, with redactions and removed pages, regarding liability, subrogation, and first party medical benefits. The redactions were not specifically identified and there was no privilege log.

The insured moved to compel greater production.

The carrier responded that “evidence of claims handling is irrelevant to this proceeding because the … claim was ‘never ‘handled’ since [the carrier] concluded there was nothing to handle.” It also took the position that neither liability nor the nature and extent of the injuries were in dispute, and the only issue was whether coverage was properly denied.

Separately, the carrier objected to production because such “production would otherwise cause it harm based on the nature of the plaintiffs’ counsel’s law firm; that is, a well-advertised law firm that represents ‘injured people.’” Apparently, the carrier was concerned that plaintiffs’ counsel would use its manual in future lawsuits, brought by different plaintiffs against the insurer.

In addressing the insureds’ motion to compel, the court first observed that claims manuals and training materials are “relevant [in bad faith cases] because the manuals contain instructions concerning procedures used by insurance company employees in handling UIM claims, like Plaintiffs’ claims herein. Though departures from established standards in handling a UIM claim would not alone establish bad faith, such information ‘is probative evidence for plaintiff to demonstrate bad faith.’”

The court rejected the insurer’s argument that it did not have to produce these materials because there had been no claim handling. “That [the insurer] failed to process the claim at all does not necessarily render guidelines as to how claims are ordinarily processed irrelevant and, at this stage of the proceedings, it cannot be said that the information sought is unrelated to the facts at issue.” The insureds had agreed that discovery could have some limits, and the insurer did not have to produce materials in the Best Practices guide “pertaining to rental vehicles, property damage, vehicle theft, and other sections unrelated to the evaluat[ion] and/or handling of an injury claim….”

Thus, the insureds “met their initial burden to establish the relevance of the requested material within the broad scope of permissible discovery and [the insurer] failed to adequately show that the information, limited to the handling of UIM claims for bodily injury, is irrelevant simply because it denied the claim.”

As to the second objection, the court found nothing in the Federal Rules of Civil Procedure imposing a discovery “limitation based on a law firm’s advertising budget or the nature of its legal representation of injured persons….” Any concern that these materials might be used in some future litigation could be addressed with plaintiff’s counsel in negotiating and drafting an appropriate confidentiality agreement.

Thus, the insurer had to produce the Best Practices guide, with only the redactions and limitations described above.

Date of Decision: December 9, 2020

Keeler v. Esurance Insurance Services, Inc., U.S. District Court Western District of Pennsylvania No. CV 20-271, 2020 WL 7239568 (W.D. Pa. Dec. 9, 2020) (Kelly, M.J.)

INSURER CAN GO BEYOND FOUR CORNERS OF COMPLAINT TO DETERMINE IF A PERSON IS AN INSURED IN THE FIRST INSTANCE, WHEN DEFENDING BAD FAITH CASE (Third Circuit, Pennsylvania Law)

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The Third Circuit addressed the central issue of whether the defendant was an insured, and how to analyze that factual issue in ruling on coverage and bad faith claims.

The named insured went with his girlfriend to a picnic, where they met up with the mother of the named insured’s child.  The girlfriend was also a named insured, but the mother was a stranger to the insurance contract. The mother decided to move the named insureds’ car, and struck plaintiff while driving the car. The injured plaintiff sued the two named insureds and the mother.

The carrier covered the named insureds, but took the position that the mother was not a permissive user and therefore was not an insured under the policy. The mother stipulated to a judgment and assigned her bad faith and breach of contract claims to the injured plaintiff, who sued the carrier.

The trial court granted summary judgment to the insurer, and the Third Circuit affirmed.

The Four Corners Rule does not Apply to Determining if a Party is an Insured for Duty to Defend Purposes

The Third Circuit first addressed the issue of whether the four corners rule encompasses determinations of whether a party is an insured in the first instance.

The issue has never been addressed by Pennsylvania’s Supreme Court.

The insurer argued it could not be bad faith to take the position the mother was not an insured, even if the complaint indicated otherwise, because the law on the issue is unsettled.  The carrier asserted it could use extrinsic evidence to show the mother was not an insured, and denied coverage on that basis. The Third Circuit agreed that “because Pennsylvania courts have not ruled on this issue, [the insurer] did not act in bad faith after it ‘reasonably determined that [mother] was not an insured under the Policy.’”

On the merits of coverage itself, the court concluded “that, when the insurer determines a claim is outside the scope of the insurance policy before a suit is filed, it has no duty to defend because it has effectively ‘confine[d] the claim to a recovery that the policy [does] not cover.’” Here, the insurer investigated the claim, and determined the mother was not an insured because she was not a permissive user.  “After that determination, the four corners rule no longer applied. [The insurer] did not have a duty to defend, and its actions do not show bad faith.”

Bad Faith Investigation

The court then went on to examine whether a bad faith claim could be stated solely on the basis that the insurer’s investigation was conducted in bad faith.  As repeated on this blog ad naseum, there is a genuine issue as to whether there is an independent bad faith claim for poor investigation practices when no coverage is otherwise due. For example see this post from January 2020, this post from August 2020, and this post from earlier in August 2020. A close examination in this case, however, shows the lack of investigation bad faith claim is actually intertwined with the coverage issue. Thus, this is not a case where a party is trying to prove bad faith even though no coverage is due.

Treating investigation based bad faith as a separate cause of action, rather than merely evidence of bad faith, the court observed “[g]ood faith in this context requires that an insurance determination be ‘made diligently and accurately, pursuant to a good faith investigation into the facts’ that is ‘sufficiently thorough to provide [the insurer] with a reasonable foundation for its actions.’” The mother argued the record showed she had “implied permission” to use the car, and the carrier acted in bad faith by unreasonably failing to recognize she had implied permission. The court disagreed, finding no adequate evidence to defeat summary judgment on the issue.

No Common Law Bad Faith Claim

“Finally, although the standard for common law bad faith diverges from statutory bad faith … the common law action for bad faith is a contract claim. Thus, because [the mother] was not an insured, she was not party to the contract, and she had no common law contract claim to assign….”

Date of Decision: December 8, 2020

Myers v. Geico Cas. Co., U. S. Court of Appeals for the Third Circuit No. 19-1108, 2020 WL 7230600 (3d Cir. Dec. 8, 2020) (Fisher, Restrepo, Roth, JJ.)

BAD FAITH CLAIM CAN PROCEED WHERE THE POLICY TERMS WERE IN DISPUTE, AND NO PARTY COULD PRODUCE THE ORIGINAL POLICY (Western District)

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This case involves a missing disability insurance policy.

The insured claimed he never received the original policy in 1990.  By the time of his disability claim 25 years later, the insurer likewise did not have an original, and could only produce “substitute” or “replica” policies.  The insured did have various application forms, which the court considered in ruling on the instant summary judgment motion.

Without going into painstaking detail here, the insured claimed he had a lifetime disability policy, and the carrier claimed the insured was only entitled to two years of payments after his disability.  The insured sued for breach of contract, tort, bad faith and violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL). The insurer moved for summary judgment on all counts.

The court first rejected the insurer’s breach of contract motion. While the substitute and/or replica policies could support the insurer’s position that it had paid all that was due, the insurer still had to prove that these policies accurately reflected the actual policy.  Thus, the insured’s testimony concerning the lifetime coverage he requested and was told he received vs. the insurer’s testimony that the substitute and/or replica policies were identical to the original policy all had to be decided by the trier of fact. Therefore, summary judgment on the contract action was denied. The court also considered the insured’s reasonable expectations under Tonkovic and Rempel to be open issues of fact.

As to the bad faith claim, the court first set out the pertinent legal principles and reiterated that the insured did not have to prove self-dealing or ill-will under Rancosky.  The court then denied the summary judgment motion on bad faith.

The insured raised numerous facts supporting bad faith.

  1. The insured alleged the carrier’s adjuster sarcastically commented that the insured claim conveniently fell just within the policy’s expiration limit.

  2. When asked for a copy of the policy, the insurer’s response was inconsistent. It first sent a “substitute policy” and then a “replica policy”. Both policies had missing pages and both were different than the policy he believed he had actually purchased.

  3. The insured contended the carrier’s “practice of not maintaining original copies of policies is further evidence of bad faith toward its insureds because this practice shifts the burden to the insureds to produce the terms of the policies.”

  4. The carrier “never informed [the insured] of the relevant limitations of the Policy, even when it offered the opportunity to purchase a new policy when he approached age 65.”

On the other hand, the carrier argued it had a reasonable basis to deny coverage, precluding bad faith.  The court responded that “while this may ultimately be proven, the Court cannot determine on a motion for summary judgment whether [the insurer] had a reasonable basis for its denial. Moreover, as [the insured] observes, [the insurer’s] behavior during the claim process constitutes evidence in support of his claim that it acted in bad faith.”

The court likewise denied summary judgment on the UTPCPL claim. The insured was successful in framing the argument as a case of deceptive conduct in issuing the policy, and not merely a failure to pay (which is not actionable under the UTPCPL).

The insured “indicated that representations were made by [the insurer’s] agent that he was purchasing a disability policy that provided ‘lifetime benefits up to age 65,’ that he justifiably relied on these representations and that he suffered damages because [the insurer] later took the position that the Policy did not provide this benefit because he did not become disabled until after he reached age 60. He has presented sufficient evidence to support a claim under the UTPCPL that must be weighed by the trier of fact.”

Summary judgment on the remaining claims was likewise denied.

Date of Decision: November 30, 2020

Falcon v. The Northwestern Mutual Life Insurance Company, U.S. District Court Western District of Pennsylvania No. CV 19-404, 2020 WL 7027482, (W.D. Pa. Nov. 30, 2020) (Dodge, M.J.)

COURT PERMITS SOME UNDERWRITING DISCOVERY EVEN IN THE ABSENCE OF A STATUTORY BAD FAITH CLAIM (Middle District)

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The insurer denied coverage under a “regular use exclusion” in this UIM case. The complaint included a breach of contract claim, but no statutory bad faith claim. Plaintiff wanted to depose plaintiff’s corporate designee. The carrier argued the proposed deposition subjects were irrelevant to coverage, absent a bad faith claim, and moved for a protective order.

Middle District Magistrate Judge Saporito found that plaintiff could pursue certain limited discovery on underwriting, even absent a statutory bad faith claim. This was based primarily on the insurer raising the “regular use exclusion” as an affirmative defense, and the insureds alleging that the carrier owed “a fiduciary, contractual and statutory obligation to investigate, evaluate, and negotiate [her] UIM claim in good faith and to arrive at a prompt, fair, and equitable settlement.” [The reference to “statutory obligation” was not interpreted to mean plaintiffs were pleading a section 8371 statutory bad faith claim.]

Plaintiff had already deposed the carrier’s adjuster, but wanted a corporate designee to testify on the regular use exclusion and underwriting practices. This included the following subjects:

  1. The underwriting procedures in place … for the period January 1, 2017[,] through the current date;

  2. The underwriting regulations necessary to obtain the status of “preferred driver” under a … policy of insurance;

  3. The determinative factors and costs associated with UIM coverage …;

  4. The determinative factors and costs associated with UM coverage …;

  5. The determinative factors and costs associated with stacking of UIM coverage…;

  6. The determinative factors and costs associated with stacking of UM coverage …;

  7. The factors [the insurer] utilizes in determining whether a vehicle is available for the “regular use” of an insured;

  8. How the term “regular use” is defined in the applicable … policy and related documents;

  9. Whether the … regular use exclusion must be accompanied by a stacking waiver;

  10. All steps and measures [the insurer] takes to explain to its insureds the effect of the “regular use exclusion,” “household exclusion,” “family car exclusion,” and “unlisted driver exclusion”;

  11. How the regular use exclusion is discussed in the [insurer’s] Claims Manual; and

  12. Any facts supporting [the insurer’s] legal theories and defenses.

The court found that although the insureds did not allege statutory bad faith, they did plead breach of the contractual duty of good faith and fair dealing. Magistrate Judge Saporito found this sufficient to open the door to some greater discovery compared to a simple breach of contract case.  He relied on three cases permitting discovery on the carrier’s decisionmaking process, even in the absence of a statutory bad faith count. Rau v. Allstate, Swientisky v. American States, and Craker v. State Farm.

The court found the following areas of inquiry relevant and discoverable: factors used to determine “whether a vehicle is available for the ‘regular use’ of an insured”; “[h]ow the term ‘regular use’ is defined in the applicable … policy and related documents”; whether the “regular use exclusion must be accompanied by a stacking waiver”; “[h]ow the regular use exclusion is discussed in the [insurer’s] Claims Manual”; “[a]ny facts supporting [the insurer’s] legal theories and defenses”; and “[a]ll steps and measures [the insurer] takes to explain to its insureds the effect of the ‘regular use exclusion….”

On the other hand, discovery was not permitted on matters “irrelevant to the issue regarding the application of the ‘regular use exclusion,’ as they relate to underwriting procedures, underwriting regulations necessary to obtain the status of ‘preferred driver,’ and the determinative factors and costs associated with UIM and UM coverage as well as stacking for those coverages.” Discovery concerning other exclusions was also irrelevant.

Thus, discovery was specifically barred for “[t]he underwriting procedures in place … for the period January 1, 2017[,] through the current date”; underwriting regulations necessary to obtain preferred driver status;  “[t]he determinative factors and costs associated with UIM coverage”; “determinative factors and costs associated with UM coverage”; “determinative factors and costs associated with stacking of UIM coverage”; and “determinative factors and costs associated with stacking of UM coverage….”

Magistrate Judge Saporito further found the permitted discovery proportional, stating “the amount in controversy represents two-thirds of the total available insurance; [the insurer], as the drafter of the policy, has ready access to all relevant information especially regarding the denial of the claim; the importance of the discovery may be determinative of the issue whether the plaintiffs are entitled to any UIM benefits under the policy; and the burden of producing one witness is outweighed by the benefit in answering the questions about the validity of [the insurer’s] affirmative defense of the regular use exclusion.”

Date of Decision: November 4, 2020

Evanina v. The First Liberty Insurance Corporation, U.S. District Court Middle District of Pennsylvania No. 3:20-cv-00751, 2020 WL 6494883 (M.D. Pa. Nov. 4, 2020) (Saporito, Jr., M.J.)

THERE CANNOT BE A BAD FAITH CLAIM AGAINST AN INSURER IF THAT INSURER HAD NO DUTY TO DEFEND (Philadelphia Federal)

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A putative additional insured brought breach of contract and bad faith claims.  The insurer denied a defense and indemnification on the basis that the policy did not cover the additional insured. The court agreed, and then granted the carrier summary judgment on all claims.

As to the bad faith claim, the plaintiff’s“sole argument for its bad faith claim is based on the lapse in time between [the] request … for coverage in the [underlying] action on May 23, 2018 and [the] response denying coverage on October 22, 2018.” The court observed that while delay can be “’a relevant factor in determining whether bad faith has occurred … a long period of time between demand and settlement does not, on its own, necessarily constitute bad faith.’” “’Rather, courts have looked to the degree to which a defendant insurer knew that it had no basis to deny the claimant; if delay is attributable to the need to investigate further or even to simple negligence, no bad faith has occurred.’”

While these are significant points in measuring delay if a payment is due or defense owed, the court never had to reach the delay issue because the bad faith claim lacked merit once coverage was denied.  “There cannot be a bad faith claim against an insurer if that insurer had no duty to defend.” The court relied on 631 N. Broad St., LP v. Commonwealth Land Title Ins. Co. for this principle.

Thus, there was no evidence of bad faith under the circumstances. Rather, the undisputed evidence established that the insurer “correctly refused to defend and indemnify” the putative additional insured.

Date of Decision: September 15, 2020

Eastern, LLC v. Travelers Casualty Insurance Co. of America, U.S. District Court Eastern District of Pennsylvania No. CV 19-5283, 2020 WL 5534060 (E.D. Pa. Sept. 15, 2020) (Bartle, J.)

BAD FAITH CLAIM IS RIPE TO PROCEED; COURT REJECTS MOTION TO BIFURCATE OR SEVER (Philadelphia Federal)

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In this underinsured motorist bad faith case, Eastern District Judge DuBois denied both a motion to dismiss on ripeness grounds, and an alternative motion to server or bifurcate.

The complaint alleges the tortfeasor had $50,000 in coverage and the plaintiff/insured had $500,000 in UIM coverage. The tortfeasor agreed to settle at $47,000 and the UIM carrier consented. Plaintiffs alleged severe and permanent injuries and pursued a UIM claim.

Specifically, the insureds allege they complied with all policy terms and conditions; the insurer did not tender any UIM benefits or make any settlement offers; the insurer did not conduct any investigation into the claims; and the insurer played “cat and mouse” games by “continuously and systematically failing to communicate any offer of settlement or denial of benefits,” misleading plaintiffs as to potential settlement on at least nine occasions, and “purposefully ignoring [plaintiffs’] demand for underinsured motorist benefits.”

BAD FAITH CLAIM CAN PROCEED

First, Judge DuBois rejected the argument that the bad faith claim was not ripe until the breach of contract claim was actually decided. Among other things, the court stated: “Success on a statutory claim for bad faith does not necessarily depend on the success of the underlying breach of contract claim.” Relying on a 1996 Eastern District decision, the court quotes: “A claim for bad faith brought pursuant to § 8371 is a separate and distinct cause of action and is not contingent on the resolution of the underlying contract claim. A plaintiff may succeed on its bad faith claim even if it fails on the underlying breach of contract claim. Additionally, courts interpreting § 8371 have consistently entertained multi-count complaints containing both unresolved insurance contract disputes and bad faith claims.”

The court further relies on the unpublished Third Circuit decision, Gallatin Fuels, Inc. v. Westchester Fire Insurance Co., in reasoning that “’[a] finding that the insured did not ultimately have a duty to cover the plaintiff’s claim does not per se make the insured’s actions reasonable’ in hindsight.” Judge DuBois concludes: “Therefore, so long as the underlying contract claim is ripe, the bad faith claim is also ripe.”

After finding the claim ripe, the court finds plaintiffs can proceed on their bad faith claim. “Plaintiffs allege defendant acted in bad faith by failing to properly investigate their insurance claim, engage in settlement discussions, and communicate with them. This is ‘a separate and distinct’ cause of action from plaintiff’s claim that defendant breached the terms of the policy in failing to pay UIM benefits. … As such, a finding that defendant does not owe plaintiffs UIM benefits would not mandate a finding that defendant did not act in bad faith in handling the insurance claim.”

[Note: This opinion does not address the impact of the Pennsylvania Supreme Court’s decision in Toy v. Metropolitan Life Insurance Company in determining to what extend a statutory bad faith claim can proceed, if at all, when there is no duty to pay any benefits under the policy. Moreover, we have previously observed that Gallatin Fuels never addressed Toy. These issues have been discussed many times on the Blog, most recently here.

Of special note is Judge DuBois’ 2019 decision in Buck v. GEICO, which appears to emphasize, and confirm, the denial of a benefit as a predicate to statutory bad faith claims. Among other things, the Buck opinion looks to Toy as a leading authority, and not Gallatin Fuels. The Buck opinion includes language, in quotes below, stating:

“Even assuming that the bad faith denial of the benefits claimed by plaintiff was properly alleged in the Complaint, plaintiff’s argument fails because plaintiff does not allege the denial of any benefits within the meaning of the statute. ‘[B]ad faith’ as it concern[s] allegations made by an insured against his insurer ha[s] acquired a particular meaning in the law.’”

“Courts in Pennsylvania and the Third Circuit have consistently held that ‘[a] plaintiff bringing a claim under [§ 8371] must demonstrate that an insurer has acted in bad faith toward the insured through ‘any frivolous or unfounded refusal to pay proceeds of a policy.’”

The Buck plaintiff could not state a claim because “[n]one of the ‘benefits’ that defendant allegedly denied plaintiff concern the refusal to pay proceeds under an insurance policy. To the contrary, plaintiff concedes that he ‘does not allege bad faith for refusal to pay benefits.’”

Buck observes that cases have held “’section 8371 is not restricted to an insurer’s bad faith in denying a claim. An action for bad faith may also extend to the insurer’s investigative practices.’” This means, however, that bad faith claims “’need not be limited to the literal act of denying a claim.’”

Rather, “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits.” “Thus, plaintiff must allege the denial of benefits to state a claim under § 8371.”]

In the present case, there seems to be no question that UIM coverage is provided, but only whether the plaintiff’s damages reach into the UIM coverage level or stop below $50,000. The insurer does not appear to challenge whether a plausible bad faith claim has been pleaded with adequate factual allegations, but only that the bad faith claim should not be allowed to proceed because it is not ripe. The court concludes that the UIM bad faith claim is ripe and can proceed.

MOTION TO BIFURCATE OR SEVER DENIED

The Procedures and Standards Governing Contract and Bad Faith Claims do not Favor Bifurcation or Severance.

Judge Dubois first rejected the argument that the claims should be severed or bifurcated because they will be governed by different procedures and standards. First, the carrier incorrectly argued that the contract and loss of consortium claims go to a jury while bad faith is decided by the judge. While true in Pennsylvania state court actions, bad faith claims can go to the jury in federal court cases. Next the court rejected the notion that the jury would be confused in applying the preponderance of the evidence standard to the contract claim and clear and convincing evidence standard to the bad faith claim. Judge Dubois also rejected the argument that the facts at issue on the two claims were entirely distinct.

“For example, one of plaintiffs’ assertions in the bad faith claim is that defendant failed to conduct an adequate investigation into plaintiffs’ injuries. This requires inquiry into two facts (1) the extent of plaintiffs’ injuries, and (2) the extent of defendant’s investigation into those injuries. The breach of contract claim also requires inquiry into the extent of plaintiffs’ injuries. A separate trial on the bad faith claim would require plaintiffs to present much of the same evidence to the second jury, ‘duplicating in many respects the presentation to the first jury.’ This would be expensive and time-consuming for all parties. Because of the factual overlap between the claims, it would be more convenient to have a single trial in this case. Accordingly, the convenience factor weighs against severance or bifurcation.”

There is no Prejudice Because the Work Product Doctrine Remains Functional.

As to prejudice, the insurer focused on protecting work product. Judge Dubois states: “On this factor, defendant contends that allowing discovery and trial for the claims to proceed simultaneously would prejudice defendant because discovery in the bad faith claim would require defendant to disclose the claim adjustor’s mental impressions, conclusions, and opinions as to the merits of the case, evidence that is not discoverable in the breach of contract case. … To the extent that the claim adjustor’s work product is protected, defendant’s argument is unconvincing.”

Judge Dubois joins the vast majority of opinions finding the attorney client privilege and work product doctrine do not fall by the wayside simply because an insured brings a bad faith claim: “The Federal Rules of Civil Procedure and longstanding judicial precedent protect work product from disclosure—protections that do not disappear merely because work product prepared in anticipation of litigation over one claim may also be relevant to a second claim. Allowing the claims to proceed simultaneously simply means [defendant] will be called upon to prove its entitlement to work product protection….”

Judicial Economy Favors a Single Action

As to judicial economy:

“Defendant’s argument as to this factor is that, should plaintiffs fail on their breach of contract claim, the bad faith claim will be moot. As explained above, that is an incorrect statement of the law. Plaintiffs’ bad faith claim is based, in part, on defendant’s failure to investigate plaintiff’s insurance claims and communicate with plaintiffs regarding their claims. ‘A finding that the [insurer] did not ultimately have a duty to cover the plaintiff’s claim does not per se make the [insurer’s] actions reasonable’ in hindsight. Gallatin Fuels, Inc., 244 F. App’x at 434-35. Whether defendant ultimately owes plaintiff benefits under the policy is distinct from whether defendant appropriately handled the claims.” [See Note above re Toy v. Metropolitan and Buck v. GEICO.]

“To the contrary, a single trial promotes judicial economy because it avoids duplication of effort by the parties across multiple trials. Although the contractual and bad faith claims present distinct legal issues, the underlying facts overlap. Therefore, “[b]ifurcation would essentially double the life of this action requiring a second discovery period, more dispositive motions, more pretrial motions, and a completely separate trial,” much of which would concern the same factual basis. … Accordingly, the judicial economy factor weighs against severance or bifurcation.”

Date of Decision: September 11, 2020

Dunleavy v. Encompass Home & Auto Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-1030, 2020 WL 5501200 (E.D. Pa. Sept. 11, 2020) (DuBois, J.)

INSURER PUT ON UNREBUTTED EVIDENCE THAT ITS CLAIM DENIAL WAS REASONABLE (Philadelphia Federal)

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In this case, the insurer moved for summary judgment on bad faith, and the insured did not respond to the motion. After a review of the record and legal arguments, the Court granted the insurer’s motion.

The case involved a personal injury. The insurer had an independent medical review performed on the insured’s medical records. The carrier’s doctor concluded that the injuries the insured alleged were not the result of the accident at issue. Rather, those injuries were caused by a prior accident. The carrier argued this alone was sufficient to establish a reasonable basis to deny coverage.

As stated, the insured did not respond to the carrier’s motion, and thus put forward no evidence that the insurer acted in bad faith by failing to consider the relevant medical records. Judge Brody agreed:

“After reviewing [the] motion and evidence, I conclude that [the insurer] has satisfied its summary-judgment burden, shifting the burden to Plaintiff to demonstrate the existence of genuine disputes of material fact that preclude summary judgment. Plaintiff has failed to carry his burden. Despite several chances to do so, Plaintiff never filed any objection to [the] Motion for Partial Summary Judgment. He has not pointed to any evidence that [the insurer] behaved in bad faith, nor has he offered any evidence to refute the evidence [the insurer] offered in support of its motion.”

Date of Decision: August 13, 2020

Dwyer v. Nationwide Property and Casualty Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 19-2814, 2020 WL 4699047 (E.D. Pa. Aug. 13, 2020) (Brody, J.)

Institutional Discovery in Breach of Contract and Bad Faith Case (Lackawanna Common Pleas)

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The excellent Tort Talk Blog posted a Court of Common Pleas of Lackawanna County case summary today, addressing institutional discovery in a breach of contract/bad faith case.