Archive for the 'PA – Attorney Client Privilege' Category

OUR 1800TH POST: (1) RESERVES DISCOVERABLE; (2) COMMUNICATIONS RETAINING COUNSEL NOT DISCOVERABLE; (3) ISO CLAIM HISTORY REPORT DISCOVERABLE; (4) ASSET REPORT ON TORTFEASOR NOT DISCOVERABLE; (5) CLAIM EVALUATION REPORT ONLY HAS LIMITED WORK PRODUCT PROTECTION; (6) INTERNAL NOTES FULLY PROTECTED ON ATTORNEY COMMUNICATIONS, BUT LIMITED WORK PRODUCT PROTECTION; (7) DEPOSITIONS MAY INQUIRE INTO AREAS WITH ONLY LIMITED WORK PRODUCT PROTECTION (Philadelphia Federal)

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It has been nearly 15 years since our first bad faith blog post, summarizing an opinion by the late Judge Albert Sheppard.  Today’s summary is our 1,800th post

This Eastern District opinion addresses discovery issues in a UIM bad faith case, including document production and issues arising out of plaintiff seeking to depose the insurer’s claim adjuster and corporate designee.  Magistrate Judge Perkin had already addressed numerous discovery issues in this case in an earlier opinion, summarized here, and now addresses the remaining issues after conducting an in camera review of certain documents on the insurer’s privilege log.

Reserves discoverable in bad faith valuation dispute

Magistrate Judge Perkin observed, “District Courts within the Third Circuit are split on the question of whether reserves are discoverable in bad faith cases.”  He relied on Middle District Magistrate Judge Carlson’s Barnard decision, summarized here, holding that in bad faith cases, reserves are discoverable if the bad faith claim is based on a valuation dispute, rather than outright coverage denial.  As the present case involved a valuation dispute, reserves were discoverable.

Magistrate Judge Perkin further rejected the argument that the reserves were protected work product.  Applying the Federal Rules of Civil Procedure, he found that the insurer did “not argue that its reserves were prepared in anticipation of litigation or other than in the normal course of business.”

Internal emails regarding receipt of this lawsuit and assignment to legal counsel not discoverable

The insurer “withheld internal emails regarding receipt of the lawsuit and assignment to its legal counsel. Defendant’s privilege log indicates that these documents were withheld on the grounds that the information is ‘work product, mental impression, confidential, and post litigation.’ After in camera review, this Court finds that the documents have been appropriately withheld. These documents, dated after the lawsuit was filed, are protected by both attorney-client privilege and the work-product doctrine as the communications were made with the purpose of seeking legal advice and discuss litigation strategy.”

ISO claim search report discoverable

“[T]he ISO Claims Search Database is a nationwide database utilized by insurance companies to track claims history and detect fraud. Defendant withheld the report on Plaintiff’s claims history on the basis that it is not relevant.” The court found the information “relevant to Plaintiff’s bad faith claim to the extent that it is a factor Defendant considered in evaluating Plaintiff’s Underinsured Motorist Claim.”

Asset report for consent to settle/waiver of UIM subrogation purposes not discoverable

Defendant withheld the asset search of the tortfeasor in the underlying motor vehicle accident action, on the basis of irrelevance and confidentiality. The court agreed it was irrelevant to the bad faith claim at issue

Insurer’s evaluation report for plaintiff’s UIM claim: no attorney-client privilege protection and limited work product protection

The insurer withheld its evaluation report on the UIM claim based on “work product, mental impression, attorney-client, confidential, and post litigation.” Magistrate Judge Perkin found “these documents consist of not only the final evaluation of Plaintiff’s claim prepared by claims personnel … but also a detailed history of all updates made by claims adjusters to the report beginning on … the date Plaintiff settled with the tortfeasor.”

First, the court found these documents were not subject to the attorney-client privilege. “[T]he privilege bars discovery of confidential communications made between attorneys and clients for the purpose of obtaining or providing legal assistance to the client. …  The privilege does not apply to the ‘disclosure of the underlying facts by those who communicated with the attorney.’” “The evaluation report contains no communications between Defendant and its counsel. Rather, the report contains a series of notations regarding the claim by the claims adjuster….”

Next, Magistrate Judge Perkin dove deep into an analysis of the work product doctrine, addressing the difficult question of when the normal duty to investigate a claim turned into a period where the insurer reasonably anticipated litigation.

Thus, to determine the work-product doctrine’s applicability:

  1. A court must “first establish when Defendant reasonably anticipated litigation.”

  2. “The party asserting work product protection must demonstrate that it subjectively anticipated litigation, and that the anticipation was objectively reasonable.”

  3. “While the court must initially focus on the state of mind of the party preparing, or ordering preparation, of the document, that person’s anticipation of litigation must be objectively reasonable for the work product protection to apply.”

  4. “A party’s anticipation of litigation is objectively reasonable if ‘there existed an identifiable specific claim or impending litigation when the materials were prepared.’”

Magistrate Judge Perkin looked for guidance in Judge Sanchez’s 2014 Borgia opinion, summarized here, and Judge Leeson’s 2016 Wagner decision, summarized here.

In the present case, plaintiff’s counsel first demanded policy limits on January 12, 2018, and the insurer engaged counsel to investigate and evaluate the claim on April 19, 2018.  After being retained, the insurer’s counsel conducted a statement under oath, subpoenaed medical records and assisted in obtaining an IME.

“On July 20, 2018, after the Statement Under Oath was completed, Plaintiff’s counsel again made a demand for policy limits, though she made no threat or mention of litigation. Reviewing the e-mails between counsel, it appears that, from July 20, 2018 through February 27, 2019, the communications involved only requests for authorization of medical records and scheduling of the independent medical examination. On August 26, 2019, the independent medical examination occurred. Shortly after, on September 3, 2019, Plaintiff filed this lawsuit.”

Counsel’s communications indicated plaintiff sought full UIM limits but never threatened litigation. Further, “the communications between counsel from July 20, 2018 through February 7, 2019 concerned continued requests for medical records and authorizations to fully assess Plaintiff’s claim.”

Further, this was not a case where insurer’s claim valuation and the policy limit demand were so far apart that a reasonable insurer would believe litigation could arise, until the August 26, 2019 IME. Magistrate Judge Perkin found it was only at the time the IME concluded in August 2019 that it was “likely that Defendant had determined Plaintiff’s demand for payment in the amount of the policy limit exceeded its expected offer for settlement.” Thus, he held the insurer reasonably anticipated litigation no later than the date the IME concluded, and ordered production of unredacted claim handling entries on the evaluation reports prior to that date.

Internal file notes reflecting communications with counsel protected, but those based on work product are only partially protected

The insurer redacted all information in its internal file notes concerning communications with legal counsel, UIM strategy and evaluation, and claim handling on the basis of “work product, attorney-client, confidential, mental impression, not relevant, and post litigation.” The redactions “appear to be an account of all updates made on the handling of Plaintiff’s claim by the claims adjuster….” Based on the earlier work product analysis, “any entries made prior to August 26, 2019 redacted on the basis of the work-product doctrine are discoverable and must be produced.”

This included the adjuster’s summary of the insured’s statement under oath.

“Any redactions made due to the attorney-client privilege are appropriately redacted, and need not be produced, as they are summaries of communications between the claims adjuster, in-house counsel, and outside counsel.”

Scope of permissible subjects for inquiry at deposition of corporate designee and adjuster

As stated above, plaintiff could not direct questions to either deponent about attorney-client communications.  Plaintiff could ask about underlying facts, even if those facts were also communicated to counsel for counsel’s consideration in evaluating the matter, regarding what facts were considered in not offering policy limits.

As to work product, per the above reasoning, “Plaintiff’s counsel must limit any questions under this matter for examination to the time period before August 26, 2019.”

Date of Decision:  May 27, 2021

Sanchez v. State Farm Mutual Auto Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 19-4016, 2021 WL 2156367 (E.D. Pa. May 27, 2021) (Perkin, M.J.)

COURT PERMITS DISCOVERY OF DOCUMENTS AND EMAILS THAT WERE NOT ACTUALLY PRIVILEGED SIMPLY BECAUSE THEY MENTION LEGAL COUNSEL; LIMITS CLAIMS REP DISCOVERY TO MENTAL IMPRESSIONS NOT PREPARED IN ANTICIPATION OF LITIGATION; AND ALLOWS DISCOVERY OF RESERVES IN VALUATION BAD FAITH CASE (Middle District)

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This Pennsylvania federal opinion addresses bad faith discovery disputes.  The case involved first party fire damage losses. Plaintiffs sought various claims file documents, and the insurer produced a privilege log in connection with its objections and redactions. Magistrate Judge Saporito reviewed the documents in camera before ruling.

He identified four areas at issue: “(1) communications regarding expenses incurred and paid by the defendant; (2) communications with counsel; (3) mental impressions; and (4) other financial information.”

  1. Approvals of Legal Fees and Expenses Discoverable

“In general, the mere facts of legal consultation or employment, client identities, attorney’s fees and the scope and nature of employment are not privileged.” Further, “[a]ttorney billing records may be privileged if they reveal the nature of the services rendered.”

Here, documents reflecting only that legal fees and expenses were approved, without any reference to attorney-client communications or the nature of the work performed, are not privileged. Rather, they are administrative in nature, whether involving pre or post-litigation approvals.

  1. Emails strings at issue were not privileged

Under Pennsylvania law, a party seeking the protection of the attorney-client privilege must show there was “’(1) a communication (2) made between privileged persons (3) in confidence (4) for the purpose of obtaining or providing legal assistance for the client.’”

Here, the court had to review a number of email strings.  Judge Saporito observed that “’each version of an email string (i.e. a forward or reply of a previous email message) must be considered as a separate, unique document.’” Further, in preparing a privilege log, “’each message of the string which is privileged must be separately logged in order to claim privilege in that particular document.’” In practice, this “’simply requires that Defendants ensure that each withheld email within a string be logged in some fashion at least once.’”

The emails at issue all referenced legal counsel in some way, but were not themselves communications with counsel. Nor did they disclosure any attorney-client communications.  Thus, the attorney-client privilege did not apply.

  1. Claims representatives’ mental impressions prepared in anticipation of litigation were protected as work-product

“Mental impressions and opinions of a party and its agents are not generally protected by the work product doctrine unless they are prepared in anticipation of litigation.” “To that end, ‘work product prepared in the ordinary course of business is not immune from discovery.’”

Here, the insurer redacted documents in the claims file that included its claims representatives’ impressions, conclusions, and opinions. Judge Saporito had to make the fact-specific inquiry into when these representatives anticipated litigation.  He recognized that prudence requires parties to anticipate litigation, and to start preparing themselves for litigation at some time before the litigation is actually instituted.

Judge Saporito found a number of redactions warranted because the claims representatives anticipated litigation.  On the other hand, he ordered other redactions eliminated, and documents produced, where: (1) there wasn’t actually any work product, (2) the materials only involved an analysis of general business practices concerning “the investigation and evaluation of future, notional property claims involving suspicious circumstances,” and (3) the representative’s notations were made on an insurance application, which was clearly not done at a time when litigation would be anticipated.

  1. Reserves discoverable in bad faith action over valuation

Judge Saporito observed that courts in the Third Circuit are split over whether reserves are discoverable in bad faith cases. He followed Middle District Magistrate Judge Carlson’s Barnard decision, summarized here, for the proposition that the prevailing position favors discoverability if the bad faith claim at issue “relates to an insurer’s failure to settle or where there is a discrepancy regarding the value of the claim.” By contrast, if the bad faith claim does not involve valuation or liability estimates, reserve information is irrelevant.

The present case involved a valuation dispute, and Judge Saporito ordered production of reserve information.

Finally, Judge Saporito ordered production of certain information concerning the agent who sold plaintiffs the policy at issue.  He qualified this order by stating he was not ruling on whether this information could ultimately be admissible at trial.

Date of Decision:  March 5, 2021

Mazer v. Frederick Mutual Insurance Company, U.S. District Court Middle District of Pennsylvania No. 1:19-CV-01838, 2021 WL 850984 (M.D. Pa. Mar. 5, 2021) (Saporito, M.J.)

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’S RELIANCE ON ADVICE OF COUNSEL, AMONG MANY OTHER FACTORS FAVORING THE INSURER, DEFEATS BAD FAITH CLAIM (Philadelphia Federal)

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This case involves a head-spinning array of factual discrepancies between the insured’s claims to the carrier and the results of the insurer’s investigation. These range from whether the insured actually owned the property to whether the structure at issue collapsed from a sudden event or collapsed because of (uncovered) faulty construction. We leave you to the court’s lengthy and detailed narrative concerning these discrepancies, and the various coverage issues invoked by their presence. Of particular interest here is that in addition to involving an adjuster, SIU adjuster, supervisor and engineering expert, the insurer also puts its outside counsel’s coverage opinion on the record.  

The insured brought a bad faith claim, and the insurer moved for summary judgment after making a detailed record.  The insurer asserted various bases for why it was entitled to summary judgment. In granting summary judgment, the court stated that, at a minimum, there was a reasonable basis to deny coverage:

“The record indicates that [the insurer] conducted a thorough investigation of the claim and ultimately decided that coverage should be denied. Indeed, [a] property adjuster and an SIU adjuster inspected Plaintiff’s loss; the claim was reviewed by [a] supervisor; [the insurer] took the recorded statement of Plaintiff and reviewed relevant property documentation from the City of Philadelphia; [the insurer] obtained the services of a structural engineer; and [the insurer] then sent the structural engineer’s report, which opined on the cause of the loss, to independent legal counsel for an opinion on the coverage. Finally, relying upon independent legal counsel’s conclusion that coverage did not exist for Plaintiff’s loss, [the insurer] denied Plaintiff’s insurance claim. It cannot be said that [the insurer]’s investigation and decision-making process was ‘frivolous or unfounded,’ as required under Pennsylvania law to succeed on a bad faith claim.”

The court added, “the factual record is devoid of any ‘clear, direct, weighty and convincing’ evidence that would allow a factfinder to find ‘without hesitation’ that [the insurer] acted in bad faith in investigating and ultimately denying Plaintiff’s insurance claim.”

Moreover, even if the insured could make a case for unreasonableness, “the record is devoid of any evidence that [the insurer] either knew it had an unreasonable basis for denying coverage or recklessly disregarded its lack of a reasonable basis in denying Plaintiff’s claim or in the manner in which it investigated Plaintiff’s claimed loss.” The record shows the contrary. The insurer not only engaged a structural engineer, but also independent legal counsel to analyze coverage. It then “relied on the independent findings of both the expert and legal counsel in its ultimate decision to deny” the claim.

Date of Decision: February 14, 2020

Nguyen v. Allstate Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 18-5019, 2020 U.S. Dist. LEXIS 25789 (E.D. Pa. Feb. 14, 2020) (Kenney, J.)

 

1. GOOD NEWS AND BAD NEWS IN DEFINING SCOPE OF STATUTORY BAD FAITH; 2. MOTION TO SEVER AND STAY DENIED; 3. COURT OUTLINES PROPER PRIVILEGE LOG AND CHALLENGE PROCESS (Middle District)

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The good news: The court in Ferguson v. USAA General Indemnity takes on the issue of whether a statutory bad faith claim can survive if the insured’s breach of contract claim fails, and does an historical analysis of the statute and case law to reach a conclusion.

The bad news: The court does not address the Pennsylvania Supreme Court’s decision in Toy v. Metropolitan Life. As we have observed over the years, Toy requires the denial of a benefit as a necessary predicate for statutory bad faith claims. Yet, numerous courts have applied pre-Toy case law, or cases rooted in pre-Toy case law, in holding that bad faith might exist outside of that context, e.g., solely for unfair claims handling or unreasonable failures to communicate. These courts have not directly addressed the argument that Toy apparently rejected that possibility, and that poor conduct may be evidence of bad faith, but not cognizable bad faith in itself where no benefit is denied.

We are not speaking of the situation where there is a contractually due benefit that the insurer belatedly pays. As Toy itself makes clear, there is little dispute that delay in paying a benefit can still support a bad faith case on the basis that this denies a benefit. Rather, we are speaking of the situation where there is no indemnity or defense of any kind contractually due, and the insurer prevails on the breach of contract count. Attached here is an article addressing Toy’s distinction between bad faith conduct that is necessary to make out a cognizable cause of action, and bad faith conduct that is only evidentiary in nature.

The Ferguson court, and similar cases, are concerned with dishonest claims handling and unreasonable delay even in cases where no coverage was ultimately due. They may want to inhibit poor conduct on the claims handling end that is driven by a presently unsubstantiated hope that there will be no coverage at the end of the day. In the court’s words, statutory bad faith exists to “generally regulate dishonest conduct by insurers….” This dishonest conduct still can be punished even if no coverage is due because “[h]olding otherwise could potentially result in insurers taking the gamble that a denial based on a cursory review will be rescued by a clever trial lawyer.”

Arguably, this interpretation runs counter to the Supreme Court’s decision in Toy, which concludes that there must be a denial of a benefit accompanying such poor claims handling. This reading of Toy implies that dishonest conduct where no coverage is due and no benefit denied is left to regulation by the Insurance Commissioner, not the courts.

In one of the few cases addressing this aspect of Toy, previously summarized on this Blog, another district court states:

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.” Toy v. Metro. Life Ins. Co., 593 Pa. 20, 928 A.2d 186, 199 (Pa. 2007). 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.'” Wise v. Am. Gen. Life Ins. Co., 459 F.3d 443, 452 (3d Cir. 2006) (emphasis added); see also Nw. Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005); Toy, 593 Pa. at 41. None 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.”

Motion to sever claims and stay discovery denied

As stated, the Ferguson court determined a bad faith claim could proceed independently of the breach of contract claim, even if the breach of contract claim failed. The court reached this conclusion in the context of a motion to stay discovery and sever the breach of contract and bad faith claims. After reaching this conclusion, the court reviewed and denied the motion to sever and stay.

Even if conceptually distinct, the breach of contract and bad faith claims are “significantly intertwined from a practical perspective.” By way of example, the court states that both claims will involve discovery on “the nature of Plaintiffs’ injuries; and … what efforts did the insurer make to investigate Plaintiffs’ injuries.”

Trying to separate the two claims and stay discovery “would potentially create a discovery mess, requiring truncated depositions, interrogatories, and requests for production, only to have them all re-started following the conclusion of the first leg. This risk of judicial inefficiency warrants denial of Defendant’s request.” In sum, “Defendant’s request is, at root, asking the court to manipulate this case’s procedural framework in a way that will make litigation convenient for insurers, which the court will not do.”

This is how to handle the privilege and work product process

The court did observe there might still be legitimate attorney client privilege or work product issues. The court outlined how the parties should address this issue:

“This issue, however, is not properly before the court at this time. Defendant has not filed a protective order, nor has Plaintiff yet moved to compel. While Plaintiffs have requested the court conduct an in camera review of Defendant’s claims file, it will only do so if Plaintiffs show which parts of the claims file they may legally be entitled to. While Plaintiffs’ brief fails to do as much, they were unable to in part because Defendant has not provided an adequate privilege log.”

An adequate privilege log requires the party asserting the privilege to set forth sufficient facts as to each document at issue, and is further required to “establish each element of the privilege or immunity that is claimed. The focus is on the specific descriptive portion of the log, and not on conclusory invocations of the privilege or work-product rule.”

The court instructed the insurer “to provide an amended privilege log supplying some of the underlying factual bases for its privilege and work product claims—but not so much that it effectively discloses any such privileged information—so that Plaintiffs may raise, by brief, the parts of the privilege log they believe Defendant has failed to show are privileged.” After these steps are taken, the “court can then decide whether to conduct an in camera inspection of certain portions of the insurer’s claim file.”

Date of Decision: December 5, 2019

Ferguson v. USAA General Indemnity Co., U. S. District Court Middle District of Pennsylvania Civil No. 1:19-cv-401, 2019 U.S. Dist. LEXIS 209579 (M.D. Pa. Dec. 5, 2019) (Rambo, J.)

BAD FAITH CLAIM BIFURCATED AND STAYED; REQUEST TO DEPOSE INSURER’S COUNSEL QUASHED AS COVERAGE COUNSEL COMMUNICATING WITH INSURED IS COMMONPLACE AND DOES NOT MAKE COUNSEL A FACT WITNESS (Middle District)

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In this first-party property damage case, Judge Conner addressed a motion to sever and stay a bad faith claim, as well as a motion for a protective order to quash the deposition of the carrier’s coverage counsel, who was also defending the breach of contract and bad faith action.

Motion to Sever and Stay Results in Bifurcation and Stay

Judge Conner first noted the difference between a Rule 21 motion to sever and stay, and a Rule 42 motion to bifurcate, observing that severance results in two separate and distinct actions, resulting in separate judgments. In this case, the insurer had moved to sever, but also included in its motion bifurcation as a form of relief.

“Severance is appropriate when the claims are ‘discrete and separate,’ each capable of resolution without dependence or effect on the other.” Factors include whether the two claims will require different evidentiary proof, judicial economy, and party prejudice. Judge Conner observed the wealth of case law addressing severance and bifurcation in insurance bad faith cases, but noting that the cases go both ways.

As in other cases, the insurer here argued, “irreparable prejudice from premature and potentially unnecessary disclosure of otherwise privileged information, inefficiency in litigating a secondary claim of bad faith that may be mooted by resolution of the coverage claim, and jury confusion and the potential loss of [the insurer’s] chosen counsel if the claims proceed together.”

  1. The court agreed that the breach of contract claim and bad faith claim are separate and distinct, with only minor overlap. For example, “[i]nformation concerning how [the insurer] investigated and evaluated the coverage claim, its claims-handling policies, and its attorney and personnel communications regarding denial of coverage … are simply immaterial to the issue of whether coverage is required under the policy.”

  2. The court also found the prejudice element favored the insurer’s position. The insurer focused on revealing its attorneys’ advice, opinions and strategy as providing an undue advantage in the insured’s contract case, where such information would not otherwise be discoverable. The insured focused on increased litigation expenses.

Judge Conner found “that although both parties have proffered potential prejudice, [the insurer’s] likely injury from denying separation of these claims outweighs the possible increased costs identified by [the insured]. As [the insurer] correctly notes, attorney-client privilege and the work product doctrine are long-held, venerated components of our legal system. …. Such protections are not absolute, but they should not be disregarded lightly. We do not dismiss [the insured’s] legitimate concern regarding litigation costs, but ultimately conclude that this factor also favors [the insurer].”

  1. On the judicial economy element, the court rejected the notion that a ruling denying coverage would moot the bad faith claim; instead observing that a bad faith claim can exist independently of a coverage denial. [Note: As recently reiterated on this Blog, there is a longstanding issue as to whether statutory bad faith can be pursued in Pennsylvania simply for poor claims handling, if there is no benefit due under the policy.] The court also rejected the notion that the likelihood of more complex discovery disputes if both actions are litigated together requires severance.

After weighing all factors, Judge Conner chose to bifurcate, rather than sever; and to stay discovery on the bad faith claim. He recognized other courts had ruled differently in insurance bad faith cases, but highlighted the fact that each case is unique, that judges have broad discretion, and that in “this” case bifurcation and stay were warranted.

Court denies insured’s request to depose the insurer’s counsel

The insured sought to depose the insurer’s defense counsel in the case, who was also involved in the underlying coverage dispute. The insurer moved to quash the deposition. As the only pending case was now the breach of contract claim, Judge Conner viewed the issue through that prism.

The insured argued that counsel acted as a claim investigator, and was thus a fact witness. However, it offered no support for that position. It sought to depose counsel to obtain his: “’thoughts and reasoning as to why certain information was or was not included in the denial letters,’ knowledge of the cause and extent of the loss, and reasons why ‘certain information was disregarded” and the claim ultimately denied.’” The court found this “either irrelevant to the breach of contract claim, privileged, discoverable through other means, or a combination thereof.”

“Furthermore, that [the insurer’s counsel] authored letters denying coverage and setting forth [the insurer’s] reasons for its denial has no bearing on whether his deposition is necessary on the breach of contract claim. The practice of insurers consulting with their attorney regarding coverage and having their attorney communicate with the insured is quite commonplace and does not transform [coverage counsel] into a fact witness.”

The court further recognized the potential issue that the deposition could result in counsel’s disqualification. This was another reason to quash the deposition in connection with the contract claim. Judge Conner did leave the door open for the insured to reassert its request to depose counsel in the bad faith case.

Dated: July 25, 2019

McFarland, LP v. Harford Mutual Insurance Cos., U. S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 1:18-CV-1664, 2019 U.S. Dist. LEXIS 124038 (M.D. Pa. July 25, 2019) (Conner, J.)

Our thanks to Dan Cummins of the excellent Tort Talk Blog for bringing this case to our attention.

EMAILS BETWEEN CLAIMS ADJUSTER AND PLAINTIFF’S COUNSEL AFTER INSURER’S DEFENSE COUNSEL’S INVOLVEMENT IS MADE KNOWN: IT’S BEST NOT TO DO THAT, EVEN IF ADJUSTER INITIATES THE CONTACT (Middle District)

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This UIM breach of contract and bad faith case involved an alleged ex parte contact with the carrier’s claims adjuster, after defense counsel had communicated a letter of representation to the insured’s counsel. Three months later after that representation letter, there were direct communications, via email exchanges, between plaintiff’s counsel and the claims adjuster. They discussed the plaintiff’s demands and claims handling events. The carrier brought a motion for a protective order to preclude use of these emails in the case, because of the allegedly impermissible ex parte contacts with a represented person.

The email initiating the communications came from the adjuster to plaintiff’s counsel. The carrier took the position this was inadvertent, asserting the adjuster actually intended the email for her own defense counsel. The court observed it was unclear whether the communication was inadvertent. In any event, the court found whether intended or inadvertent, the result is the same.

The court generally observed that the prudent course would have been for plaintiff’s counsel to communicate with defense counsel regarding the adjuster’s very first email, rather than responding to the adjuster. This clearly would have avoided the ensuing issues.

The court analyzed the contact under Rule of Professional Conduct 4.2, governing direct contacts with represented persons. It concluded the rule was not violated. There was no intent to create an unfair advantage or indicia of dishonest intent. Further, the court observed defense counsel did not make an issue of the email exchange for a year, in demanding that it not be disseminated by plaintiff’s counsel, e.g., to plaintiff’s expert.

However, though there was no rule violation, some remedial measures were warranted. Thus, the court precluded any information obtained from the adjuster via these emails, that could bind the carrier.

The court did deny a request for attorney’s fees on the motion. The communications were limited, and the conduct did not rise to the level of egregiousness that would call for an attorney’s fee award.

Date of Decision: July 17, 2019

Golden v. Brethren Mutual Insurance Co., U. S. District Court Middle District of Pennsylvania Civil No. 3:18-CV-02425, 2019 U.S. Dist. LEXIS 118519, 2019 WL 3216629 (M.D. Pa. July 17, 2019) (Saporito, M.J.)

 

TWO THINGS WITH THE SAME NAME DO NOT MAKE THEM THE SAME: PENNSYLVANIA STATE CASE LAW ON THE WORK PRODUCT DOCTRINE NOT APPLICABLE IN FEDERAL COURT (Philadelphia Federal)

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Magistrate Judge Wells addressed the difference between the federal and Pennsylvania work product doctrines in this federal UIM bad faith case.

Under the Federal Rules of Civil Procedure, a party must be anticipating litigation when documents are created to get work product protection. Courts must find the “temporal trigger” to determine when federal work product protection starts, i.e., “the point in the insurance company’s investigation when its activity shifted from ordinary claims evaluation to work performed in anticipation of litigation.” There are two components: (1) when did the insurer subjectively anticipate litigation and (2) when did it become objectively reasonable to expect a lawsuit. Documents created before this time are deemed prepared in the ordinary course of business.

The insurer argued that UIM cases are inherently adversarial, and therefore litigation is anticipated in all UIM cases from inception. It relied only on Pennsylvania state case law for this argument. The court found state case law interpreting Pennsylvania’s work product doctrine did not provide guidance on applying the federal work product doctrine because the doctrine’s application differed in federal and state court.

Absent any effort to “prove the moment when [the insurer] shifted from ordinary evaluation of Plaintiff’s UM claim to subjectively anticipating litigation” or demonstrating “that it was objectively reasonable for it to have anticipated litigation at any precise point in time” the court found the insurer “failed to properly invoke the starting point for application of the work product doctrine … [and] cannot avail itself of that doctrine’s protection.”

Date of Decision: January 24, 2019

Brown-Comfort v. Progressive Insurance, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-2929, 2019 U.S. Dist. LEXIS 11884 (E.D. Pa. Jan. 24, 2019) (Wells, M.J.)

 

 

OCTOBER 2017 BAD FAITH CASES: COURT ADDRESSES A WIDE RANGE OF BAD FAITH DISCOVERY ISSUES AS TO PRIVILEGE, WORK PRODUCT, AND RESERVES (Western District)

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This is a discovery opinion addressing a wide range of issues including the attorney client privilege, work product doctrine and discovery of reserves. A number of rulings were held in abeyance pending in camera review, which are not addressed below

1.        The attorney client privilege is not limited to claims handler communications with outside counsel.

“This Court is not aware of any authority that limits the attorney-client privilege to communications with outside counsel, as opposed to in-house counsel, and Plaintiff has cited none. Therefore, this Court rejects Plaintiffs’ claim that the attorney-client privilege could not have attached before Attorney McDonnell was retained as outside counsel to handle Plaintiffs’ claim.”

2.         The privilege is not abrogated simply because a document is relevant to a bad faith claim.

“Plaintiffs next assert that the documents listed in the privilege log titled ‘Communications with counsel regarding the value and merits of claim’ are not privileged because they “go to the heart of this bad faith action[.]” (ECF No. 20 at 8.) However, as Defendant notes, the Third Circuit has unequivocally held that ‘[r]elevance is not the standard for determining whether or not evidence should be protected from disclosure as privileged, and that remains the case even if one might conclude the facts to be disclosed are vital, highly probative, directly relevant or even go to the heart of an issue.’ Rhone-Poulenc Rorer Inc. v. Home Indem. Co., 32 F.3d 851, 864 (3d Cir. 1994). Moreover, ‘[a] party does not lose the privilege to protect attorney client communications from disclosure in discovery when his or her state of mind is put in issue in the action.’ Id. Thus, while Plaintiffs are correct that these communications ‘go to the heart’ of Plaintiffs’ bad faith claim, this fact does not change the analysis of whether these communications are protected by the attorney-client privilege.

3.     Documents prepared by claims adjusters and sent to attorneys are privileged.

“Plaintiffs also claim that ‘communications made by the claims representatives are not immune from discovery.’ This argument is easily dismissed. ‘[T]he attorney-client privilege operates in a two-way fashion to protect confidential client-to-attorney or attorney-to-client communications made for the purpose of obtaining or providing professional legal advice.’ The fact that the documents were prepared by the claims adjusters, rather than the attorney to whom the documents were sent, is immaterial to the analysis of whether those documents are protected under the attorney-client privilege.”

4.         Reserves discoverable in bad faith action.

The court found reserve information discoverable in bad faith cases. It wrote the following in explaining its position:

“There is competing treatment of whether reserve information is discoverable in a bad faith lawsuit.” Shaffer v. State Farm Mut. Auto. Ins. Co., No. 1:13-CV-01837, 2014 U.S. Dist. LEXIS 30436, 2014 WL 931101, at *2 (M.D. Pa. 2014). “Some courts have noted a ‘tenuous link between reserves and actual liability given that numerous considerations factor into complying with this statutory directive.'” Sharp, 2014 Pa. Dist. & Cnty. Dec. LEXIS 282, 2014 WL 8863084 at *8, quoting Fidelity & Deposit Co., 168 F.R.D. at 525 (citing Rhone-Poulenc Rorer, Inc. v. Home Indemnity Co., 139 F.R.D. 609, 613 (E.D. Pa. 1991)). However, as a court of common pleas recently stated:

Several trial courts, including this court, have reasoned that insurance reserves are discoverable in bad faith litigation against insurers, where liability for the underlying claim has already been established, since such information may be relevant to the issue of whether the insurer acted in bad faith in failing to settle or pay the original claim. See Consugar v. Nationwide Insurance Co. of America, 2011 U.S. Dist. LEXIS 61756, 2011 WL 2360208, at * 5 (M.D. Pa. 2011) (‘Since plaintiff here claims that defendant acted [*19]  in bad faith, a comparison between the reserve value of the claim and defendant’s actions in processing plaintiff’s claim could shed light on defendant’s potential liability.’); North River Ins. Co. [v. Greater New York Mut. Ins. Co.], 872 F. Supp. [1411] at 1412 [(E.D. Pa. 1995)] (finding reserve information “relevant to the question of whether or not [the insurer] acted in bad faith during the pre-trial settlement negotiations.”); McAndrew v. Donegal Mutual Ins. Co., 56 Pa. D. & C. 4th 1, 18 (Lacka. Co. 2002); Fretz v. Mutual Benefit Ins. Co., 37 Pa. D. & C. 4th 173, 180 (Alleg. Co. 1998). Sharp, 2014 Pa. Dist. & Cnty. Dec. LEXIS 282, 2014 WL 8863084 at *8.”

5.     Reserves concerning insured’s claim are discoverable, but reserves concerning other claims are not, and court will not indulge fishing expedition on setting reserves for other claims.

“Defendant’s boilerplate responses also contend that Plaintiffs’ requests are overly broad. … This Court disagrees with Defendant’s contention in regards to Interrogatory No. 5, in which Plaintiffs’ seek information regarding the reserve history for [the insured’s] own claim. Because the gist of Plaintiffs’ complaint is that Defendant acted in bad faith in handling [the insured’s] underinsured motorists claim, Plaintiffs’ request for the reserve history for [her] claim is not overly broad.”

“However, this Court agrees with Defendant that RPD No. 4 is overly broad. While Plaintiffs have demonstrated the relevancy of the reserve amounts for [the insured’s] own claim, Plaintiffs have not shown — nor even argued in their Motion to Compel — that reserve information for other insureds is relevant to Plaintiffs’ claim. Therefore, Defendant will only be required to produce any relevant documentation of the reserve history for [the insured’s] claim.”

“RPD No. 4 asks for “all documents relating to or involving the process used from 2011 to the present in setting or otherwise establishing or determining reserves for underinsured motorists claims.” (ECF No. 20-2 at 4.) However, neither Plaintiffs’ Motion to Compel nor Defendant’s Brief in Opposition contain any argument concerning whether or not discovery of Defendant’s reserve process for other insureds is appropriate. In other words, neither party addresses the issue of whether RPD No. 4 seeks documents that are outside of the context of Plaintiffs’ specific claim. To the extent that Plaintiffs’ ask for discovery of reserve information for other claims, this Court declines the invitation to allow Plaintiffs to embark on a fishing expedition.”

6.       Work product doctrine not applicable to reserve information in this case.

“The only other objection that Defendant has put forth is its boilerplate response that the information requested by RPD No. 4 and Interrogatory No. 5 ‘is protected from discovery by the work-product doctrine.’ … However, Defendant’s threadbare and conclusory invocations of the work product doctrine fail to establish that Defendant is entitled to the privilege it asserts. Moreover, Defendant does not even argue in its Brief in Opposition that this information is protected by the work-product doctrine. Further, according to the reserve history for [the insured’s] claim, the reserve values were set by non-attorneys. … In fact, Defendant has not asserted that the reserve amounts were set or altered at the direction of, or with the cooperation of, counsel. Therefore, Defendant has failed to establish that the information Plaintiffs seek is protected by the work-product doctrine.”

Date of Decision: October 2, 2017

Parisi v. State Farm Mut. Auto. Ins. Co., CIVIL ACTION NO. 3:16-179, 2017 U.S. Dist. LEXIS 162131 (W.D. Pa. Oct. 2, 2017) (Gibson, J.)

 

OCTOBER 2017 BAD FAITH CASES: BIFURCATION AND STAY OF BAD FAITH CLAIM DENIED ON ALL FOUR CRITERIA, INCLUDING SIMILARITY OF ISSUES, COMMON EVIDENCE, UNDUE EXPENSE TO THE INSURED, AND ABSENCE OF PREJUDICE (Middle District of Pennsylvania)

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An underinsured motorist injured the insureds. The tortfeasor’s insurer ultimately tendered $15,000 to the insureds. The insureds’ own UIM policy contained maximum benefits of $100,000, or $200,000 with stacking. The insureds demanded full benefits under the policy.

After investigation, the insurer offered $10,000 to settle the UIM claim. The insureds filed suit in the Court of Common Pleas. The insurer removed the action to federal district court and filed a motion to dismiss. The Court denied the insurer’s motion to dismiss. The insurer then filed a motion to bifurcate the bad faith claim pursuant to Federal Rule of Civil Procedure 42.

In considering a party’s bifurcation motion, courts are careful to consider whether a stay would damage a party. Specifically, courts consider four factors in deciding a Rule 42 motion: “(1) whether the issues are significantly different from each other; (2) whether they require separate witnesses and documents; (3) whether the nonmoving party would be prejudiced by bifurcation; and (4) whether the moving party would be prejudiced if bifurcation is not granted.” The movant bears the burden to show that bifurcation is appropriate.

  1. First, the Court found that the claims are not “so profoundly different” as to justify bifurcation.

  2. The Court ruled that “both claims would utilize similar documents, such as the [insurer’s] claim file, relevant medical evidence . . ., and the [insurer’s] settlement attempts.” In addressing the insurer’s concerns on privileged materials pursuant to the attorney work-product doctrine, the Court ruled that the insurer failed to identify specific documents that enjoy such privilege. Furthermore, the Court reasoned that the insurer is free to file such motions going forward in order to assert its privilege at any time.

  3. The Court held that the insured would suffer economically if the bad faith claim was stayed, because the insured would have to pay its attorney to do twice the work. “Bifurcation would require two discovery periods, double the dispositive motions, and double pre-trial motions.”

  4. Lastly, the Court held that the insurer would not be prejudiced were its motion to bifurcate be denied, because the insurer could simply defeat the bad faith claim by showing a reasonable basis for its settlement offer and investigatory conduct.

In conclusion, none of the four factors weighed in favor of bifurcation and the Court denied the motion to sever and stay the bad faith claim.

Date of Decision: September 18, 2017

Newhouse v. GEICO Cas. Co., No. 4:17-CV-00477, 2017 U.S. Dist. LEXIS 150793 (M.D. Pa. Sept. 18, 2017) (Brann, J.)