2013 Bad Faith Cases:Court Rules on “Bad Faith Set-Up” Affirmative Defense; Court Permits Subpoenas On Insured, But Rejects Argument That Documents Which Insurer Did Not Consider Be Provided Defense To Bad Faith (Middle District)

In Shannon v. New York Cent. Mut. Ins. Co., plaintiff brought suit against its insurer for bad faith after a molded verdict of $906,000 was entered against him in excess of his $25,000 policy limit. The insurer filed an answer to the bad faith claim, and in paragraph 120, set forth allegations asserting that plaintiff’s counsel had orchestrated a “bad faith set-up” in the underlying suit to gain access to punitive damages, despite the limited value of the underlying case. Plaintiffs moved to strike the paragraph.

The District Court allowed most of the language in paragraph 120 to stand, as it believed, if proven, the allegations in the paragraph in question would assist in establishing an “avoidance” under the terms of Fed. R. Civ. Proc. 8(c). However, in a footnote, the court observed that “these allegations may not provide an affirmative defense because Defendant cites no Pennsylvania appellate case that confirms the existence of a ‘bad faith set-up’ defense.”  Further, subsections “g” and “h” of paragraph 120, alleging plaintiff’s counsel violated unspecified state and federal criminal statutes, were stricken. Since the allegedly violated statutes were not listed, the subsections failed to provide “fair notice” of the claim and the grounds the claim rested upon.

Additionally, the court denied plaintiff’s motion to quash several subpoenas seeking employment and medical records. Plaintiff argued the records requests were duplicative given the underlying suit, and that the focus of a bad faith claim should be on the evidence provided to the insurer and what the insurer did with that evidence, making evidence not in the insurer’s possession in the underlying suit irrelevant. Defendants argued if a reasonable basis for delaying resolution of the claim existed, regardless of the fact the insurer did not rely on that reason, a bad faith claim could not stand as a matter of law. The court found defendant’s argument inconsistent with the purpose of the bad faith statute, but did not quash the subpoenas given the liberal policies governing discovery in federal courts. The court ordered plaintiff to provide those requested records that were not duplicative, and only the records available up to the date of the jury verdict in the underlying suit.

Date of Decision: November 20, 2013

Shannon v. New York Cent. Mut. Ins. Co., Case No. 3:13-CV-1432, 2013 U.S. Dist. LEXIS 165280 (M.D. Pa. Nov. 20, 2013) (Conaboy, J.).