April 2015 Bad Faith Cases: Court Refuses To Sever Contract And Bad Faith UIM Claims, And Refuses To Stay Discovery; Court Recognizes Privileges Remain In Tact Absent Advise Of Counsel Defense, But Allows Discovery Of Claims Files As To Evaluation Process; Court Observes That It Is Not Bound By Contrary Decisions Of Courts Of Common Pleas, And That Insurer Took That Risk When It Removed The Case To Federal Court (Middle District)

In Griffith v. Allstate Insurance Company, the insurer brought a Rule 42 motion to sever the bad faith and contract claims in this UIM case, and to stay bad faith discovery. The court denied both motions.

The court first found that the issues were intertwined on both claims. The pivotal “point for both cases will be the plaintiff’s injuries, represented through relevant medical evidence and the defendant’s claim file. The jury will be able to properly evaluate the entire case including the accident, the plaintiff’s injuries, the defendant’s investigation, and, finally, the attempts to settle the matter.” This favored keeping the cases together.

Next, the insurer raised the argument that disclosure of documents may be subject to the work product doctrine in the bad faith case.  The insurer argued that “the disclosure of the impressions of the claims adjuster will hinder the defendant’s ability to litigate the breach of contract claim.” The court observed that the claims file “generally includes correspondence from plaintiff’s counsel, medical records, wage-loss records, logs indicating what material has been received, and notes from the claims adjuster regarding his or her impression of the claim’s value[, and] [t]he vast majority of the evidence in the claim file will be presented in conjunction with the breach of contract claim.” Further, “only the claim adjustor’s notes or other impression may qualify as work product.” (Emphasis by Court).

The court also found that the “bad faith claim will also only require a few additional witnesses who will discuss evidence of the plaintiff’s damages that will likely be admitted in conjunction with the breach of contract claim. All of this boded against severance.  The court then found against the insurer’s judicial efficiency argument. As to prejudice from disclosing the insurer’s subjective analysis of the claim, the insurer only relied upon “the prejudice caused by releasing the claims adjustor’s impressions regarding the plaintiff’s claims and does not contend releasing its claims evaluation process will somehow create a competitive hindrance.”  The insurer had tried to support its position with citations to a series of Court of Common Pleas decisions.  The federal court noted: “The defendant includes and cites to a bevy of cases out of various Pennsylvania Courts of Common Pleas in support of its position. The court notes it was the defendant who removed the case to this court and availed itself to the rules, procedures, and case law of the Federal District Court. The defendant made the strategic decision to have this case tried in this court and must now accept the consequences.” Further, the court observed that simply because the insured instituted a bad faith claim, this did not mean that the insurer will be deemed to have automatically waived the attorney client privilege or work product doctrine.  In addition, “[c]ommunications between inhouse counsel and claims adjustor are generally privileged.” “Moreover, only when a defendant affirmatively pleads reliance on counsel’s advice is such a privilege waived as to the communications between the specific counsel and the client.” No such defense was pleaded here. Thus, there was little or no risk of actually losing this privilege.

The court then added the following regarding production of the claim file in a bad faith UIM case, where the insurer did not settle: “Further, the claim file is merely a collection of documents along with notes from the adjustor.  As the defendant is well aware, Pennsylvania mandates an insurer act in good faith in negotiating with an injured party. The defendant has communicated offers of settlement, pegging what it believes is a fair value for the plaintiff’s injuries. It is unclear how disclosing the notes that led the defendant to make that determination would place it at any disadvantage if the claims adjustor acted in good faith as required under Pennsylvania law.” Finally, the court left evidentiary arguments to a future date. “At this point it is premature to determine whether specific pieces of evidence would be admissible wholly or on a limited basis. The best way to make that determination is to keep the matters joined, allow discovery to proceed, and bring both claims to trial as quickly as possible. Any discovery disputes or questions of privilege can be handled through the discovery dispute procedures employed by the court.”

Date of Decision:  February 21, 2014

Griffith v. Allstate Ins. Co., CIVIL ACTION NO. 3:13-2674, 2014 U.S. Dist. LEXIS 182819 (M.D. Pa. February 21, 2014) (Mannion, J.)