August 2011 BAD FAITH CASES COURT FOUND THAT ISSUES WERE DISPUTED AND THUS SUBJECT TO DISCOVERY (Western District)

In Liberty Insurance Corporation v. PGT Trucking, Inc., and Sudbury Express, Inc., the court was faced with cross-motions stemming from a dispute over the insurer’s claims handling process and the insured’s self-administration of worker’s compensation claims.  The insurer initially challenged the insured’s practice of forcing its employees to sign conditional employment agreements and sought a declaration of its rights under the parties’ retrospective insurance premium arrangement as to the amount of premiums owed.  The insured brought a counter-claim alleging that the insurer’s inflated retrospective premiums amount to bad faith and breach of its fiduciary duties.  Those claims were dismissed, but a contract claim survived.

The issue before the court was whether the insured would be permitted to take discovery on certain issue that the insurer argued were basically not in controversy.  The discovery related to:  (1) any aspect of Plaintiff’s claims handling that relates to decisions with which Defendants agreed (such as settlements or reserve charges or significant claims handling decisions); (2) issues relating to Defendants’ own improper conduct (such as requiring their truck driving employees to sign, as a condition of employment, an improper employment agreement the intent of which was to require the employees to waive their rights relating to workers’ compensation claims); and (3) Defendants’ self-administration of workers’ compensation claims.”

The court found that the carrier’s legal theory did not preclude the viability of the insured’s legal theory, and so there were legal issues in dispute.  The court stated, among other things, that “retrospective premium arrangements . . . create a unique duty of good faith and reasonableness for the insurer which extends to claims handling.” Thus, the court denied the insurer’s motion seeking to preclude the insureds from challenging any aspect of its claims handling relating to settlements, reserve changes, and/or significant claims handling decisions with which the insureds had agreed; and/or from challenging the insurer’s claims handling with regard to any issue that arose from or relates to the insureds’ self administration of workers’ compensation claims and/or from the improper employment agreements that defendants required their truck driving employees to sign as a condition of employment.

Date of Decision: August 8, 2011

Liberty Insurance Corporation v. PGT Trucking, Inc., and Sudbury Express, No. 2:11-cv-151, U.S. District Court for Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 87419 (W.D. Pa. Aug. 8, 2011) (McVerry, J.)