December 2016 Bad Faith Cases: Court Refuses to Bifurcate UIM Contract and Bad Faith Claims, or Stay Bad Faith Discovery Where Insured Resisted The Stay and was Willing to Risk Potential Prejudice to the Insured Himself During Consolidated Discovery (Philadelphia Federal)

The insurer sought to bifurcate the breach of contract and bad faith claims in this UIM case, and a stay of discovery on the bad faith claim. In its second bad faith opinion of the day, the court denied the motion as the factors concerning convenience to the parties, avoidance of prejudice, or efficiency did not warrant separation of the two claims or a stay on discovery. The details of the court’s decision are quoted, in part, below: “In commercial or property damage cases, there may be complexities that warrant bifurcation; however, this is a personal injury case arising out of a motor vehicle accident. The key issue in the breach of contract claim is damages and the principal basis of the bad faith claim is delay: neither is a complex issue.”

“[B]ifurcation is not warranted … because [the insurer] has not shown that the level of prejudice it will face from proceeding to one trial on both claims outweighs the detrimental effects of severance. First, we note that although … the issues in the two claims are distinct, they are not as dissimilar as [the insurer] contends.” In arguing that the contract claim focuses on determining damages and the bad faith claim on the insurer’s case evaluation, the insurer “fails to recognize that an evaluation of the reasonableness of an insurer’s investigation necessarily includes analysis of the documentation the insurer relied on in coming to its conclusion. Indeed, ‘[the insurer’s] investigation did not occur in a vacuum,’ and the facts regarding the underlying accident and its consequent damages are relevant to it.”

“There is considerable overlap in the evidentiary proof relevant to each claim. Analysis of both claims is likely to require testimony from [the insured], [his] treating physicians, and [the insurer’s] medical expert as well as documentation regarding the accident, [the insured’s] injuries and the damages he suffered. Although foreseeable additional witnesses for the bad faith claim are the [insured’s] personnel responsible for handling [the] claim, and counsel for either or both parties, it is likely that many witnesses, and much of their testimony, will be the same for both claims. It would be inconvenient and wasteful of judicial resources to require them to appear in two separate trials to testify on overlapping issues.”

The court distinguished two other cases because of the difference in the progress of discovery on the contract and bad faith claims; and because it was unclear in the present case if counsel would have to testify, because counsel’s role was not pivotal to the bad faith claims at issue.

Finally, the insurer contended “without citation to any authority, that separate trials and a stay on discovery in the bad faith claim is necessary in order to assuage the potential for prejudice to both parties in the discovery process.” It argued “that work product it generated in preparation for litigation of the contractual claim would be relevant and discoverable in the bad faith claim, forcing [it] to either forfeit its privilege or claim it and thereby hamper Plaintiff’s litigation of the bad faith claim.”

The court found this did not warrant staying the bad faith claim. “[T]he insurer’s privilege would ‘not disappear merely because work product prepared in anticipation of litigation over one claim may also be relevant to a second claim.’” “Rather, the insurer would simply have to ‘prove its entitlement to work product protection, . . . [a fact] that does not justify the necessary expenditure of judicial resources and time’ that severance would occasion.”

Moreover, “the party most at risk of prejudice under the instant circumstances is [the insured], and he opposes [the insurer’s] motion. By opposing severance, [he] takes the risk that he may be vulnerable to not obtaining documents [the insurer] would otherwise be willing to produce. [He] has chosen this course rather than go through ‘the time and expense of having to participate in two separate rounds of discovery (and inevitable motion practice) accompanied by two separate jury trials.’” The insured’s stance therefore weakened the carrier’s position that severance was necessary to prevent prejudice in the course of discovery.

Date of Decision: November 21, 2016

Zinno v. Geico Gen. Ins. Co., No. 16-792, 2016 U.S. Dist. LEXIS 161250 (E.D. Pa. Nov. 21, 2016) (Baylson, J.)