FEBRUARY 2011 BAD FAITH CASES COURT DECLINES MOTION TO STAY OR DISCONTINUE BAD FAITH DISPUTE AFTER THE INSURED IS INDICTED ON CRIMINAL FRAUD CHARGES (Western District)

In Reck v. Berkshire Life Insurance Company of America, a car accident caused injuries to the insured’s spine and associated muscles and joints.  He had an individual disability policy with the insurer, which provided coverage for total and residual disability.  Despite the insured promptly providing the insurer with information regarding the accident and his injuries, the insurer denied his request for both total and residual disability.

The insured filed suit after the insurer denied his benefits, alleging both breach of contract and bad faith in his Complaint.  After an unsuccessful mediation and a deposition that was not completed, but before trial began, the insured was indicted on charges of wire fraud.

Initially, the insured continued the discovery process after the indictment, as he scheduled certain depositions of physicians and other witnesses.  Soon after, however, he filed a motion for stay of civil proceedings or to discontinue the case, without prejudice, until his criminal proceedings have concluded.  He also filed an emergency motion for a protective order to prohibit discovery during the pendency of the other motions.

The insured claimed that because he was indicted for his duties as a real estate appraiser and the lawsuit he had filed focused on his ability to perform the functions of a real estate appraiser, the issues significantly overlapped.  The insurer responded that the civil case was close to completion, and it would be a significant burden if the court allowed a stay or discontinuance after all of the expenses it had occurred.

The court noted that the insured’s status as a criminal defendant did weigh in favor of granting his motions, but it felt that all the other factors weighed in favor of denying the insured’s request for a stay.  Discovery had all but been completed, and it was in the parties’ best interests to proceed as planned because many important business records had been destroyed and it was therefore even more important for witnesses to remember certain things.  Also, while the indictment concerned activities from 2005, the insured did not even purchase the disability insurance until 2007.  These factors, combined with the court’s general interest in judicial efficiency and promptly resolving civil disputes, led to the court to denying all of the insured’s motions and allowing the civil case to proceed as planned.

Date of Decision:  January 31, 2011

Reck v. Berkshire Life Ins. Co. of Am., Civil Action No. 10-0529, United States District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 8831, (Jan. 31, 2011) (Lancaster, J.)