JANUARY 2008 BAD FAITH CASES
COURT AFFIRMS IN BIFURCATED CASE TO STAY ENFORCEMENT OF DISCOVERY ORDER RE BAD FAITH CLAIM UNTIL OUTCOME OF TRIAL ON COVERAGE ISSUES (Pennsylvania Superior Court)
In Ace American Insurance Company v. Underwriters at Lloyds and Companies, Ace reported a claim under its E&O policy to its insurers, Lloyds and Columbia (“Lloyds”), which Lloyds denied due to untimely notice. Ace brought suit seeking coverage of the claim and a determination that Lloyds had acted in bad faith. The coverage and bad faith claims were bifurcated at trial. After a jury rendered a verdict in favor of Lloyds on coverage, Ace appealed. Ace made several arguments on appeal including arguments related to a discovery order (the “Order”) issued prior to trial. The Order required Lloyds to produce specific documents which Lloyds had characterized as privileged. Ace argued that the trial court erred in refusing to enforce the Order and thereby prejudiced Ace’s ability to prosecute the coverage claim. In response, Lloyds argued that the trial court did not err because the documents encompassed by the Order were not relevant to coverage. The trial court ruled that Ace was not entitled to the documents because the Order was limited to bad faith issues which had been stayed pending the outcome of the trial of the coverage claim. The Appellate Court agreed with the trial court and held that Ace had failed to demonstrate that: (1) it would have been entitled to the documents; (2) the documents would have been admissible at the trial of the coverage issues and; (3) the absence of the documents prejudiced Ace’s ability to pursue its case as to the coverage issues. Therefore, the Appellate Court affirmed the trial court’s decision.
Date of Decision: December 20, 2007)