OCTOBER 2011 BAD FAITH CASES COURT ADDRESSES DISCOVERY ON INSURER’S UIM FILE, INCLUDING PRIVILEGE, WORK PRODUCT, ADVISE OF COUNSEL, LOGS (Western District)

In Craker v. State Farm Mutual Automobile Insurance Company, the court was presented with an insured’s motion to compel discovery and a carrier’s motion to sever and stay a bad faith claim.  The parties were engaged in discovery during the pendency of these motions, which stem from a dispute over $200,000 in alleged underinsured motorist benefits (UIM) arising from a car accident that injured the insured.  The insured party sued the carrier for its benefits after being denied its UIM benefits.  The insured also brought a bad faith claim.  The carrier later removed to federal court.

Discovery was originally to be completed by August, but the insured successfully moved to extend the discovery phase.  The court set December 1, 2011 as the new deadline.  At the same time, the insured also moved to compel discovery relating to its bad faith claim.  The carrier filed a motion to sever and stay the bad faith claim until after the UIM claim was decided.  According to the carrier, it would suffer irreparable harm if forced to disclose its mental impressions and evaluation of the insured’s claim.  Such information, it argued, was only relevant to the bad faith claim and not the UIM litigation.

The court addressed the carrier’s objectives in pushing back discovery on the bad faith claim.  It therefore reasoned that the carrier was not really moving to bifurcate the trial, under Federal Rule 42(b), but to obtain a phased discovery plan under Rule 26.  After identifying “the true issue to be decided,” the court rejected the carrier’s motion to phase discovery.  It so held because such a motion was not mentioned in the parties’ Rule 26(f) Report, used to anticipate necessary disclosures and discovery.

Aside from these procedural difficulties, the court also rejected the carrier’s motion on the merits.  Because postponing discovery on the bad faith claim would delay the resolution of the case, it was inappropriate.  It is inefficient, the court held, to create a new discovery plan after the UIM claim is decided.  Moreover, such a situation would increase costs for the parties and require witnesses to be re-deposed.  The court concluded that the carrier identified no benefit to proceeding as it proposed, other than its own attempt to shield unfavorable evidence.

Furthermore, the court rejected the carrier’s objections that were based on confidentiality grounds.  While the court did acknowledge that some of the discoverable materials were sensitive, it noted that “confidentiality agreements and protective orders” were a more appropriate means of proceeding.

The court also questioned the carrier’s strategy.  It noted that the carrier really wanted the advantage of “favorable rulings made by state court judges in this judicial district regarding the administration of bad faith claims.”  However, the carrier removed the case to federal court and chose its desired venue.  Although a state court may have granted this motion, it was too late to seek a phased discovery plan under the Federal Rules.

The insured’s motion to compel alleged that the carrier failed to adequately respond to its interrogatories.  In opposition, the carrier claimed that the motion was premature, called for a violation of privilege and work product doctrines, sought confidential information, and sought irrelevant information.  The court agreed with the carrier’s first objection, recognizing that the insured failed to meet and confer prior to its filing.  However, the court opted to advise the insured, rather than sanction them.

The court also noted that several of the objections had been discussed by the parties and resolved.  For instance, the carrier provided the insured with several privilege logs and agreed to produce confidential materials subject to entry of a protective order.  As such, the court ordered the carrier to provide a “log explaining its assertions of the attorney-client privilege and the work product doctrine, and that the parties enter into an appropriate protective order to permit the exchange of confidential information.”

The only remaining issue for the court was the insured’s claim that the carrier waived its attorney-client privilege by asserting an advice of counsel defense.  Yet, the insured failed to identify what statements lead to this assumption, prompting the court to reject this claim on the basis that it lacked adequate information.

The court concluded by denying the carrier’s motion to sever and stay, without prejudice, so that it might seek bifurcation of the trial at the post-discovery status conference.  The court also summarized that the insured’s motion to compel has been resolved in some respects due to agreement between the parties, granted in some respects as a result of the denial of the carrier’s motion, and denied as to the advice of counsel issue, without prejudice to the insured’s ability to file a properly supported motion in light of the impending discovery cut-off date.

Date of Decision:  September 29, 2011

Craker v. State Farm Mutual Automobile Insurance Company, No. 11-0225, U.S. District Court for the Western District of Pennsylvania,
2011 U.S. Dist. LEXIS 111862 (W.D. Pa. Sept. 29, 2011) (Lancaster, J.)