OCTOBER 2012 BAD FAITH CASES: COURT REJECTS INSURED’S DISCOVERY REQUEST BECAUSE CARRIER’S ACTIONS AMOUNTED TO “PURE DISCOVERY VIOLATION” RATHER THAN A BAD FAITH EFFORT TO OBSTRUCT LITIGATION (Western District)

In Mine Safety Appliances Co. v. North River Ins. Co., a Special Discovery Master heard a discovery dispute that arose from questions regarding “the appropriate trigger of coverage for underlying claims involving coal-worker’s pneumoconiosis” that developed during his employment in the insured’s mine.
In April 2012, a Special Discovery Master undertook an analysis of the insured’s motion to compel interrogatory answers from the carrier. Specifically, the insured asked its carrier to set forth the date when it first learned the identity of a witness retained by the carrier in anticipation of litigation. The carrier objected to the insured’s interrogatories on the grounds that the interrogatories sought information protected from disclosure by Rule 26(b)(4), which holds that the insured is precluded from obtaining discovery on an expert whom the carrier retained for trial litigation purposes.
The insured argued that the requested information is relevant to its bad faith claim against the carrier because, based on information and belief (i.e. the timing of the carrier’s hiring of its expert), the carrier may have first learned the identity of the expert from the insured during a confidential mediation session. During that session, the insured disclosed that it had learned that the expert had written papers supporting its theory of the case. The carrier later hired this expert for its defense of the litigation. Therefore, the insured argued that the carrier “improperly took information learned from its own insured during a confidential mediation session for its own use and for use against its insured.”
The carrier disagreed, arguing that the insured was in breach of the mediation agreement entered into between the parties, which the insured violated by purporting to divulge the content of communications made in connection with settlement negotiations. The carrier therefore argued that the insured’s improper conduct and “unclean hands” should not require it to divulge when it first learned the identity of its expert witness.
The Special Master reasoned that, because the expert had since died, Rule 26 in fact protected information related to his work for the carrier. That rule makes confidential any expert testimony used in preparation for litigation. However, the information sought by the insured did “not involve the insurer-insured relationship, but, rather, clearly involved the parties’ relationship as legal adversaries.” Under the Pennsylvania bad faith statute, such information does not constitute evidence of bad faith. Therefore, the Special Master held, the information requested in the interrogatories is not relevant to the insured’s bad faith claim.
The district court judge affirmed in pertinent part the decision of the magistrate. In two separate opinions, the judge ruled that, “the record contains more than sufficient information to support the Special Discovery Master’s determination the information requested by the insured did not prove that the carrier “acted frivolously with a dishonest purpose and breached its known duty.” It reasoned that the carrier’s actions amounted to a “pure rule violation” that is “beyond the purview of relevant evidence that can establish bad faith.” A bad faith violation is “analytically distinct” from a rule violation made in an effort to gain an upper hand in ongoing coverage litigation. In order to produce evidence of bad faith, the court concluded, the carrier’s litigation conduct “must be something more than a violation of the operative rules” governing discovery.
Date of Special Master’s Decision: April 24, 2012
Mine Safety Appliances Co. v. North River Ins. Co., 2:09-cv-00348-DSC, 2012 U.S. Dist. LEXIS 132899, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Apr. 24, 2012) (Penkower, Special Discovery Master)
Date of District Court Decisions: September 18, 2012 and September 19, 2012Mine Safety Appliances Co. v. N. River Ins. Co., 2:09cv348, 2012 U.S. Dist. LEXIS 132896, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Sept. 18, 2012) (Cercone, J.)