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Bifurcation/Severance of Bad Faith Claims in the Pennsylvania Federal District Courts

March 24, 2017

The decision in Insurance Federation of Pennsylvania v. Koken, 889 A.2d 550 (Pa. 2005), radically changed the landscape of UM/UIM litigation. Since then, attorneys and courts have struggled with the practicality of litigating cases that include both UM/UIM claims as well as bad faith claims. One of the major issues that has yet to be conclusively resolved is whether a count for entitlement to UM/UIM benefits can proceed simultaneously with a bad faith count. Relatedly, courts continue to consider the implications for the litigation process where bifurcation or severance and stay are denied.

In the last several years, published opinions out of the Eastern District of Pennsylvania have almost uniformly rejected requests to bifurcate or sever and stay, but a recent decision by the Eastern District shows that the issue has not yet been fully settled and that there are cases where such relief will be granted. In Corley v. National Indemnity Co., 2016 U.S. Dist. LEXIS 52017 (E.D. Pa. Apr. 18, 2016), Judge Baylson granted the insurer’s motion to bifurcate and stay the bad faith count. The court in Corley found that under the right circumstances, such a decision was the proper path. In that case, those circumstances included the fact that discovery on the UIM claim was largely complete at the time of the motion, whereas the bad faith claim required substantial additional discovery. The court also noted that it had approved of bifurcation of bad faith claims previously and that this was also a case in which such an outcome was “appropriate.” The court explained that “on this record, bifurcation is appropriate as a matter of fairness, efficiency, and the conservation of judicial resources.” Corley, 2016 U.S. Dist. LEXIS 52017, at *2 (E.D. Pa. Apr. 18, 2016). It remains to be seen if this decision will make other judges in the district more open to bifurcation or severance and stay on this issue, but it shows that the case law remains unsettled.

Another decision from the Eastern District of Pennsylvania is significant for its discussion of prejudice to the insurer and its pointed discussion of the implications for insureds when they plead both UM/UIM and bad faith counts in their complaints. In Wagner v. Allstate Insurance Co., 2016 U.S. Dist. LEXIS 6364 (E.D. Pa. Jan. 19, 2016), Judge Leeson denied a motion to reconsider an earlier decision denying the requested stay. Insurers often argue in such motions that they would be forced to their prejudice to compromise their work product, which was evidence arguably relevant to the bad faith claim, but protected with respect to the UIM claim. The insurer in Wagner also made this argument.

In its discussion, the court disagreed with the insurer’s framing of the prejudice issue, finding that if the insurer could prove it was entitled to rely on the work product doctrine, the mere presence of a bad faith count would not remove that entitlement. The court found that insureds—not insurers—were the parties suffering prejudice where the counts proceeded together. The court explained: “If discovery proceeds on the two claims simultaneously, Plaintiffs may be deprived of information that Allstate would otherwise be willing to provide without objection, while a stay of the bad faith claim would subject Plaintiffs to the time and expense of having to participate in two separate rounds of discovery (and inevitable motion practice) accompanied by two separate jury trials. For Plaintiffs, neither alternative is free from hardship.” Wagner, 2016 U.S. Dist. LEXIS 6364, at *10. Perhaps insureds, then, have more difficult strategic decisions about how to proceed with these claims than recognized in court decisions before Wagner. Even though the insurer did not succeed in obtaining the relief it sought with its motion, this decision provides support for insurers with respect to one of the main concerns raised with such motions—the potential for prejudice by being forced to disclose work product. The Wagner court’s explicit recognition that insureds may give up their access to work product where they plead UM/UIM and bad faith counts together may provide an alternative argument for insurers to raise with the courts, short of bifurcation or severance and stay.  

Disclaimer: This post does not offer specific legal advice, nor does it create an attorney-client relationship. You should not reach any legal conclusions based on the information contained in this post without first seeking the advice of counsel.

About the Author:  

Lindsay B. Andreuzzi is a Principal in the Firm's Insurance Law Department. She focuses her litigation practice on advising and defending personal, commercial and surplus line insurers in complex insurance coverage matters and allegations of bad faith claims handling. Learn More >>