Tuesday, February 28, 2012

Erie County Court of Common Pleas Severs Post-Koken Breach of Contract and Bad Faith Claims

In his February 22, 2012 Erie County Opinion and Order in the case of Santos v. Erie Insurance Exchange, No. 12835-Civil-2011 (C.P. Erie Co. Feb. 22, 2012 Connelly, J.), Judge Shad Connelly granted the carrier’s Motion to Sever the Plaintiffs’ UIM breach of contract claim and bad faith claim in a post-Koken matter. The Court also sustained the Defendant’s Motion to Strike claims for punitive damages and attorney’s fees asserted under the breach of contract portion of the claim.

According to the Opinion, after a motor vehicle accident, the Plaintiff filed suit against Erie Insurance Exchange as the UIM carrier alleging a breach of contract and bad faith. The Defendant carrier responded by filing Preliminary Objections seeking, in part, to severe the breach of contract and bad faith claims for purposes of discovery and trial.

In the Opinion, the court noted that the Defendant had also separately filed a Motion to Stay Discovery related to the bad faith claim along with a Motion for Protective Order blocking the depositions of the Defendant’s claims adjuster. According to the Opinion, that separate motion was granted in terms of the stay of discovery and any deposition of the claims representative was limited to matters related to the breach of contract claim.

With regards to these Preliminary Objections at issue, the Defendant carrier argued that the breach of contract and bad faith claims should be severed so as to “facilitate the orderly presentation of evidence…and promote judicial economy.” The Defendant carrier also asserted that the bad faith discovery must be stayed because internal claims handling procedures, mental impressions of the claims handlers, and the Defendant carrier’s policies and procedures were not discoverable for purposes of UIM trial.

The Plaintiffs countered by arguing that the manner in which the Defendant performed under its contract was clearly relevant as to whether or not it breached a contract. The Plaintiff also asserted that a severance of the claims would not promote judicial economy.

In his Opinion, Judge Connelly confirmed that the Pennsylvania appellate courts have not yet ruled on the propriety of staying discovery in these types of cases.

Relying upon the severance rule found under Pa. R.C.P. 213(b), and the cases construing that rule, as well as a number of post-Koken trial court decisions on the issue from around the Commonwealth, Judge Connelly ruled that the breach of contract claim and the bad faith claim should be severed.

Concisely, Judge Connelly found, as have other court decisions on the issue, that "[i]t is in the best interests of judicial economy and fairness to stay discovery related to the bad faith claim until after disposition of the underlying claim.” Santos at p. 6. Accordingly, the Court granted the Defendant carrier’s Motion to Sever the claims for trial and discovery.

The Court also granted the Defendant carrier’s Motion to Strike the Plaintiff’s claim for punitive damages and attorney’s fees as to the breach of contract claim. The Court noted that, under Pennsylvania law, these types of damages are not recoverable under a breach of contract action. In so ruling, the Court pointed out that the Plaintiff essentially agreed with this position of the Defendant on this issue in terms of the breach of contract claim only.

I thank the prevailing attorneys Gregory P. Zimmerman and Craig Murphey of the Erie, Pennsylvania law firm of MacDonald, Illig, Jones & Britton, LLP for advising me of this decision.

Anyone desiring a copy of this decision in the case of Santos v. Erie Insurance Exchange may contact me at dancummins@comcast.net.

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