Eastern Federal District Court Addresses Addresses Motion to Stay/Discovery Issues in Post-Koken Bad Faith Context

In the case of the post-Koken case of Wagner v. Allstate Ins. Co., No. 5:14-cv-07326 (E.D. Pa. Jan. 19, 2016 Leeson, J.), Judge Joseph Leeson of the Federal Eastern District Court of Pennsylvania refused the UIM carrier’s effort to stay the Plaintiff’s bad faith claim but, in the end, rejected most of the insured’s bad faith discovery requests.  

According to the Opinion, the UIM carrier’s primary argument in favor of its request for a stay on bad faith discovery was that, to allow such bad faith discovery would require the UIM carrier to give up protection for work product that it prepared in anticipation of litigating the underlying breach of contract UIM claim.   The court rejected this argument and asserted that a “mere claim of bad faith is not shattered the work-product privilege.”  

Overall, the court found that a stay of bad faith discovery is not required to eliminate any prejudice or to promote economy.   The court observed the different terms in granted or denying stays of bad faith discovery in Pennsylvania’s state in federal courts but attributed this split in authority, in part, to the fact that bad faith is tried by a judge in the state court but by a jury in the federal courts.  

In reviewing the bad faith discovery issues as applied to work-product issues, the court found that an insurance company could not reasonably argue that the entirety of its claims file materials are accumulated in anticipation of litigation.   However, the court also stated that this did not mean that the work-product doctrine was wholly in applicable to insurers’ claims files.   The court stated that, at some point in its investigation, an insurance company’s activity shifts from mere claims evaluation to an anticipation of litigation.  

Accordingly, the court rejected the Plaintiff’s assertion that all of the insurers’ claims and investigation files were created in the ordinary course of business.  Rather, the court in Wagner found that “[w]hether Plaintiffs may be entitled to a subset of that information would hinge upon a fact-specific inquiry into the nature of the information that they seek, when [the insurer] reasonably anticipate litigation, Plaintiffs’ need for the particular information, and whether they can obtain the information through other means.”  

The court further noted that this inquiry requires very specific arguments and typically the need for an in-camera review of the documents by the court.   Here, the Plaintiffs were found to have made no such arguments as it was the Plaintiff’s primary position that there was no work-product privilege.  Accordingly, the Motion was denied, but without prejudice.  

Judge Leeson did go on to determine the date when the insured was deemed to have reasonably anticipated litigation.   The court found that that date occurred after the insured’s first demand for the policy limits because the carrier had asked for certain information to be able to evaluate the claim and the demand.   The court found that it was only after receiving that information that litigation could have reasonably been anticipated.  

The court also noted that, even materials prepared after litigation was reasonably anticipated by the carrier might turn out to be discoverable if exceptions to the work-privilege could be established by the Plaintiff.  In other words, if the Plaintiffs were able to show that they have a substantial need for the particular materials and cannot, without undue hardship, obtain those materials or their substantial equivalent by other means, Plaintiffs may be permitted to obtain the discovery they seek, provided that the discovery did not include mental impressions, conclusions, opinions, or legal theories of the carrier, its attorneys, or other representatives.  

Anyone wishing to read the Wagner v. Allstate case online may click this LINK.  
Source:   Pennsylvania and New Jersey Insurance Bad Faith Case Law Block (March 15, 2016) at www.pabadfaithlaw.com