Insurance Claims and Bad Faith Law Blog

Other Bad Faith: Discovery (Not in New York Federal Case).

     Bad Faith in discovery can lead to striking a pleading or entering a default judgment as a sanction.  Kenneth_v. Nationwide Mut. Fire Insurance Co. (W.D.N.Y. Case No. 03CV521F, Opinion Filed Nov. 13, 2007).pdf at page 26 of the linked official report from the Court's public web site; also available by subscription as 2007 WL 3533887 at page *13.  "Nevertheless, the severe sanction of dismissal of a lawsuit under Rule 37 should be imposed only under extreme circumstances, [citation omitted], and not unless the failure to comply with a pretrial production order results from willfulness, bad faith, or fault of the sanctioned party, [citation again omitted].  Open and unequivocal defiance of court ordered discovery is, notwithstanding, sufficient to support a finding of bad faith or willful misconduct supporting the severe sanction of dismissal of a pleading."  Id. at 27; 2007 WL 3533887 at *13.

     In this recent decision, the Federal Court found that the record did not warrant "the extreme sanction of dismissing the Complaint".  Id. at 28; 2007 WL 353887 at *14.  The Federal Court went on, however, to address the Defendant Insurance Company's particularized Motion to Compel specifically further directed to 8 Interrogatories and granted the Motion as to 7 of the 8 Interrogatories.

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No Bad Faith Claim, Coverage Not Decided: No Claims Handling Discovery.

     Where there is no pending Bad Faith claim, and Coverage is undetermined, GEICO did not have to provide "documents setting forth GEICO's general claims handling practices and procedures," including "among other things, [whether] GEICO trained its examiners regarding 'good faith claims handling,'" Florida's Third District Court of Appeal has recently held:  GEICO v. Rodriguez (Fla. 3d DCA Case No. 3D07.669, Opinion Filed June 20, 2007:  STATED NOT RELEASED FOR PERMANENT PUBLICATION).

     The nature of the lawsuit is interesting.  The appellate court describes it only as an "automobile negligence case".  The Court does not mention it, but in Florida Injured Plaintiffs who sue a Policyholder for "automobile negligence" cannot sue an Insurance Company until they hold a judgment against the Policyholder.  The Rodriguezes sued one Blanchard, a GEICO Policyholder.  Blanchard denied liability and alleged an affirmative defense of settlement.  In the Rodriguez lawsuit against him, Blanchard affirmatively alleged that Blanchard's Insurance Carrier, GEICO, had already settled with the Rodriguezes before they filed their lawsuit against Blanchard.

     The Rodriguezes, according to the appellate opinion, then served or made "discovery requests" upon GEICO including for GEICO's documents setting forth its claims handling practices and procedures and whether it trained its claims handlers in good faith claim handling practices.  This means, since GEICO could not have been a party to the Rodriguez lawsuit against Blanchard, that GEICO was a nonparty in that lawsuit and had to be subpoenaed for these documents.  None of this background is set out in the opinion on appeal, where the appellate court treated GEICO as a party raising an affirmative defense of settlement, or "accord and satisfaction," although only Blanchard could raise that affirmative defense as the ONLY party Defendant in the Rodriguez lawsuit.

     GEICO moved for a protective order, which the Trial Court denied, and the dispute reached the appellate court by a Petition for Writ of Certiorari, or request for a discretionary review of the Trial Court's ruling.  On appeal, the Rodriguezes continued to argue that GEICO "opened the door" to discovery of its claims handling practices because GEICO asserted "the  defense of settlement."   Even though Blanchard the GEICO Policyholder raised the affirmative defense--so that if anyone, Blanchard and not GEICO "opened the door"--the appellate court ignored the procedural posture and went straight to the issue of whether GEICO under these circumstances should be compelled to produce documents concerning its claims handling practices.  The "defense of settlement" was no door opener to such discovery, not in the eyes of the Third District which wrote in its opinion:

    

The argument that GEICO somehow opened the door to inquiry regarding its claims handling procedures by interposing the defense of settlement is without merit.  Either the case was settled, or it was not.  The content of GEICO's internal claims handling procedures is immaterial.

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Postscript to Secrecy.

 A postscript to the concerns about Secrecy in Settlements, which can  particularly be a concern in Bad Faith Cases in many jurisdictions, is found at Insurance Claims and Issues.   In addition to the previous posts found here concerning "Settlement of Bad Faith Claims .... When is That Settlement Confidential and Protected, And When is it Concealment and Void? " on May 23, 2007, and a second post here, addressing potential issues raised by the "World Trade Center Insurance Claims Settlement:  Confidentiality vs. Concealment Revisited" on May 24, 2007, now see also a column, "America's Secret Obsession", published in the Washington Post on Sunday, June 10, 2007 and examined in the postscript on Insurance Claims and Issues.

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World Trade Center Insurance Claims Settlement: Confidentiality vs. Concealment Revisited.

    A post in this space on May 23, 2007 addressed the issue of Confidentiality vs. Concealment in or of Settlements of Bad Faith Claims under Florida law.  It is reported on May 24, 2007 that confidentiality provisions are found in a global settlement of unspecified World Trade Center Insurance Claims resulting from 911:  Charles V. Bagli, "Insurers Agree to Pay Billions at Ground Zero," New York Times Online, May 24, 2007.  It is unclear whether these confidentiality provisions apply to things other than the amount each insurance company participating in the settlement will pay.  It is unknown at this time whether the settlement agreement purports to address Insurance Coverage Claims, or whether it includes any alleged or potential Bad Faith Claims.

     It is also unclear whether discovery could be compelled in a Florida Court, on the ground that Florida law voids as concealment the attempted confidentiality of these settlement agreement provisions contained in a  settlement agreement reached in another State such as New York, in this case.   Further, what New York law may have to say about "confidentiality" vs. "concealment," if anything, is unknown to this writer.  To state the issue is the first step to be prepared for the issue.

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Settlement of Bad Faith Claims .....

  .... When is That Settlement Confidential and Protected,
                 And When is it Concealment and Void?

There may be an issue under Florida law, whether a settlement of Bad Faith Claims can be kept confidential by the parties as a provision of their settlement agreement, even with a Court's approval.   Under Florida Statute Section 69.081(4):

Any portion of an agreement or contract which has the purpose or effect of concealing a public hazard, any information concerning a public hazard, or any information which may be useful to members of the public in protecting themselves from injury which may result from the public hazard, is void, contrary to public policy, and may not be enforced.

    A "public hazard" under this statute includes any "person" or "procedure" "that has caused and is likely to cause injury."  Fla. Stat. § 69.081(1).    No Court shall enter an order or judgment, it is provided in this statute, "[e]xcept pursuant to this section," which order or judgment has, among other things, "the purpose or effect of concealing a public hazard" or "of concealing any information which may be useful to members of the public in protecting themselves from injury which may result from the public hazard."  Id. (3).

  Time and the Courts will tell which settlement of Bad Faith Claims is confidential and protected, and which is concealment and void.

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Abatement, Bifurcation, and Stay: Make My Mind Up!

    Abatement is a defense.  An Insurance Company asks a Judge to "abate" a Bad Faith Claim when the Insurance Company is also sued for Breach of Contract or other Claims.  Bifurcation is similar.  A party asks a Judge to "bifurcate" one Claim from other Claims that have been alleged against a Defendant. This can include "separate trials" such as under Federal Rule of Civil Procedure 42.  Bifurcation should refer, and often is used as a shorthand way to refer, to separate Trials.  Stay is not a defense, as such.  "Stay" usually means a stay of Discovery on one or more Claims or Issues while proceeding with Discovery on other Claims or Issues.

    Abatement, Bifurcation, and Stay each have their separate requirements.  Three recent Federal District Court decisions illuminate and confuse these requirements.   These three Federal Cases involve all sorts of Claims including "Third Party Bad Faith" Claims, "First Party Bad Faith" Claims, Statutory Bad Faith Claims, and Common Law Bad Faith Claims.  (No wonder the results seem on the surface to be confusing.)

    In CNL Hotels & Resorts, Inc.,  Download M.D. Fla. Case No. 6.06cv324, Opinion Filed October 16, 2006).pdf, the Federal District Judge was confronted with Claims pleaded by a Policyholder for Insurance Coverage and also with Claims pleaded for Statutory Bad Faith and, apparently, for Common Law Bad Faith.  The Insurance Policies at issue were described as "liability policies" and the Policyholder argued that they provided "indemnification in regard to a then-ongoing securities class action case."  However, the Plaintiff and the Defendants could not agree if this lawsuit was a First Party or a Third Party Bad Faith Case.  Regardless, the Federal Judge in CNL, applying Florida law, granted Abatement of the Bad Faith Claims until the issue of Insurance Coverage is determined.  The Court also said that the Bad Faith Claims "should be bifurcated" and "are hereby STAYED pending resolution of the coverage claim."

    In the case of Jones v. St. Paul Travelers, Download N.D. Cal. Case No. C 06-00717, Opinion Filed October 16, 2006).pdf, the parties involved in a case pending in California apparently agree that it involves "Third Party Bad Faith" Claims, but they disagree on whether Georgia or California law applies.  The Plaintiffs in this Federal Case are judgment creditors of a judgment previously recovered against Watkins Engineers & Constructors, Inc.  The Federal District Judge decided to apply California substantive law to the two alleged Claims in that case.  One Claim was alleged under California Insurance Code § 11580, which allows a judgment creditor to pursue an action to shift to the shoulders of the current Defendant-Insurance Company, the previous Judgment entered against a Policyholder or other Defendant.   Specifically, the previous Defendant was Watkins, a subsidiary of the Insurance Company's Policyholder.  The second Claim is a Bad Faith Claim "based upon defendants' allegedly unreasonable refusal to pay the judgment obtained against Watkins."  The Federal District Court ordered that "in light of the potential prejudice to defendants," the two Claims should be Bifurcated for Trial, but that "there is no need to bifurcate discovery".

    Parenthetically, on the date of this post, Wednesday, November 8, 2006, the Court entered an Order insulating a settling Defendant Insurance Company, Zurich, from various Claims of co-Defendants based on the Federal Court's determination that Zurich's settlement was in Good Faith:  Download Jones_v. St. Paul Travelers November 8, 2006 Order  Granting Zurich's Motion For Good Faith Determination of Settlement.pdf.

    The third of three Federal District Court cases illuminating and confusing these areas of Abatement, Bifurcation, and Stay is the recent decision in Hoskins v. Allstate Property & Casualty Insurance Co., Download (E.D. Ky. Case No. 6.06.389, Opinion Filed November 2, 2006).pdf.  That Federal Case involves alleged First Party Bad Faith Claims, and also alleged Contract Claims.  The Federal Judge granted Bifurcation of these Claims for Trial.  The Court further held in that Federal Case that "in order to avoid any prejudice," Discovery will be "stayed" regarding the Plaintiffs' Bad Faith Claims "until the underlying contract issue has been resolved."

    The "third time" is not just "the charm," because each one of these three Federal Cases is based on its own reasoning.  The last of the three mentioned here,  Hoskins, presents a clear picture of when Bifurcation or Separate Trials is likely to be ordered under Federal Rule 42, and when Discovery is likely to be Stayed on Bad Faith Claims when other Claims dependent on first proving Insurance Coverage are also alleged.

REMINDER: THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP. ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY IN AND FAMILIAR WITH THE PARTICULAR LEGAL ISSUE, THE JURISDICTION AND ITS LAWS, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.