Legal Update for Insurance Services
Eastern District of Pennsylvania Grants Insurer’s Motion to Bifurcate and Stay a Bad Faith Claim
Magistrate Judge Timothy Rice of the Eastern District of Pennsylvania recently granted an insurer’s motion to bifurcate and stay the bad faith claim in the context of an underinsured motorist benefits case with a threshold coverage question.
In Gramaglia-Parent v. Travelers Home and Marine Ins. Co., 2:20-cv-03480 (E.D. Pa. Dec. 22, 2020) (Rice, Mag. J.), the insured was involved in an accident while occupying a vehicle owned by her husband and insured on its own policy of insurance. She submitted a UIM claim under her own personal auto policy, issued by Travelers, which did not insure the vehicle in which she was occupying. Travelers denied the insured’s claim based upon an exclusion in the policy.
After the denial, the insured brought suit against Travelers and included a count for breach of contract relating to her UIM claim and a count for statutory bad faith relating to the denial of that claim.
Initially, Travelers filed a motion to dismiss the bad faith claim, which was denied by Judge Paul S. Diamond. Judge Diamond found the allegations, that Travelers’ denial based on an exclusion and its affirmation of that denial after plaintiff’s counsel claimed it was not valid after Gallagher, were sufficient allegations of bad faith to survive the motion to dismiss.
Thereafter, the parties mutually consented to the jurisdiction of a magistrate, and this case was reassigned to Magistrate Timothy Rice.
Subsequently, Travelers filed a motion to bifurcate and stay the bad faith claim. Magistrate Rice agreed with Travelers and granted the motion. The court highlighted that the two counts have different considerations. The breach of contract claim entails whether the policy covers her injuries or if the exclusion applies, and the bad faith claim, in contrast, centers on Travelers’ evaluation and investigation of the claim, motive and response to the insured. The court further determined that the bad faith claim involves “allegations of unreasonable and reckless behavior and requires a higher burden of proof, it could also confuse the jury and cause prejudice to Travelers.” Importantly, the court noted that the cases relied upon by the insured which denied bifurcation were claims disputing the insurer’s valuation and not whether coverage existed.
The court also agreed with Travelers’ argument that, since the insured’s bad faith allegations were related to the denial of her claim based upon a threshold question of coverage, resolution of that claim first might moot the insured’s bad faith claim.
Therefore, the court bifurcated the bad faith count and stayed discovery on the bad faith claim to avoid undue prejudice and promote judicial economy and efficiency.
This case is a significant victory for insurers as there remains a split of authority in Pennsylvania as to whether motions for bifurcation will be granted. The important feature of this opinion is that the breach of contract count hinges on a threshold coverage question and not a valuation dispute.
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