Pennsylvania Superior Court Panel Has Found That an Insured's Conduct Is Not Subject to Scrutiny in a Subsequent Bad Faith Law Suit

Pennsylvania – Bad Faith

Key Points:

  • Although the work product doctrine does not attach to an attorney's file after the subject litigation concludes, an insurer defending a bad faith action must make a showing of relevancy in order to discover plaintiff's counsel's file from the underlying litigation.
  • Only that portion of a collateral order that falls within the appellate court's narrow collateral order jurisdiction is reviewable on appeal.


In Rhodes v. USAA Casualty Ins. Co., 2011 Pa. Super. LEXIS 612, the Superior Court reversed the Court of Common Pleas of Blair County's order that USAA was entitled to "non privileged" documents contained with the Rhodes' attorney's file concerning William Rhodes' underinsured motorist claim. The court agreed with the Rhodes' argument that the outcome of a bad faith cause of action turns upon the conduct of the insurer and not the insured. While it recognized that the work product doctrine does not continue to protect an attorney's file once the litigation concludes concerning the underlying claim for which the mental impressions, conclusions and opinions were formed, the court determined that the information was not relevant to USAA's defense of the subsequent bad faith claim. Nonetheless, in footnote 6 of the opinion, the court left the door open to the discoverability of an insured's attorney's underlying file if the insurer could show its relevancy in the bad faith action.

William Rhodes' underinsured motorist claim arose out of a July 1, 2000, motorcycle accident. He received a total of $65,000 from the tortfeasor's carrier and the first layer of UIM coverage. The Rhodes' counsel presented Mr. Rhodes' medical records and alleged damages to USAA in May of 2002. Counsel demanded to settle for $175,000 out of the available $200,000 limits. USAA rejected the demand because it concluded that there was insufficient evidence of causation of Mr. Rhodes' claimed neck injury. Instead, it offered $5,000, based on a $70,000 valuation. After litigation of the UIM claim, during which time Mr. Rhodes had neck surgery, USAA and the Rhodes ultimately agreed to resolve the claim for $175,000.

The court in Rhodes determined that USAA had not made a sufficient showing of the relevancy of the Rhodes' attorney's underlying file, despite the fact that the Rhodes' counsel had failed to provide a privilege log during the course of discovery. Although the opinion acknowledged that a privilege log should have been provided, it did not remand the case to cure that defect. The court nevertheless recognized that an insurance carrier is not responsible for information that is not within its possession, and it also seemed to conclude that the insured's burden of proof of bad faith by clear and convincing evidence offset any prejudice that the carrier could suffer by not being able to discover a bad faith claimant's attorney's work product.

As of this time, there is no other Pennsylvania state or federal reported decision addressing an insurer's entitlement to discover information about what an insured knew about his or her claim and when it was known and compare it to what was submitted to the carrier and when. We believe and continue to maintain that where a bad faith lawsuit is premised upon an underlying dispute about valuation and alleged delays in settling that underlying claim, the attorney work product is fair game for both sides to discover. The Rhodes outcome is a "Catch 22." USAA could not make a sufficient showing of the need for any specific information in the Rhodes' attorney's file because it didn't have the file that it sought. The only facts of record it could develop before the court were those known to USAA. It was never able to develop any additional facts known only to the Rhodes and their attorney. It could not compare the timing of when information was known to the Rhodes and when they submitted that information to USAA.

An insurer's conduct can only be scrutinized properly if the trier of fact has all of the relevant facts. The duty of good faith and fair dealing exists on both sides of an insurance contract. Once an insured alleges that his or her carrier committed bad faith during the handling of a claim, the insured should have to disclose information concerning the manner in which the claim was presented to the carrier. When the insured's attorney is the filter of the information that is submitted to the insurer, the insured's attorney's file is relevant and should be subject to full disclosure.

In Rhodes, the insured plaintiffs were able to appeal the lower court's discovery order because it met the definition of a collateral order under Rule 313 of the Pennsylvania Rules of Appellate Procedure. Whether discovery sought is privileged is an issue that is collateral to the principal action. Rhodes, supra, citing T.M. v. Elwyn, Inc., 950 A.2d 1050 (Pa. Super. 2008). Procedurally, the Superior Court rejected the Rhodes' argument that USAA had not properly subpoenaed their counsel's file from their counsel. That contention relates to the trial court's application of the discovery rules and fell outside of the court's narrow collateral order jurisdiction. Only that portion of the order that is collateral is subject to review. Rhodes, supra, citing Rae v. Pennsylvania Funeral Directors Assoc., 977 A.2d 1121 (Pa. 2009).

USAA has not sought review of the Rhodes opinion. The matter remains pending in the Court of Common Pleas of Blair County. While it will be difficult in the future for an insurance carrier to obtain an insured's counsel's work product concerning an underlying matter giving rise to a bad faith lawsuit, the door remains open for that pursuit. The Superior Court has recognized that the work product protection expires upon conclusion of the underlying litigation and that counsel's file could be discoverable upon a showing of relevancy. Although USAA did not have the benefit of a privilege log, it is unlikely that a bad faith plaintiff would be able to avoid that requirement. We will continue to seek the insured's attorney's work product in bad faith discovery and distinguish the Rhodes holding upon its facts. We recommend that insurers take steps from the inception of a bad faith lawsuit to begin to outline the specific type of information that will be necessary to obtain from its insured's attorneys in order to achieve an even playing field at trial.

*Trish is a shareholder in our Pittsburgh, Pennsylvania, office and can be reached at 412.803.1151 or

Defense Digest, Vol. 17, No. 3, September 2011