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Bifurcation of Bad-Faith Claims
Recently, federal courts across the country have ruled on insurers' motions to bifurcate bad-faith litigation; i.e., motions to separate and stay discovery and/or the trial of the bad-faith claims from the insured's claim for coverage. The most recent rulings in cases where insureds opposed bifurcation are mixed, but the majority appear to favor insureds and deny the carriers' motions to bifurcate. For examples of cases denying bifurcation motions, see Wagner v. Allstate Ins. Co., 2016 U.S. Dist. LEXIS 6364 (Jan. 19, 2016); Bitpay, Inc. v. Mass. Bay Ins. Co., ___ F.Supp. 3d ___, 2016 WL 1105263 (March 17, 2016); Brown v. Allstate Prop. & Cas. Ins. Co., 2015 WL 6739143 (M.D. Ala. Nov. 3, 2015). For examples of cases granting bifurcation motions, see Kermeen v. State Farm Ins. Co., 2015 WL 4727646 (D. Neb. Aug. 10, 2015); Holloway v. Ohio Sec. Ins. Co., 2015 WL 6870141 (W.D. Ky. Nov. 4, 2015).
Bifurcation
The theory behind bifurcation is that typically, unless and until the court determines there is coverage for the claim at issue, the insured's bad-faith claim fails as a matter of law. Though, as recently pointed out by the Eastern District of Pennsylvania: “[c]ourts have extended the concept of 'bad faith' beyond an insured's denial of a claim in several limited areas.” Northwestern Mut. Life Ins. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005). For example, insurers that unreasonably delay the evaluation of their insured's claim, even if the insurer's ultimate assessment of the claim proves to be correct, may be found to have acted in bad faith. See e.g. Willow Inn, Inc. v. Pub. Serv. Mut. Ins., 399 F.3d 224, 235 (3d Cir. 2005) (citing Klinger v. State Farm Mut. Auto. Ins., 115 F.3d 230, 236 (3d Cir. 1997)) (“Pennsylvania's bad faith statute provides insurance claimants a means of redressing unreasonable delays by their insurers.”); see also O'Donnell ex rel. Mitro v. Allstate Ins , 1999 PA Super 161, ' 15, 734 A.2d 901 (“An action for bad faith may also extend to the insurer's investigative practices.”).
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