MAY 2014 BAD FAITH CASES: IN ENCYCLOPEDIC OPINION ON SEALING DOCUMENTS TO BE FILED IN COURT AS PART OF SUMMARY JUDGMENT MOTION, COURT OBSERVES THE PRESENCE OF A PUBLIC INTEREST IN BAD FAITH DISPUTES WITH INSURERS; AND ADDRESSES CIRCUMSTANCES OF WHEN COMMUNICATIONS BETWEEN INSURED AND INSURER, WHICH INCLUDED PRIVILEGED DOCUMENTS BETWEEN INSURED AND ITS COUNSEL, MAY RESULT IN THE LOSS OF THE ATTORNEY CLIENT PRIVILEGE (Western District)
Mine Safety Appliances Co. v. North River Insurance Company involved breach of contract and bad faith claims by the insured against its insurer for alleged failure to cover losses under an umbrella policy. The underlying claims against the insured involved hundreds of asbestos actions. At issue before the court were motions to file documents under seal, and to redact allegedly privileged and/or confidential information from briefs and statements of fact that were going to be part of summary judgment motions.
Judge Cercone goes into a painstakingly detailed analysis of factual and legal issues in reaching his conclusions, and we commend the reader to review is entire opinion. We only recite here the bad faith components of that opinion.
The insured alleged that the insurerfailed and refused to comply with its obligations under the policy; did not pay anything toward the amounts claimed, but instead responded with a carefully and deliberately orchestrated effort to delay and/or avoid payment of proceeds due under the Policy, with the ultimate goal of leveraging the insured into accepting far less than that to which it is entitled under the Policy (and under other excess liability policies that the insurer issued to the insured.
The insured specifically asserted that the insurer did this by:
(a) raising spurious questions regarding exhaustion of another policy;
(b) raising spurious questions regarding the integrity of certain of the insured’s local counsel, when that same local counsel had been relied on for years by other insurers;
(c) positing that the Policy does not obligate it to pay defense costs in addition to limits, when the Policy could not state the insurer’s obligation to do so more clearly;
(d) positing, after the fact, that the insured was required to obtain jury research to substantiate the reasonableness of amounts that it paid to settle certain claims, while never suggesting before the fact that such research was important to the insurer or offering to pay for such research;
(e) positing that the insured’s claims experience in certain jurisdictions is irrelevant to the amounts that plaintiff has paid to settle Underlying Claims that have been presented for reimbursement under the Policy;
(f) demanding that the insured provide reams of historical claims data that is wholly irrelevant to the Underlying Claims for which the insured has demanded payment under the Policy, and refusing to make such payments until the insured does so (and, even where the insured does so, still avoiding payment by simply issuing a new set of irrelevant and burdensome information requests);
(g) refusing the insured’s invitations to discuss directly with the insured’s local and national counsel the basis for settlement recommendations that the insured’s local counsel has made;
(h) withholding from the insured information that the insurer has learned in connection with other of its insureds who, like the insured, are facing thousands of toxic tort claims in jurisdictions that are widely regarded as “plaintiff friendly,” and otherwise refusing to share its own expertise (on matters such as jury awards and settlement amounts that occur in various jurisdictions throughout the United States) with the insured;
(i) eschewing its fiduciary obligation to work in a collaborative fashion with [plaintiff] to successfully defend and resolve Underlying Claims in favor of an inexplicably hostile and adversarial approach to [plaintiff]; and
(j) refusing to pay any Underlying Claims until the insured has provided claims information that goes far beyond what the Policy, the law, and even the insured’s other insurers, require.
The insured further asserted that the insurer acted in bad faith by
(a) failing and refusing to honor demands for reimbursement under the Policy without any adequate basis under the Policy or at law,
(b) failing to pay proceeds under the Policy that are due and owing,
(c) concocting various excuses, none of which have any merit under the Policy or at law, for delaying, and/or refusing to make, payment of amounts that are due and owing under the Policy;
(d) engaging in improper claims-handling tactics,
(e) using improper claims-handling tactics in an effort to pressure the insured into accepting less than that which it is owed under the Policy;
(f) raising spurious questions regarding exhaustion of underlying insurance, and the integrity of the insured’s defense counsel, without any reasonable or good faith basis to do so;
(g) refusing to share with the insured its own expertise or knowledge such that the insured may defend itself against the Underlying Claims more effectively; and
(h) dealing with the insured in an adversarial manner, and not in a cooperative manner or as a fiduciary.
In terms of conducting its analysis of public right to access vs. placing documents under the seal, the court stated the following as to the bad faith issues. It observed that the insured had challenged the insurer’s claims-handling, including the formulation of its position on the availability of coverage under the policy, and accused the insurer of orchestrating a scheme to squeeze the insured into accepting less than it was entitled to under the bad faith statute.
The court stated that although the term “bad faith” on the part of an insurer is construed as encompassing “any frivolous or unfounded refusal to pay proceeds of a policy” and ordinarily imports “a dishonest purpose and means a breach of a known duty (i.e., good faith and fair dealing, through some motive of self-interest or ill-will, the statue does not require a plaintiff to prove that the insurer consciously acted pursuant to such a motive or interest; it is enough if the insurer recklessly disregarded the lack of a reasonable basis in denying benefits.
The court found that such assessments are matters of public importance. Rulings and/or determinations in this area have the potential to impact concretely the legal rights of other carriers and/or insureds not before the court.
The court then observed that the parties’ dispute arises under standard form provisions commonly used in the insurance industry. The resolution of the issues to be raised has the potential to impact (1) the duties and obligations of other carriers from which plaintiff has sought or will seek coverage, (2) the availability of insurance coverage for a great number of third-party claimants who have brought personal injury and wrongful death against plaintiff, and (3) other insureds, claimants and carriers that have been or are presented with similar underlying claims.
The parties disagree about core concepts under the policy and related law, such as whether proper exhaustion has occurred; whether defendant has rights of contribution from other carriers; the limits of the policy; whether defense costs are in addition to the limits on indemnification; whether plaintiff can avail itself of the procedures in J. H. France Refractories and designate defendant as the carrier to respond to the tendered claims; the appropriate trigger of coverage for asbestos, silica, coal-mine-dust and similarly related claims; whether defendant properly has fulfilled its claims-handling responsibility; whether defendant’s chosen course of conduct can give rise to liability under Pennsylvania’s bad faith insurance practices statute; whether plaintiff’s claims-handling and settlement practices satisfy the requirements and obligations under the policy and so forth.
Thus, it was readily apparent to the court that the parties’ dispute was not a garden-variety personal injury or breach of contract claim and its resolution had the potential to affect the rights and remedies of other carriers, insureds and third-party claimants, clearly involving issues of public importance that have the ability to affect directly and indirectly the rights of others not before the court. Consequently, the test for overriding the right of access must be applied with recognition of these potential consequences.
In one other aspect of this encyclopedic opinion, the court addressed the plaintiff’s assertion of the attorney client privilege in determining whether certain materials should be placed under seal because they embody privileged communications.
The court took the position that attorney-client communications were not automatically subject to disclosure simply because the client’s state of mind was at issue; citing insurance bad faith cases on that point.
The court further examined the common interest (different parties with different counsel sharing information in their common interest) and co-client (different parties with the same counsel) exceptions to the privilege where disclosure to third parties may still be barred, but not disclosures as between the parties in these circumstances.
It observed the split in authority on whether the insurer in the tri-partite relationship is a co-client with the insured. In this case, however, neither exception applied to prevent disclosure to third parties as the insurer never provided or participated in the defense of the insured.
The court further found that in the absence of the protective order, any privilege attaching to the materials and testimony that have been produced by the plaintiff were waived for at least two basic reasons: (1) disclosure to a third party and/or (2) being placed at issue in relation to plaintiff’s breach of contract and bad faith claims and the insured’s defense against the insurer’s position on exhaustion and meeting the prerequisites to the grant of coverage.
Thus, the insurer had become a third-party to the underlying communications between (a) plaintiff and its underlying defense counsel; (b) plaintiff, its underlying defense counsel and its insurers; and (c) plaintiff’s insurer and its coverage counsel; and its disclosures were not for the purpose of obtaining legal advice. Again, we commend the reader to Judge Cercone’s opinion on the details on how this affected the sealing of these documents.
