AUGUST 2016 BAD FAITH CASES: INSUREDS’ ATTORNEY WHO CARRIED OUT CLAIM NEGOTIATION WITH CARRIER WAS A CENTRAL FACT WITNESS, AND WAS DISQUALIFIED BY THE COURT, AFTER THE COURT RAISED THE ISSUE SUA SPONTE (Philadelphia Federal)
In this UIM bad faith case, the insured’s counsel was also the sole person who communicated with the claims adjuster in attempting to negotiate the UIM claim. The parties were over $1,000,000 apart in settlement negotiations, and the insureds subsequently brought a breach of contract and bad faith action. The same counsel who negotiated with the insurance carrier also represented the insureds in bringing the bad faith claim.
There was no question that this counsel’s testimony was critical to both the insured’s affirmative claims for bad faith relief and the insurer’s defense. Further, counsel’s testimony conflicted with the adjuster’s going directly to the evidence of bad faith in the claims handling process. After summary judgment was denied and the case was to head to trial, the court sua sponte raised the issue as to whether counsel had to be disqualified under Rule of Professional Conduct 3.7 because counsel was to be a witness. Counsel was a solo practitioner.
The court disqualified counsel. The court found that “equities plainly weigh in favor of disqualifying” counsel, and that allowing counsel to handle the case as a lawyer and be a principal witness would “compromise the integrity of the tribunal.” As “a solo practitioner and sole counsel for the plaintiffs, [counsel] cannot effectively represent her clients while she is testifying at trial.” The court found “a real danger that the finder of fact would be unable to discern when she is acting in her role as an attorney and when she is testifying as a fact witness.”
Although the insurer did not move to disqualify counsel “in previously moving to obtain [counsel’s] deposition and in its brief on the current subject matter, [the carrier] has taken the position that [counsel’s] conversations with [the adjuster] render her a central fact witness in this case.” While recognizing disqualification would burden the insured: “This burden on the plaintiffs is minimal in comparison to the numerous factors weighing in favor of disqualification.” “Moreover, the plaintiffs and [counsel] knew that [counsel’s] testimony would be a central issue when they filed this lawsuit.” Of significance, the insureds would not be left without an attorney to go to trial. “At a hearing on thissubject, [counsel had] informed the court that she would be able to assist the plaintiffs in locating a new attorney without much trouble.
