Eizen Fineburg & McCarthy, P.C. v. Ironshore Specialty Ins. Co., No. 2:16-cv-02461-JHS, 2017 WL 194226 (E.D. Pa. Jan. 18, 2017)
On January 30, 2011, law firm Eizen Fineburg & McCarthy, P.C. (“the Firm”), purchased a policy of professional liability insurance from Ironshore Specialty Insurance Company (“Ironshore”). During the policy’s one-year term, the Firm requested coverage from Ironshore for two separate but related lawsuits. Ironshore covered the first claim, but refused coverage of the second. The Firm accrued attorneys’ fees in excess of $1.3 million in its ultimately successful defense of that second action. The Firm then sued Ironshore for breach of contract and common law and statutory bad faith.
After removing the state court action to federal court, Ironshore filed a motion to bifurcate and stay the bad faith claims for purposes of discovery and trial. In its motion, Ironshore primarily argued that because the bad faith claims could not survive in the absence of a finding that it had breached the policy terms, it would be wasteful to litigate the bad faith claims without first determining the viability of the breach of contract claim.
The Firm, and ultimately the court, disagreed. The court accepted the Firm’s argument that the success of the bad faith claims would not depend entirely on the success of the breach of contract claims, and therefore that staying those claims would not save time or resources. Noting that the concept of bad faith can extend beyond an insured’s denial of a claim, the court observed that a “sizeable majority” of the federal district courts in Pennsylvania have refused to stay bad faith claims against insurers until the underlying coverage issues are resolved.
In its analysis of Ironshore’s motion, the court first examined the convenience to the parties and the impact on judicial economy and found that it would be more convenient and efficient to try the breach of contract and bad faith claims together. The court found that two aspects of the bad faith actions included conduct separate from the breach of contract claim: (1) that Ironshore failed to conduct a reasonable investigation of the claim; and (2) that it unreasonably delayed a decision on the claim. Both of these theories of liability necessarily would involve investigation of practices extraneous to the policy itself.
In addition, the court found that Ironshore would not be prejudiced by incurring additional expense by defending both the breach of contract and bad faith claims simultaneously. In particular, the court noted that the possibility of incurring additional costs to prepare or depose bad faith witnesses does not constitute prejudice, particularly where the bad faith claim might survive independently from the breach of contract claim. The court also found Ironshore’s argument that discovery on the bad faith claim would raise privilege issues unavailing—according to the court, those issues would have to be litigated anyway, regardless of timing.
Lastly, the court noted that contrary to Ironshore’s assertions, it was not necessary to assess the bad faith claims on the merits to determine if bifurcation was warranted. As the litigation was in a preliminary stage and evaluation of the merits was not possible, the court found that it was appropriate to look only to the convenience of the parties, limits to prejudice, and the interests of judicial economy.
