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Foster v. American Fire and Casualty Co.

United States District Court, E.D. Kentucky, Central Division, Lexington

January 8, 2015

ERNEST FOSTER, Plaintiff,
v.
AMERICAN FIRE AND CASUALTY COMPANY and PHILADELPHIA INDEMNITY INSURANCE COMPANY, Defendants.

MEMORANDUM OPINION & ORDER

GREGORY F. VAN TATENHOVE, District Judge.

After sustaining injuries in an automobile accident, Plaintiff Ernest Foster sought underinsured motorist (UIM) benefits from Defendants American Fire and Casualty Company and Philadelphia Indemnity Insurance Company. The parties failed to settle Foster's claim, so he brought this action claiming breach of contract and bad faith. Both defendants have moved to bifurcate trial and stay discovery on Foster's bad faith claims until the underlying contract claim for UIM benefits is resolved. The Court agrees that bifurcation is appropriate and will GRANT Defendants' motions.

I

On June 8, 2008 Plaintiff Ernest Foster was involved in an auto accident with Gary Washabaugh. As a result of the knee and leg injuries he sustained during the collision, Foster underwent knee surgery on October 29, 2009. [Amended Compl., R. 26 at ¶ 14]. Since then, he has been unable to return to his work as an auto mechanic, and his doctors' permanent restrictions on his activity leave him totally disabled. [ See id., R. 26 at ¶¶ 14, 29.] Foster settled with Washabaugh and recovered the policy limit ($25, 000) from Washabaugh's insurer. [ See Pl.'s Resp., R. 37 at 1.]

Foster alleges that his medical expenses, wage loss, and impairment exceeded $25, 000, [ see Amended Compl., R. 1-2 at ¶¶ 6-7], so he sought underinsured motorist (UIM) benefits from his insurers, American Fire and Casualty Company and Philadelphia Indemnity Insurance Company. Each of the insurers eventually agreed to provide UIM coverage for Foster's expenses arising from the accident. [Amended Compl., R. 26 at ¶ 28.] On three separate occasions, the insurers offered a combined $7, 500 settlement for Foster's UIM claims. [Amended Compl., R. 26 at ¶¶ 33; 36-37; 51.] Foster declined each of the three offers, claiming that full compensation for his lost wages and future impairment was at least $160, 000, his UIM policy limit. [Amended Compl., R. 26 at ¶¶ 34; 39; 51.]

Foster then filed this action claiming breach of his insurance contract and seeking payment of UIM benefits. [Amended Compl., R. 26 at 2.] He later added statutory and common law claims alleging that the insurers acted in bad faith in failing to settle Foster's claims. [R. 26 at ¶¶ 55-62; ¶¶ 63-70; ¶¶ 71-76.]

Philadelphia Indemnity and American Fire each filed motions to bifurcate Foster's underlying UIM coverage claim from his bad faith claims pursuant to Federal Rule of Civil Procedure 42(b). The insurers also move this Court to stay discovery on the bad faith claims until the contract claim is resolved. [R. 28, 36.]

II

A

Federal Rule of Civil Procedure 42(b) provides that, in order to promote "convenience, to avoid prejudice, or to expedite and economize, " a court may try any claim separately from the remaining claims. Fed.R.Civ.P. 42(b). This decision is within the sound discretion of the court. Smith v. Allstate Ins. Co., 403 F.3d 401, 407 (6th Cir. 2005). In determining whether separate trials are appropriate, a court should consider several factors, including "the potential prejudice to the parties, the possible confusion of the jurors, and the resulting convenience and economy." Wilson v. Morgan, 477 F.3d 326, 339 (6th Cir. 2007) (internal quotation marks and citations omitted). Courts look to case-specific facts in this determination, and the party seeking bifurcation has the burden of showing that separation of issues is the most appropriate course. Weathers v. Healthcare Servs. Grp., Inc., No. 3:13-CV-01196-TBR, 2014 WL 3349752, *1 (W.D. Ky. July 9, 2014).

B

In this diversity action, the Court applies the substantive law of Kentucky. Hayes v. Equitable Energy Res. Co., 266 F.3d 560, 566 (6th Cir. 2001) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). Kentucky generally requires that breach of insurance contract and bad faith insurer claims be tried separately. Wittmer v. Jones, 864 S.W.2d 885 (Ky. 1993). The Kentucky Supreme Court in Wittmer offered two reasons for requiring bifurcation in this context. First, evidence regarding liability insurance - central to a bad faith claim but irrelevant to a determination of the tortfeasor's liability - may be unnecessary and unfairly prejudicial on the preliminary question of liability. Parrish v. State Farm Mut. Auto. Ins. Co., 2014 U.S. Dist. LEXIS 5055, *2 (W.D. Ky. Jan. 15, 2014) (citing Wittmer, 864 S.W.2d at 891).

Second, because the resolution of a contract claim could be dispositive for the entire case, the interests of judicial economy are often better served by bifurcation. Nationwide Mut. Fire Ins. Co. v. Jahic, 2013 U.S. Dist. LEXIS 1798, *8, 2013 WL 98059 (W.D. Ky. Jan. 7, 2013) ("[C]ourts have consistently bifurcated cases where resolution of a single claim would be dispositive of the entire case."); e.g., Smith v. Allstate Ins. Co., 403 F.3d 401, 407 (6th Cir. 2005) (affirming bifurcation of proceedings where plaintiffs' bad faith claims depended on the success of their contract claims). Under Kentucky law, three elements must be shown in order to make out a bad faith case:

(1) the insurer is obligated to pay the claim under the terms of the policy; (2) the insurer lacks a reasonable basis in law or fact for denying the claim; and (3) the insurer either knew there was no reasonable basis for denying the claim or ...

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