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Shaffer v. State Farm Mutual Automobile Insurance Co.

United States District Court, M.D. Pennsylvania

March 10, 2014



SYLVIA H. RAMBO, District Judge.

On February 14, 2014, following a conference call with the parties related to a discovery dispute concerning Defendant's redactions to its claims log and based on the representations of counsel, the court ordered Defendant to submit unredacted versions of all redacted and partially redacted pages of the claims log to the court for an in camera review. The court has reviewed the claims log and considered the parties' positions with regard to the contested information. Thus, this dispute is ripe for disposition.

I. Background

Because the court writes primarily for the parties, it only need set forth the following details essential to explain its reasoning.

This case arises out of a September 5, 2008 motor vehicle accident involving Plaintiff Barry Shaffer. Plaintiff claims that he sustained painful and severe injuries as a result of the accident, including injuries to his neck, head, and back. He has lost income and incurred costs for medical treatment, therapy, and similar miscellaneous expenses. Defendant State Farm Mutual Automobile Insurance insured Plaintiff and his wife, Plaintiff Kimberley Shaffer, at the time of the accident. With State Farm's consent, Plaintiffs settled their claim with the other driver and sought additional coverage under the underinsured motorist ("UIM") provision in their policy.

Plaintiffs' UIM policy provided benefits of $100, 000 per person and allowed for stacking of coverage, totaling $200, 000 on the policy. On March 12, 2012, Plaintiffs submitted a demand to State Farm requesting settlement in the amount of $150, 000, an amount less than the available UIM limits of $200, 000. Plaintiffs have provided State Farm with medical records and other information to assist in evaluating the claim. According to Plaintiffs, State Farm has not made an offer of settlement.

Plaintiffs filed a complaint in the Dauphin County Court of Common Pleas on May 31, 2013, which was removed to this court by State Farm on July 3, 2013. (Doc. 1.) Plaintiffs assert claims for breach of contract (Count I) and a violation of Pennsylvania's Bad Faith Statute, 42 Pa. Cons. Stat. ยง 8371 (Count II). (Doc. 1-1.) On July 10, 2013, State Farm filed a motion to dismiss for failure to state a claim, challenging only Plaintiff's bad faith claim, which the court denied. (Doc. 13.) The parties are currently engaged in fact discovery that is set to conclude on March 28, 2014. (Doc. 17.) Plaintiffs' counsel contacted the court about the instant discovery dispute regarding the redacted portions of the claims log. The court has reviewed the unredacted and partially redacted pages of the claims log in camera.

II. Legal Standard

Federal Rule of Civil Procedure 26(b)(1) provides for a broad scope of discovery, recognizing that the "mutual knowledge of all the relevant facts gathered by both parties is essential to proper litigation." Hickman v. Taylor, 329 U.S. 495, 507-08 (1947). Accordingly, under this rule, relevance is broader than admissibility at trial, in the sense that it "is allowed if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.'" Josephs v. Harris Corp., 677 F.2d 985, 991 (3d Cir. 1982) (quoting Fed.R.Civ.P. 26(b)(1)). Although the discovery rules should generally be given broad and liberal treatment, these rules, like all of the Federal Rules of Civil Procedure, are subject to the overarching philosophy of Rule 1 that they "be construed to secure the just, speedy, and inexpensive determination of every action." Fed.R.Civ.P. 1. In keeping with this instruction, the relevance requirement of Rule 26(b)(1) must be "firmly applied." Herbert v. Lando, 441 U.S. 153, 177 (1979) (quoting Fed.R.Civ.P. 26(c)). Relevance is defined in Rule 401 of the Federal Rules of Evidence, which states that "relevant evidence" is evidence having "any tendency to make [the existence of] a fact [that is of consequence to the determination of the action] more or less probable than it would be without the evidence." Fed.R.Evid. 401.

III. Discussion

A. Underlying Claims

Plaintiffs claim State Farm breached the UIM policy. To establish a breach of contract claim in Pennsylvania, one must prove: "(1) the existence of a contract, including its essential terms[;] (2) a breach of a duty imposed by the contract[;] and (3) resultant damages." McShea v. City of Phila., 995 A.2d 334, 340 (Pa. 2010). Plaintiffs further claim that State Farm's conduct in investigating their claim constitutes bad faith. To recover under the bad faith statute, one must show, by clear and convincing evidence: "(1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis." Klinger v. State Farm Mut. Auto. Ins. Co., 115 F.3d 230, 233 (3d Cir. 1997) (citing Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680, 688 (Pa.Super. Ct. 1994)); Kojsza v. Scottsdale Ins. Co., Civ. No. 3:12-cv-1602, 2013 WL 198569, *6 (M.D. Pa. Jan. 15, 2014) (citing Post v. St. Paul Travelers Ins. Co., 691 F.3d 500, 523 (3d Cir. 2012)) ("Bad faith must be proven by clear and convincing evidence.").

Actionable bad faith encompasses behavior beyond the denial of a claim without a reasonable basis, including an insurer's investigation of a claim. "[T]he broad language of [S]ection 8371 was designed to remedy all instances of bad faith conduct by an insurer.... Therefore, ... [a]n action for bad faith may also extend to the insurer's investigative practices." Hollock v. Erie Ins. Exch., 842 A.2d 409, 415 (Pa.Super. Ct. 2004) (internal quotation marks and citations omitted). Implicit in the statute is "the requirement that the insurer properly investigate claims prior to refusing to pay the proceeds of the policy to its insured." Bombar v. West Am. Ins. Co., 932 A.2d 78, 92 (Pa.Super. Ct. 2007).

The insurer may defeat a claim of bad faith by "showing that it had a reasonable basis for its actions." Post, 691 F.3d at 522. Even questionable conduct giving the appearance of bad faith is insufficient to establish bad faith so long as ...

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