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Eizen Fineburg & McCarthy, P.C. v. Ironshore Specialty Insurance Co.

United States District Court, E.D. Pennsylvania

January 18, 2017

EIZEN FINEBURG & MCCARTHY, P.C., Plaintiff,
v.
IRONSHORE SPECIALTY INSURANCE COMPANY, Defendant.

          OPINION

          Slomsky, J.

         I. INTRODUCTION

         This case concerns an insurance coverage dispute between Plaintiff Eizen Fineburg & McCarthy, P.C. (“the Firm”), [1] and its insurer, Defendant Ironshore Specialty Insurance Company (“Ironshore”). Plaintiff alleges that Ironshore failed to honor the terms of the Firm's professional liability insurance contract, and exhibited bad faith in its handling of the Firm's claim in violation of 42 Pa. Const. Stat. Ann. § 8371[2] and the common law. (Doc. No. 1 at 13-30.) Presently before the Court is Ironshore's Motion to Bifurcate. (Doc. No. 13.) Ironshore requests that the Court sever the breach of contract claim from the bad faith claims and stay the latter. (Id.) For reasons discussed below, Ironshore's Motion will be denied.

         II. BACKGROUND

         On January 30, 2011, Plaintiff Eizen Fineburg & McCarthy, P.C., now known as Fineburg Law Associates, P.C. (“the Firm”), purchased a policy of insurance from Defendant Ironshore Specialty Insurance Company (“Ironshore”). (Doc. No. 1 at 14.) The policy was issued for a one-year term, starting on January 30, 2011 and ending on January 30, 2012. (Id. at 15.) It contained a limit of liability of $5, 000, 000 per claim.[3]

         During this term, the Firm made two requests to Ironshore seeking insurance coverage in separate, but related actions. (Id.) First, on July 8, 2011, Ironshore covered the Firm's claim relating to a bankruptcy matter in the Northern District of Texas involving one of the Firm's clients against the debtor, FirstPlus Financial Group, Inc. (Id. at 15; Doc. No. 6 at 3.) Second, on December 21, 2011, Ironshore rejected the Firm's claim relating to a criminal matter in the District of New Jersey involving one of the Firm's attorneys, Gary McCarthy. (Doc. No. 1 at 16.) McCarthy had been indicted a few months earlier on suspicion of committing various crimes in connection with his representation of companies that were purchased by FirstPlus Financial Group, Inc. (Id. at 15.) These charged offenses included conspiracy, securities fraud, wire fraud, and money laundering. (Id.) The Firm requested that Ironshore pay the legal costs associated with the criminal investigation and indictment of McCarthy, but Ironshore refused to 42 Pa. Const. Stat. Ann. § 8371. do so. (Id. at 15-16.) More than two years later, on July 3, 2014, a jury acquitted McCarthy of all criminal charges, but only after the Firm incurred attorneys' fees in excess of $1, 320, 000 to defend McCarthy in the criminal case. (Id. at 21.)

         On April 26, 2016, the Firm initiated this action against Ironshore in the Court of Common Pleas of Philadelphia County. (Id. at 1, 30.) It sought to recover the expenses associated with defending McCarthy in the criminal case. (Id. at 13-30.) In Count I of the Complaint, Plaintiff alleges a breach of contract claim against Ironshore for failing to honor the terms of the professional liability insurance policy. (Id. at 18-20.) In Count II, Plaintiff raises a bad faith claim against Ironshore, alleging that Defendant violated 42 Pa. Const. Stat. Ann. § 8371. (Id. at 20-24.) In Count III, Plaintiff alleges a bad faith claim against Ironshore under the common law. (Id. at 24-27.) In particular, Plaintiff asserts that Ironshore acted in bad faith by (1) failing “to conduct a reasonable investigation” into Plaintiff's request for coverage; (2) unreasonably delaying a decision on Plaintiff's request; (3) failing “to interpret ambiguous policy language exclusively drafted by Defendant in Plaintiff's favor;” and (4) failing to acknowledge and properly settle Plaintiff's reasonable proof of loss. (Id. at 18-27.)

         On May 19, 2016, Ironshore removed the action to this Court. On October 13, 2016, a scheduling conference was held during which the parties discussed discovery, settlement, and trial, among other matters. (Doc. No. 11.) On November 29, 2016, Ironshore filed the Motion to Bifurcate and Stay the Bad Faith Claims. (Doc. No. 13.) Plaintiff filed a Response in Opposition to Defendant's Motion on December 12, 2016. (Doc. Nos. 14, 15.) On December 28, 2016, Ironshore filed a Reply. (Doc. No. 17.) The Motion is now ripe for review.

         III. STANDARD OF REVIEW

         Bifurcation is permitted by Federal Rule of Civil Procedure 42(b). Rule 42(b) states as follows:

For convenience, to avoid prejudice, or to expedite and economize, the court may order a separate trial of one or more separate issues, claims, crossclaims, counterclaims, or third-party claims. When ordering a separate trial, the court must preserve any federal right to a jury trial.

Fed. R. Civ. P. 42(b). The decision to bifurcate, or separate, claims “is a matter to be decided on a case-by-case basis and must be subject to an informed discretion by the trial [court] in each instance.” Lis v. Robert Packer Hosp., 579 F.2d 819, 824 (3d Cir. 1978). A court's ruling on whether to bifurcate “requires balancing . . . several considerations, including the convenience of the parties, avoidance of prejudice to either party, and promotion of the expeditious resolution of the litigation.” Zinno v. Geico Ins. Co., No. 16-792, 2016 WL 6901697, at *1 (E.D. Pa. Nov. 21, 2016) (citations omitted). The moving party bears the burden of proving that bifurcation is warranted. Yellowbird Bus Co., Inc. v. Lexington Ins. Co., No. 09-5835, 2010 WL 2766987, at *8 (E.D. Pa. July 12, 2010).

         IV. ANALYSIS

         Ironshore contends that Plaintiff's statutory and common law bad faith claims set forth in Counts II and III of the Complaint should be bifurcated from Plaintiff's breach of contract claim in Count I for purposes of both discovery and trial. (Doc. No. 13 at 1.) In essence, Ironshore argues that the crux of this dispute is contractual, and that the bad faith claims will fail if Defendant is successful in defending itself on the breach of contract claim. (Doc. No. 13-1 at 2.) Therefore, it would be wasteful and unnecessary to conduct discovery on the bad faith claims at this time. (Id. at 2-3.) Plaintiff opposes the Motion to Bifurcate, arguing that its “bad faith claims do not rise or fall entirely on the success of its breach of contract claim, and therefore staying bad faith discovery would not save time or ...


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