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Golon, Inc. v. Selective Insurance Co. of Southeast

United States District Court, W.D. Pennsylvania

December 7, 2017

GOLON, INC. FORMERLY KNOWN AS, GOLON MASONRY RESTORATION, INC., Plaintiff,
v.
SELECTIVE INSURANCE COMPANY OF THE SOUTHEAST and SELECTIVE INSURANCE COMPANY OF AMERICA, Defendants.

          MEMORANDUM OPINION

          Arthur J. Schwab United States District Judge

         I. Overview

         This is a breach of contact and bad faith case predicted upon Selective Insurance's decision not to settle an underlying state court case against its insured, Golon, within its $11 million policy limits. In the underlying state court case, Selective, the insurer, refused to settle within the limits of its two policies (totaling $11 million in coverage) which it had issued to Golon, its insured, in an underlying state court case. The underlying action involved a tragic traffic accident, which occurred when an employee of Golon, while driving one of Golon's vehicles, collided with a disabled vehicle containing a family of four, resulting in numerous injuries to three of the family members and the death of one child.

         Despite Selective's receipt of input (including an evaluation of the value of the case) from a well-respected insurance defense attorney, hired by Selective to represent Golon in the underlying action, and despite the repeated requests from Golon's personal counsel that Selective settle the case with the underlying plaintiff-family for a greater sum than what Selective had offered (but still within the policies' combined limits), Selective refused to settle the matter. Instead of listening to the advice of the insurance defense counsel it hired for Golon and Golon's own request to settle within policy limits, Selective fired the well-respected attorney, hired a new insurance defense attorney to represent Golon in the underlying action, and consistently rejected the requests of its insured to settle the matter within the limits.

         The state court case was tried in the Court of Common Pleas of Allegheny County, Pennsylvania, and the jury returned a verdict in the amount of $32 million dollars against Golon and Golon's driver. Following the $32 million state court verdict, Golon brought the instant federal breach of contract and bad faith lawsuit alleging Selective engaged in, “bad faith, high risk, [and] brinkmanship negotiation strategy, ” over Golon's objections.

         II. The Pending Motions

         Presently before the Court is a Motion to Compel the discovery of 77 documents[1] which was filed by the insured, Golon (ECF 58), and a Cross-Motion for Protective Order filed by Golon's insurer, Selective. ECF 60. Selective's Cross-Motion for Protective Order also contains its Response in Opposition to Golon's Motion to Compel. The Court ordered that the 77 documents be filed under seal (ECF 64), and Selective filed these 77 documents under seal. ECF 67.

         By way of brief background, Selective, during the course of discovery proceedings in this action, produced a privilege log which identified 398 documents as either withheld or redacted for various reasons. Golon's Motion to Compel challenges 77 of those documents which were withheld or redacted for either of these of two reasons: (1) a privilege, styled as “[m]ediation and/or settlement conference privilege pursuant to 42 Pa.C.S.A. §5949[, ]” and (2) lack of relevance because the document pertains to reinsurance information. ECF 58.

         Golon's Motion to Compel alleges that the 77 documents, which Selective has redacted and/or has refused to turn over, support Golon's bad faith claim. Selective has refused to produce complete, unredacted copies of the 77 documents contending (in part) that such disclosure would violate Pennsylvania's mediation privilege. Selective takes this position, even though it has produced or partially produced documents which purportedly support its “good faith” position and which, arguably, are also within said privilege.

         Selective's Cross-Motion for Protective Order seeks to not only prevent Golon from obtaining the 77 documents which fall into either of the two above categories (hereinafter, the “mediation privilege documents” and the “reinsurance documents”), but also contends that Golon is not entitled to elicit any testimony concerning the mediations which took place in the underlying matter, nor any testimony pertaining to reinsurance.

         After an in camera review of these documents, the Court finds itself confronted with the difficult task of balancing respect for an important mediation privilege, supported by public policy, while seeking not to allow this privilege to be misused or abused, and seeking to prevent the application of such privilege to thwart justice in this particular case.

         III. Relevant Factual Background

         The underlying state court case was brought by a family who were involved in a motor vehicle accident with a vehicle owned by Golon and operated by one of Golon's employees at the time of the accident. The mother and father brought the underlying case on their own behalf, as well as on behalf of their two minor children, one of whom was killed as a result of the accident. The state case was mediated twice by two different, independent mediators. Those two independent mediators - former Pennsylvania Court of Common Pleas Judge, Gary Caruso, and attorney David White - were paid for their services by the parties in the underlying state court action. In addition, immediately prior to trial, Presiding Allegheny County Court of Common Pleas Judge Paul Lutty held a conference with the parties and attempted to resolve the matter.

         Golon had $11 million in insurance coverage through Selective. During one, if not both, of the mediations, and during the pretrial conference, the underlying plaintiffs demanded a sum below Selective's $11 million collective insurance policy limits. Selective opted not to settle with the plaintiffs in the underlying state court action and instead proceeded to trial.

         By the time the underlying case was tried in the state court, the employee-driver of Golon's vehicle pled guilty to vehicular homicide, and this fact was made known to the jury in the underlying civil case. In addition, the trial judge in the underlying case dismissed the other potential co-defendants who had come in contact with the family's vehicle prior to the accident.

         The case went to trial, and on December 16, 2015, the jury returned a $32 million verdict against Golon and Golon's driver in favor of the underlying plaintiffs - the family members of the decedent child.

         Although Selective appealed this verdict to the Superior Court of Pennsylvania on Golon's behalf, [2] Golon initiated the instant lawsuit in this Court alleging that Selective acted in bad faith when it refused to settle the underlying negligence case when the underlying plaintiffs demanded less than the $11 million combined policy limits.[3] Golon initiated the instant federal lawsuit while his state court appeal was pending because the outstanding judgment in state court is allegedly harming Golon's credit rating and causing harm to Golon's business.

         Turning to the instant bad faith lawsuit filed before this Court, Golon now seeks to obtain access to 77 documents which appear on Selective's privilege log. Some of these documents were redacted and some were completely withheld from Golon. Selective's privilege log with respect to these 77 documents indicates that these 77 documents were either redacted or withheld because they either: (1) were subject to Pennsylvania's mediation privilege and a “settlement conference privilege, ” or (2) were not relevant to this litigation because they reference or relate to reinsurance.

         IV. Legal Standard of Review

         A. Mediation Privilege

         Federal Rule of Evidence 501 states that “in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.” The Parties in the instant matter agree that the privilege rules of the Commonwealth of Pennsylvania apply to this case.

         Pennsylvania's statutory law protects “confidential mediation communications and documents” which the Parties in this action have referred to as the “mediation privilege.” See 42 Pa.C.S.A. § 5249. This statute reads as follows:

§ 5949. Confidential mediation communications and documents
(a) General rule.- Except as provided in subsection (b), all mediation communications and mediation documents are privileged. Disclosure of mediation communications and mediation documents may not be required or compelled through discovery or any other process. Mediation communications and mediation documents shall not be admissible as evidence in any action or proceeding, including, but not limited to, a judicial, administrative or arbitration action or proceeding.
(b) Exceptions.-
(1) A settlement document may be introduced in an action or proceeding to enforce the settlement agreement expressed in the document, unless the settlement document by its terms states that it is ...

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