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McFarland, LP v. Harford Mutual Insurance Companies

United States District Court, M.D. Pennsylvania

July 25, 2019

McFARLAND, LP, SPRING VILLAGE APARTMENTS, LLC, and SPRING VILLAGE, LP, Plaintiffs
v.
HARFORD MUTUAL INSURANCE COMPANIES and FIRSTLINE NATIONAL INSURANCE COMPANY, Defendants

          MEMORANDUM

          Christopher C. Conner, Chief Judge.

         This case involves an insurance dispute over property damage caused by the collapse of a retaining wall. Plaintiffs McFarland, LP; Spring Village Apartments, LLC; and Spring Village, LP (collectively, “McFarland”) sued defendants Harford Mutual Insurance Company (“Harford”) and Firstline National Insurance Company (“Firstline”), alleging, inter alia, breach of contract and bad faith. Firstline moves to sever and to stay the bad faith claim, (Doc. 12), and seeks a protective order and to quash an attorney deposition, (Doc. 16). The court will deny Firstline's motion to sever, but we will permit bifurcation. We will also conditionally grant Firstline's motion for a protective order and to quash the notice of deposition for its attorney.

         I. Factual Background & Procedural History[1]

         McFarland owns real property in Harrisburg, Pennsylvania (“the Property”) that includes two apartment buildings-a larger building with 41 apartments and a smaller, 8-unit building. (Doc. 1-4 ¶ 22).[2] The Property is insured for liability and property damage by a business owners policy with defendant Firstline. (Id. ¶¶ 31-33; Doc. 1-4, Ex. B at 3, 19). On May 5, 2016, a retaining wall unexpectedly collapsed, damaging McFarland's smaller apartment building, its parking lot, and several other property owners' buildings adjacent to the Property. (Doc. 1-4 ¶¶ 24-26, 28-29). The significant damage from the retaining wall collapse caused the City of Harrisburg to declare the smaller apartment building unsafe for occupancy and the parking lot structurally unfit for parking. (Id. ¶¶ 27, 29).

         Firstline denied first-party coverage for damage to the Property. (Id. ¶ 43; Doc. 1-4, Ex. E). Firstline agreed, however, to provide liability coverage under the policy-up to policy limits-for damage caused to other properties not owned by McFarland. (Doc. 1-4, Ex. D; Docs. 4, 5). McFarland filed suit against Harford, Firstline, and numerous other defendants in the Court of Common Pleas for Dauphin County, Pennsylvania, and the action was subsequently removed to this court. In its complaint, McFarland asserts three causes of action: breach of contract for denial of first-party coverage (Count I); declaratory judgment regarding liability coverage (Count II); and insurance bad faith pursuant to 42 Pa. Cons. Stat. § 8371 (Count III). The parties later dismissed Count II by stipulation. The stipulation also dismissed the other named defendants, leaving only Harford and Firstline.

         Firstline moves to sever and to stay the bad faith claim. Firstline raises concerns that certain discovery requests regarding the bad faith claim implicate attorney-client privilege and the work product doctrine, as well as potential disqualification of Firstline's counsel, Attorney Peter J. Speaker (“Attorney Speaker”). Relatedly, Firstline moves to quash the notice of deposition of Attorney Speaker and seeks a protective order. The motions are fully briefed and ripe for disposition.

         II. Discussion

         Firstline's motions are inextricably interwoven. If the motion to sever and to stay the bad faith claim is granted, approval of the motion to quash the deposition notice of Attorney Speaker and for a protective order likely follows, at least as it relates to the breach of contract claim. The converse is likewise true. Accordingly, as a threshold matter, we will address the motion to sever and to stay.

         A. Motion to Sever and Stay Bad Faith Claim

         Federal Rule of Civil Procedure 21 permits severance of claims. The rule states, in pertinent part, that the court may “sever any claim against a party.” Fed.R.Civ.P. 21. Courts and litigants routinely conflate severance with bifurcation, which is governed by Federal Rule of Civil Procedure 42(b). See 9A Charles Alan Wright et al., Federal Practice and Procedure § 2387 (3d ed. 2015). Unlike bifurcation of claims under Rule 42(b), severance under Rule 21 creates independent actions resulting in separate judgments. White v. ABCO Eng'g Corp., 199 F.3d 140, 145 n.6 (3d Cir. 1999); 9A Wright & Miller, supra, § 2387.

         Severance is appropriate when the claims are “discrete and separate, ” each capable of resolution without dependence or effect on the other. See Gaffney v. Riverboat Servs. of Ind., Inc., 451 F.3d 424, 442 (7th Cir. 2006) (citations omitted). The Third Circuit Court of Appeals has not established specific parameters for deciding a motion to sever claims. District courts often consider (1) whether the issues sought to be severed are significantly different from one another and would require distinct evidentiary proof; (2) whether severance would promote judicial economy; and (3) whether either party will be unduly prejudiced by severance or its absence. See Official Comm. of Unsecured Creditors v. Shapiro, 190 F.R.D. 352, 355 (E.D. Pa. 2000) (citation omitted). These same considerations are frequently utilized when examining a motion to bifurcate claims under Rule 42(b). See, e.g., Griffith v. Allstate Ins. Co., 90 F.Supp.3d 344, 346 (M.D. Pa. 2014); Goldstein v. Am. States Ins. Co., No. 18-CV-3163, 2018 WL 6198463, at *1-2 (E.D. Pa. Nov. 28, 2018) (citing Shapiro, 190 F.R.D. at 355).

         Firstline's motion to sever and to stay the bad faith claim from the underlying coverage claim is hardly novel. Such motions have been litigated extensively in both state and federal courts, with inconsistent results. See, e.g., Eizen Fineburg & McCarthy, P.C. v. Ironshore Speciality Ins. Co., 319 F.R.D. 209, 212 n.4 (E.D. Pa. 2017) (collecting cases refusing to sever or bifurcate); (Doc. 15 at 11-12, 13-14 & n.1 (same); Doc. 14 at 6-7 & n.1 (collecting cases granting severance or bifurcation)). Firstline's arguments in support of severance are also largely identical to those raised by insurers in other cases: irreparable prejudice from premature and potentially unnecessary disclosure of otherwise privileged information, inefficiency in litigating a secondary claim of bad faith that may be mooted by resolution of the coverage claim, and jury confusion and the potential loss of Firstline's chosen counsel if the claims proceed together. We examine each of these arguments through the prism of the factors applicable to a motion to sever claims.

         1. Distinct Claims and Evidence

         Firstline asserts that the breach of contract claim is fundamentally distinct from the bad faith claim and will require different evidence. The breach of contract dispute, Firstline posits, involves simple issues like the cause and extent of property damage for which first-party coverage is claimed. The bad faith claim, per contra, “turns on the knowledge, motives, and actions of insurance personnel” in investigating, evaluating, and handling the claim. (Doc. 14 at 11). Firstline likewise asserts that most of the evidence related to the bad faith ...


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