PHILADELPHIA – An insurer has lost in an attempt to bifurcate two claims in a lawsuit filed against the company by a law firm.
The attempt took place earlier this year in the U.S. District Court for the Eastern District of Pennsylvania, in the case of Eizen Fineburg & McCarthy, P.C. v. Ironshore Specialty Ins. Co.
Law firm Eizen Fineburg alleged breach of contract and bad faith on the part of Ironshore, which unsuccessfully attempted to have the bad faith claim stayed until a finding was made on the viability of the breach of contract claim. Ironshore argued that the bad faith claim would be dependent on a finding that it had breached the terms of the insurance policy.
Eizen Fineburg purchased a professional liability insurance policy from Ironshore on Jan. 30, 2011. During the one-year term of the policy, Eizen Fineburg sought insurance coverage for two lawsuits that were related. Ironshore covered one, but refused the other.
The law firm racked up attorneys fees of $1.3 million in defense of the second action. Eizen Fineburg then sued Ironshore, alleging breach of contract and common law and statutory bad faith.
In response, Ironshore filed its motion to stay the bad faith claim pending a finding on the breach of contract claim. The law firm opposed that move, and ultimately, the court did the same.
The court agreed with the firm, stating that the success of the bad faith claims would not fully depend on the success of the breach of contract claims. Because of this, those claims would not save time or resources for the court.
The concept of bad faith can extend beyond a denial of a claim, as long as its insured. Noting this, the court noticed that a majority of the federal district courts in Pennsylvania have refused to stay bad faith claims against insurers until the underlying coverage issues are handled.
The court investigated the matter and found that two aspects of the bad faith element involved alleged actions that diverged from the breach of contract allegation — that Ironshore failed to properly investigate the claim, and that it improperly delayed a decision on the claim. Either theory would require investigation of the firm's practices, specific to the policy.
The court also concluded that Ironshore would not be prejudiced by additional expenses by defending both claims against it. The court stated that the possibility of incurring additional costs does not equate to prejudice. In addition, the court also did not agree with Ironshore’s argument that discovery on the bad faith claim would cause concerns on raise privilege issues. According to the court, those issues would have to be litigated anyway, regardless of timing.
Ironshore argued that it was necessary for the courts to assess the bad faith claims to determine if bifurcation was defensible. The court did not agree. Since the case was in its preliminary stages, the evaluation of the merits was not possible. The court ultimately decided to restrict its examination to matters of convenience of the parties, judicial economy and limits to prejudice.