On May 25, 2017, Susan M. Bazis, United States Magistrate Judge for the District of Nebraska, denied an insurer’s Motion to Bifurcate and Stay Discovery on Plaintiff’s Bad Faith Claim.1

The underlying action is based on a loss due to a hailstorm suffered at a small business: The insured business contending that its insurer did not recognize the severity of the damage, and failed to pay the amounts necessary to properly remediate the loss. Also at issue is the insured’s allegation that its insurer failed to conduct a proper investigation into the loss.

Based on these alleged shortcomings by its insurer, the insured brought a two-count complaint for breach of contract and bad faith. Thereafter, the insurer brought the above-referenced Motion to Bifurcate and Stay Discovery on Plaintiff’s Bad Faith Claim.

In denying the Motion, the court recognized that bifurcation is “not always necessary or justified…and the determination must be made on a case-by-case basis,”2 and that it may not be appropriate where discovery on the claims “substantially overlaps” thus promoting “inefficiency, inconvenience and the unnecessary expenditure of resources.”3 The court disagreed with the Defendant-insurer’s argument that “bifurcation will expedite the proceedings, promote judicial economy and prevent unfair prejudice to Defendant,” and found that “the record indicates that such an approach [bifurcation] would unduly prolong and complication this litigation.”4 Judge Bazis reasoned:

It appears that the outcome of each of the causes of action hinges upon Defendant’s evaluation and investigation of the amount owed under the policy. It seems that many of the same witnesses and documents will be used to prove each claim. In fact, Plaintiff anticipates calling the same witnesses to testify on both issues at trial. The claims are so interrelated that it would be burdensome to try to determine what particular evidence is solely relevant to the breach of contract claim. Moreover, the creation of two phases of discovery would lead to duplication of efforts and further delay.5

This ruling is significant for insureds because often facts proving an insured’s breach of contract case overlap with issues of bad faith.6 However, because insurers claim that discovery regarding potential bad faith is prejudicial during a coverage dispute, courts will sometimes bifurcate these issues. But what about the prejudice that insureds suffer when bifurcation means they are prohibited from discovering why their claim was delayed, denied, mishandled and/or underpaid—which though may have bad faith implications—may also be the insureds’ only hope for showing a jury how their insurer breached the contract? After all, one of the requirements a party seeking bifurcation must meet is to show how severing the issues will “avoid unfair prejudice to a party,”7 so doesn’t that cut both ways? While the court did not indicate whether her ruling was based on the insurer having failed to show how bifurcation would avoid it from being prejudiced, her ruling was based, in large part, on the fact that bifurcation would be burdensome for both parties. And although the court acknowledged these situations must be looked at on a case by case basis, recognition by the court that facts surrounding an insured’s claims for breach of contract and bad faith can be so intertwined as to warrant litigating the issues simultaneously is a step in the right direction for insureds.
1 Norfolk Transmission & Muffler Service v. Owners Ins. Co., No. 16-489 (D. NE May 25, 2017).
2 Id., citing to Brooks v. Lincoln National Life Ins. Co., et al, 8:05CV118, Filing No. 44 at pp. 3-4 (D. Neb. Oct. 26, 2005).
3 Id., citing to Ameritas Life Ins. Corp. v. Federal Ins. Co., No. 4:16-3006, 2017 WL 432693, *2 (D. Neb. Jan. 31, 2017).
4 Id. at 2 (bracketed material added).
5 Id. at 3.
6 Facts such as an inadequate investigation, as is the case here.
7 Id., citing to Stoltenberg v. Unum Life Insurance Company of America, No. 8:04CV288, 2005 WL 6934456, *2 (D. Neb. Dec. 12, 2005).