Earlier this month, a panel of the Ohio Court of Appeals in Ryan v. State Farm Mutual Automobile Insurance Co. et al., No. 29778, 2023 WL 6784954 (Ohio Ct. App. Oct. 13, 2023) found that a trial court erred by ordering State Farm Fire and Casualty Company (“State Farm”) to turn over information relating to a policyholder’s bad faith claim before his underlying breach of contract claim was adjudicated in a bifurcated trial over uninsured motorist coverage.
According to the opinion, Plaintiff-Appellee Christopher P. Ryan (“Ryan”) was injured in a collision with an uninsured motorist. Following the accident, Ryan made a claim for UM benefits to State Farm with which he maintained UM coverage with an “each person” limit of $25,000. Ryan claimed that his medical expenses related to the accident totaled $19,377. State Farm countered, offering Ryan $15,363.90, which Ryan refused. Ryan subsequently sued State Farm, alleging breach of contract based on its failure to pay the UM policy limit and bad faith in State Farm’s refusal to consider the gross amount of Ryan’s medical bills in valuing his UM claim.
According to the ruling, Ryan served State Farm with written discovery requests, including a request for State Farm’s entire claims file related to his UM claim. State Farm responded by filing a motion to bifurcate the bad faith claim from the breach of contract claim and to stay discovery on the bad faith claim, pending the resolution of the contract claim.
The trial court agreed to bifurcate the trial into separate stages before the same jury. Still, it rejected State Farm’s request to stay discovery on the bad faith claim and ordered State Farm to disclose certain materials, including work product immediately. The trial court reasoned that “any minimal prejudice that might occur to State Farm as a result of immediate disclosure is substantially outweighed by the interest of judicial economy served by not delaying discovery.”
On appeal, State Farm argued that since there was a dispute as to the value of Ryan’s UM claim, the trial court erred in ordering State Farm to divulge the value it placed on the claim and its analysis of the claim prior to the time of a trial on the merits of that issue as producing such information would harm State Farm’s ability to defend against a UM claim. The panel agreed, finding in relevant part that “Where the insured is simultaneously pursuing a claim for UM coverage and bad faith, the protections that are normally afforded to an insurer who is insuring a tortfeasor should not be thrown out in the interest of judicial economy while prejudicing the insurer’s ability to negotiate or try the value of the claim.”
The panel further reasoned that if the trial court’s decision were permitted to stand, it would incentivize future plaintiff-insureds to include a bad faith claim in any uninsured or underinsured coverage suit as it would “…automatically permit the insured to gain access to information in the claims file of its insurer, potentially as to the insurer’s assessment and valuation of the claim to which the insured would otherwise not be entitled.”
Additionally, the panel noted that even if a jury does not hear evidence of an insurer’s opinion regarding its evaluation of a claim, the insured’s counsel would be able to use such information to the insured’s advantage for purposes of settlement negotiations or during the underlying trial, potentially creating a scenario in which the insured alleges bad faith based on the insurer’s allegedly undervaluation of the claim, utilizes the privileged information to obtain a larger jury verdict than may otherwise have been rendered and then uses that verdict as proof of bad faith.
Garrett Dudt is an associate attorney in Tressler’s Insurance Practice Group. Garrett’s practice includes representing insurance carriers and insureds in a wide range of insurance coverage matters involving policies such as commercial general liability policies, commercial umbrella/excess policies, professional liability policies and business owners’ policies. His practice work consists mostly of analyzing insurance coverage issues, assessing insurance carriers’ risks and preparing coverage opinions and position letters.