Bad faith is a good
opportunity to direct litigation against those who deserve it.
Insurers can hide behind their insureds in liability cases, but
must put a human face on the company in a bad faith trial. Any
plaintiff’s lawyer should relish the opportunity to litigate a
bad faith case.
First party insurance and bad faith litigation is rewarding,
particularly for plaintiff’s counsel who want to see the inner
workings of a claim department. A bad faith case, however,
presents new and unfamiliar issues. Federal removal
jurisdiction, bifurcation of coverage and bad faith claims, and
discovery of the claims file are intimidating issues to counsel
unaccustomed to handling them. This paper provides an
introduction to those issues, and a framework for tactical
A. Forum and
Whether to file in State or Federal court, availability
of mandatory arbitration or district court -- these issues can
determine the course and outcome of your case. Reasonable,
objective evaluation of the case must precede the filing
1. State Court: Do
you have more than $25,000 or $35,000 in provable
damages? If not, consider district court or mandatory
arbitration. Bad faith litigation is hotly contested; insurers
think nothing of spending more than the case is worth to win.
Although the insurer may have treated your client like dirt,
actual damages need to be proved. See, e.g., Physicians
Insurance Exchange v. Fisons Corp., 122 Wn.2d 299,
858 P.2d 1054 (1993), holding that general damages for emotional
distress are not recoverable under the Consumer Protection Act.
If your client has solid damages within the jurisdictional
limits of district court or mandatory arbitration, that is where
you need to be. Superior court discovery will wear you out if
the case doesn’t warrant the work and expense required.
2. Federal Court: If
more than $75,000 is at issue, and you have a foreign insurer as
defendant, you may elect Federal Court. Although this is the
favored forum for defendants, few plaintiff lawyers elect a
Federal forum. You are more apt to see Federal court after the
insurer removes the case.
Removal is available to a defendant who resides in a state
other than Washington. 28 U.S.C. § 1332 to 1352 provide that a
civil case is removable if there is more than $75,000 at issue,
complete diversity of parties (all plaintiffs are citizens of
diverse states from all defendants), and the case is removed
within 30 days of notice to defendant that it is removable.
Removal can be defeated if citizens of the same state appear
on both sides of the case. Thus, if the insured plaintiff is a
citizen of Washington, and the carrier defendant is a citizen of
Oregon, the case is removable. If, however, an adjuster, agent,
or other entity who resides in Washington is a co-defendant, the
case is not removable. See, Williams v. LaFayette Ins., 640
F. Supp. 686 (N.D. Miss. 1986), for a discussion of adjuster as
Adding a Washington resident as defendant simply to prevent
removal is seldom wise. If the court finds the additional
defendant was sued only to prevent removal, plaintiff’s
position is in jeopardy, as is counsel’s pocketbook. On the
other hand, if you have a valid claim against an agent of the
insurer, you may wish to add the agent as a defendant.
3. Removal Phobia:
Most plaintiff’s lawyers suffer from removal phobia, a disease
characterized by rapid heartbeat and queasy stomach. The
symptoms come on when the removal pleadings are served. Federal
court is an unknown -- a vast wasteland of unfamiliar rules and
inflexible people. Won’t it involve a lot of extra work? How
can we possibly be successful there?
But wait, aren‘t there some advantages to Federal court?
The message is clear. If your case is removed, don’t worry
about it. Put the local rules in the bathroom, and read those
instead of the jokes in the Bar News. You’ll do just fine in
How many trials? Usually, the carrier will move to bifurcate
coverage and bad faith issues, pursuant to CR 42(b), which
The court, in furtherance of convenience or to avoid
prejudice, or when separate trials will be conducive to
expedition and economy, may order a separate trial of any
claim, cross claim, counterclaim, or third party claim, or of
any separate issue . . . always preserving inviolate the right
to trial by jury.
No firm rules govern bifurcation of insurance coverage and
bad faith claims. The trial court may exercise its discretion in
resolving this issue. Coggle v. Snow, 56 Wn. App. 499,
507, 784 P.2d 554 (1990). In some cases, courts have tried
coverage actions and bad faith claims together. See, e.g., Mutual
of Enumclaw v. Cox, 110 Wn.2d 643, 757 P.2d 499 (1988); Industrial
Indemnity v. Kallevig, 114 Wn.2d 907, 792 P.2d 520 (1990).
In other cases, courts have tried the issues separately. See,
e.g., Safeco Ins. Co. v. JMG Restaurants, 37 Wn. App. 1,
680 P.2d 409 (1984). Generally, courts handle the issue of
bifurcation on a case by case basis.
The carrier must prove prejudice from a consolidated trial,
not an easy task. Most carriers try to argue that prejudice
should be presumed, or that it just stands to reason that
prejudice will result from a consolidated trial. You win if you
argue that the carrier must show actual prejudice.
For example, assume the insured passed a polygraph test on a
key issue. That could be admissible on the bad faith case. Why
didn’t the carrier consider that? Clearly, however, it would
be inadmissable in the coverage case. Consolidation, then, could
prejudice the insurer. Absent, however, some specific
item of evidence that would prejudice the jury against the
insurer, why bifurcate?
Bifurcation can be a great time-waster. Federal cases
applying FRCP 42 encourage consolidation of cases, e.g.,
Weitort v. A.H. Bull Co., 192 F. Supp. 165 (Pa. 1961), and
consistently hold that courts should not order separate,
piecemeal trial of issues, except to avoid delay, undue expense,
prejudice to the parties or injustice. Zenith Radio Corp. v.
Radio Corp. of America, 106 F. Supp. 561 (Del. 1952). As
. . . a single trial generally tends to lessen the delay,
expense and inconvenience to all concerned, and the courts
have emphasized that separate trials should not be ordered
unless such a disposition is clearly necessary.
Moore's Federal Practice, vol. v, § 42.03(1). Our
Supreme Court characterizes CR 42(b) as follows:
This rule, as its language indicates, vests the trial court
with discretionary power to order a separate submission of
issues in a trial of any claim for relief. It is not, however,
a rule that calls for or properly lends itself to a liberal or
indiscriminate application. It should be carefully and
cautiously applied and be utilized only in a case and at a
juncture where informed judgment impels the court to conclude
that application of the rule will manifestly promote
convenience and/or actually avoid prejudice. Piecemeal
litigation is not to be encouraged.
Brown v. General Motors Corp., 67 Wn. 2d 278, 282, 407
P.2d 461 (1965). See also, Maki v. Aluminum Bldg. Prods.,
73 Wn.2d 23, 25, 436 P.2d 186 (1968) (courts should not
liberally apply bifurcation.).
All this makes bifurcation sound like evil incarnate. It can,
however, be the plaintiff’s best friend. The trouble with
consolidation is that some judges will allow almost anything
into evidence. Rumors, hearsay statements, and the suspicions of
ex-spouses should not be admissible in any circumstance, yet bad
faith cases feed on them. If some piece of potential evidence in
the bad faith claim can poison the well, plaintiff should move
for bifurcation. And, as with removal, don’t assume
bifurcation is a bad thing just because the insurer moves for
it. Consider the options, and act accordingly.
Discovering the Claim File
To the plaintiff in a bad faith case, discovery means
obtaining a copy of the entire claim file. The carrier
will do everything possible to prevent discovery, although it
knows the file is discoverable. All or part of it will be
withheld, under claims of irrelevance, privilege, work product,
or preparation in anticipation of litigation. None of those
excuses are valid. See, Escalante v. Sentry Insurance, 49
Wn. App. 375, 743 P.2d 832 (1987), where the court said:
In general, the relevancy objections raised by Sentry with
respect to this and other discovery requests are meritless
because the very nature of most bad faith actions makes most,
if not all, of the insurer's claim file relevant. In re
Bergeson, 112 F.R.D. 692 (D. Mont. 1986); Brown v.
Superior Court, 137 Ariz. 327, 670 P.2d 725 (1983).
Escalante, fn. 10, at 49 Wn. App. 303. The entire opinion
merits close reading, as the court discusses work product,
mental impressions, and anticipation of litigation principles as
they apply to claim file production. The opinions in Brown and
Bergeson are also helpful.
All the favorable case law in the world, however, will not
protect you from crooks. Many claims adjusters and supervisors
believe it is standard practice to "clean up" a claim
file prior to disclosure. The defense lawyer may not know the
file was sanitized in the claim office. What can you do about
it? The following list may help.
1. Find multiple copies. Did a copy of the
claim file get to the Commissioner as a result of your
client’s complaint? You can get it with a Freedom of
Information Act request. How many claim files does the insurer
maintain? There are usually at least two, often three. Cover
this in depositions.
2. Determine what is missing. Is a scheduled
meeting not documented? Are activity log pages misnumbered? Make
a chronology, then look for holes.
3. Demand everything. Demand all electronic
communication of any kind. Get billing records from
investigators and contractors of any kind. What phone calls and
meetings show up? Are they documented in the claim file?
Remember this from WAC 284-30-340:
The insurer's claim files shall be subject to examination
by the commissioner or by his duly appointed designees. Such
files shall contain all notes and work papers pertaining to
the claim in such detail that pertinent events and the dates
of such events can be reconstructed.
4. Depose someone about the file. The handling
adjuster may not be the best source of information on the
carrier’s claim files. Try a CR 30 (b) 6 deposition devoted
only to the file.
5. Insist on a log of withheld documents. In
your production request, ask for a list of withheld documents,
along with reasons they were not produced. If counsel stalls,
swiftly get an order requiring counsel to list every document
withheld and the reasons for nondisclosure. You cannot move to
compel production of documents you don’t know exist.
Once you have the full, complete claim file, you have your
basic discovery done. If you wish, you can march through
depositions of the various adjusters, supervisors, and home
office claims personnel. I prefer to spend a few days with the
claim file, meeting some of the claim people at trial.
Everyone involved in bad faith litigation knows the claim
file is the case. If you are unreasonably deterred from
obtaining the entire file, move for sanctions. If you catch
counsel or claims people sanitizing a file, go to the court, the
Bar Association, and the Insurance Commissioner. Don’t play
softball with crooks.
D. Advice of
Often, the insurer has counsel involved in the claim months
before litigation begins. Counsel will conduct examinations
under oath, oversee experts involved in the investigation, and
provide advice and counsel to the carrier. When suit is filed,
that counsel’s role becomes an issue.
Will the carrier say it relied on the advice of counsel in
denying the claim? Will it claim it acted reasonably by
following legal advice? If so, does that reliance constitute
good faith? Will counsel testify for the carrier?
Typically, if the insurer claims the advice defense, it will
retain new counsel for trial of the bad faith claim. Discovery
is wide open as to the advising counsel. The role of counsel
becomes more interesting, however, when original counsel intends
to stay on for trial, because the carrier is not explicitly
pleading the advice defense.
The kneejerk reaction is to move to disqualify counsel. Throw
the bums out!
Think, though, about whether you want the bums to testify, as
fact and expert witnesses, or whether it would be more fun to
watch them squirm as trial counsel. Nothing is more upsetting to
trial counsel than to get personally involved in the evidence.
If trial counsel for the carrier was so involved in the handling
of the claim that she should withdraw, can you get an advantage
if she doesn’t?
On the other hand, if new counsel enters the case, settlement
is more likely. Seldom will original counsel, in the claim from
the beginning, tell the insurer it committed bad faith as a
result of the legal advice given. It is always easier to blame
prior counsel for the course of the claim, so settlement is much
more likely with new counsel.
Instructions, Trial Brief
See Appendix for a few key instructions. These are presented
to give you some examples of instructions which have been given
in bad faith cases. Very little firm guidance exists in the
cases, so creativity is allowed. A new set of proposed WPI
pattern instructions allegedly contains some bad faith
instructions, so you may want to look for that.
The trial brief is very important in a bad faith case. Many
judges have limited knowledge and experience in this area, so a
well-written, honestly argued trial brief can help. It should
include these headings:
1. Facts to be proven at trial. Briefly outline key
facts and how you will prove them. Include a list of your
witnesses, so the court can ask if jurors know them.
2. Discussion of carrier’s bad faith. Here you
combine the facts with the law to demonstrate liability. If this
section of the brief is persuasive, you have a leg up with the
judge. If the judge thinks you should win, you usually will.
3. Damages. What they are and where the law allows
4. Evidentiary issues. Why your evidence comes in and
theirs stays out. Exhibits can be discussed here, as well as
5. Jury instructions. Your proposed
instructions, and the law supporting them.
The trial brief is the crown jewel of pretrial
preparation and litigation. It will not only focus the judge on
key issues, but will give your opponent a look at your
preparation and understanding of the case. If it is good, why
not give counsel an extra copy for the claim manager? Maybe you
will get to go home early.
Bad faith cases are different, but nothing to fear. If your
client has valid claims, and the carrier treated her unfairly,
you have a case. Certainly, issues like removal jurisdiction,
bifurcation, and discovery of the claim file are likely to
require some attention. The rewards of successfully litigating a
first party bad faith claim, however, are well worth the extra