Hardy Oil Company, Inc. v. Nationwide Agribusiness Insurance Company et al
Filing
41
MEMORANDUM OPINION & ORDER: 15 MOTION to Bifurcate by Wells Fargo Insurance - Indiana Wells Fargo's Motion to Bifurcate Trial and Stay Discovery, 10 MOTION to Bifurcate by Nationwide Agribusiness Insurance Company, 11 MOTION to Sta y Discovery filed by Nationwide Agribusiness Insurance Company, GRANTED; 37 MOTION for Protective Order by Nationwide Agribusiness Insurance Company DENIED so long as Hardy's depo complies w/ order's stay on discovery; parties file amende d joint rpt & proposed scheduling order w/in 14 days; 40 MOTION Pretrial Conference by Hardy Oil Company, Inc. DENIED as premature. Court will enter scheduling order setting all deadlines & case events. Signed by Judge Jennifer B Coffman on 12/5/2011.(STB)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
LEXINGTON
CIVIL ACTION NO. 11-75-JBC
HARDY OIL COMPANY, INC.,
V.
PLAINTIFF,
MEMORANDUM OPINION AND ORDER
NATIONWIDE AGRIBUSINESS
INSURANCE COMPANY, ET AL.,
DEFENDANTS.
***********
This matter is before the court on Nationwide Agribusiness Insurance Co.
and Wells Fargo Insurance-Indiana’s motions to bifurcate (R. 10, 15) and stay
discovery (R. 11, 15), and Nationwide’s motion for protective order (R. 37). For the
reasons below, the court will grant the motions to bifurcate and stay discovery but
will deny the motion for protective order.
This action stems from a spill of diesel fuel at a site owned by the plaintiff,
Hardy Oil Company. Hardy purchased insurance policies through Wells Fargo
Insurance-Indiana, including first- and third-party insurance coverage for its motor
fuel operations from Nationwide Agribusiness Insurance Co. Hardy’s claim,
asserting coverage under its policy with Nationwide for losses sustained by the
spill, was denied. Hardy filed this suit against the defendants based on three
claims: (1) Hardy’s policy issued by Nationwide covered its damages from the spill;
(2) Nationwide’s denial of coverage was a breach of obligations and bad faith; and
(3) if the spill is not covered by the policy issued by Nationwide, Wells Fargo
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negligently breached its duty to use reasonable care in providing insurance
brokerage services to Hardy. Nationwide filed a counterclaim for declaratory
judgment regarding coverage of the spill.
Nationwide and Wells Fargo moved to bifurcate the trial and stay discovery
on the bad faith and negligence claims until after the coverage claim can be
resolved. Nationwide also moved for protective order preventing Hardy from
deposing any representatives of Nationwide at this time.
I. Bifurcation and Stay Discovery
Bifurcation is appropriate in this action because it would further convenience
and judicial economy, help avoid prejudice to parties, and prevent juror confusion.
See Fed. R. Civ. P. 42(b); see also Wilson v. Morgan, 477 F.3d 326, 339 (6th
Cir.2007); see also Martin v. Heideman, 106 F.3d 1308, 1311 (6th Cir.1997).
Bifurcation would serve the best interest of judicial economy because
Hardy’s bad faith and negligence claims depend on the outcome of the breach-ofcontract claim. See Smith v. Allstate, 403 F.3d 401, 407 (6th Cir.2005) (affirming
bifurcation where the merits of the bad faith claim depended on resolution of the
underlying contract claim). In order to prevail on its bad faith claim under Kentucky
law, Hardy must prove that “the insurer is obligated to pay the claim under the
terms of the policy . . . .” Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky.1993)
(emphasis added).1 To prevail on its negligence claim, Hardy must show that Wells
1
The case cited by Hardy, Chubb Custom Ins. Co. v. Grange Mutual Casualty Co.,
No. 2:07-CV-1285, 2008 WL 4823069 (S.D.Ohio Nov. 3, 2008), relies on Ohio
law, which recognizes that bad faith in the adjustment of an insurance claim may
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Fargo was negligent in not procuring a policy which covered the spill. R. 1-1 at 8.
As neither the bad faith nor negligence claim can go forward until the coverage
claim is resolved, bifurcation would best serve the interests of judicial economy.
Bifurcation serves to avoid prejudice to the parties by eliminating potentially
unnecessary and cumbersome discovery. Bifurcating the trials would allow the
parties to engage in limited discovery for litigation of the coverage claim while
narrowing the other claims, thus reducing the time and money parties will need to
expend to litigate them. Additionally, bifurcation helps prevent confusion to the
jury by simplifying the issues. Bruckner v. Sentinel Ins. Co., LTD, No. 09-195-JBC,
2011 WL 589911, at *2 (E.D.Ky. Feb. 10, 2011); Sanders v. Motorists Mut. Ins.
Co., No. 08-37-DCR, 2008 WL 4534089, at *3 (E.D.Ky. Oct. 7, 2008) (explaining
that presenting a contract issue and bad faith issue to the jury “may unfairly bleed
the evidence for one into the evidence for the other”).
Consideration of the above factors weighs in favor of bifurcation, see Martin,
106 F.3d at 1311 (6th Cir. 1997); therefore, the coverage claim and counterclaim
will be bifurcated from the bad faith and negligence claims. Also, because
bifurcation is appropriate and a stay on discovery would promote judicial economy
and prevention of prejudice to parties, discovery on the bad faith and negligence
claims will be stayed pending the resolution of the underlying coverage claim.
II. Protective Order
exist without a valid claim for coverage. Penton Media, Inc. v. Affiliated FM Ins.
Co., 245 F.App’x 495, 501 (6th Cir., 2007).
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This court will deny the motion for protective order, as Nationwide has not
shown good cause why the deposition constitutes an undue burden. Fed. R. Civ.
Pro. 26(c). “The burden of establishing good cause for a protective order rests with
the movant,” and “[t]o show good cause, a movant . . . . must articulate specific
facts showing ‘clearly defined and serious injury’ resulting from the discovery
sought . . . “ Nix v. Sword, 11 Fed. Appx. 498, 500 (6th Cir. 2001)(internal
citations omitted). Nationwide argues that a protective order is needed because
the information sought in Hardy’s deposition is irrelevant to the contract claim and
would violate a bifurcation order. Nationwide also argues that a protective order is
appropriate because information sought to be discovered in the deposition is
protected by the work-product doctrine and/or attorney-client privilege. None of
these arguments meets the good cause standard because the discovery deposition,
when limited by the stay on discovery and evidentiary privileges, does not
constitute a serious injury or undue burden.
As this court has bifurcated this action and stayed discovery on the bad faith
claim, discovery is appropriate only on the coverage claim. Because several of the
deposition topics described by Hardy relate to the coverage claim2, a protective
order against the deposition in its entirety would be overreaching and prejudicial to
Hardy. A court may consider parol and extrinsic evidence involving the subject
matter of the contract where a contract is ambiguous or silent on a vital matter.
2
The “Definitions” and “Topics for Deposition” sections of Hardy’s notice of deposition include
issues such as whether a claim was covered and what actions, if any, Nationwide took to
communicate whether a claim was covered. R. 35 (i.e. “Claims Adjustment Activity” and “Loss
Control Activity”).
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Auto-Owners Ins. Co. v. Goode, 294 S.W.3d 32, 36 (Ky.App. 2009). At this
stage of litigation, a determination has not been made whether the contract at
issue is ambiguous. Thus, a deposition relating to the expectations of and/or
communications by parties regarding coverage could be relevant to a determination
of the coverage claim. See i.e. R. 35 “Definitions (6)” and “Topics for Deposition
(B)(8).”
Because Nationwide has not shown that the deposition in dispute would
impose an undue burden or expense, see Fed. R. Civ. P. 26(c), and a deposition
discussing matters related only to the coverage claim would not be seriously
injurious, see Nix, 11 Fed. Appx. at 500 (6th Cir. 2001)(internal citations omitted),
the court will not issue a protective order. Instead, the deposition noticed by Hardy
will be limited by this order’s stay on discovery to a discussion of topics related
only to the coverage claim. Accordingly,
IT IS ORDERED that the motions to bifurcate and stay discovery (R. 10, 11,
15) are GRANTED.
IT IS FURTHER ORDERED that the motion for protective order (R. 37) is
DENIED, so long as Hardy’s deposition, R. 35, complies with this order’s stay on
discovery.
IT IS FURTHER ORDERED that the parties shall file an amended joint report
and proposed scheduling order, to supplement the report filed on April 20, 2011 (R.
17), no later than 14 days after the date of entry of this order.
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IT IS FURTHER ORDERED that Hardy’s motion for pretrial conference (R. 40)
is DENIED as premature. By separate order, the court will enter a scheduling order
which sets all deadlines and case events, including a pretrial conference.
Signed on December 5, 2011
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