TIG Insurance Company v. Hospital Corporation of America
Filing
91
MEMORANDUM OPINION AND ORDER by Chief Judge Joseph H. McKinley, Jr. on 7/7/2014. For the reasons set forth, IT IS HEREBY ORDERED that the motion by Defendant, Hospital Corporation of America, to dismiss this action for lack of subject matter juris diction and for a hearing (DN 70 ) is DENIED and its motion for leave to file an amended answer and counterclaim (DN 72 ) is GRANTED. IT IS FURTHER ORDERED that the motion by Plaintiff, TIG Insurance Company, to bifurcate and stay discovery (DN 76 ) is GRANTED. Discovery relating to HCA's bad faith claims is stayed pending resolution of the underlying coverage dispute. cc: Counsel (CDR)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
BOWLING GREEN DIVISION
CIVIL ACTION NO. 1:11CV-00043-JHM
TIG INSURANCE COMPANY
PLAINTIFF
v.
HOSPITAL CORPORATION OF AMERICA
DEFENDANT
MEMORANDUM OPINION AND ORDER
This matter is before the Court on motions by Defendant, Hospital Corporation of
America, to dismiss this action for lack of subject matter jurisdiction [DN 70] and for leave to
file an amended answer and counterclaim [DN 72]. Fully briefed, this matter is ripe for decision.
I. BACKGROUND
Plaintiff, TIG Insurance Company (“TIG”), issued an excess workers’ compensation
insurance policy for the period of September 1, 1990, through September 1, 1992, to Defendant
Hospital Corporation of America’s predecessor Humana, Inc. During the policy period, Hospital
Corporation of America (“HCA”) was self-insured for the first $2,500,000 per occurrence;
thereafter, TIG was obligated to reimburse HCA for certain losses and expenses, pursuant to the
terms, conditions, endorsements of the excess workers’ compensation insurance policy. In
August of 1992, a former HCA employee, Eileen Gardner, submitted a workers’ compensation
claim to HCA. HCA notified TIG of the Gardner workers’ compensation claim in January 2007.
In response to the notice, TIG issued a reservation of rights letter dated February 12, 2007,
notifying HCA that its untimely notice of the claim “may serve to bar coverage under the terms
of the policy.” (Feb. 12, 2007 Reservation of Rights at 2.) On June 30, 2010, HCA requested
reimbursement on the Gardner claim from TIG. On September 10, 2010, TIG sent HCA a
second reservation of rights letter advising HCA that its prior reservation of rights remained in
effect and that it continued to believe that the claim may not be covered under the policy. (Sept.
10, 2010 Reservation of Rights at 5-8.)
In March of 2011, Plaintiff, TIG Insurance Company, filed this declaratory judgment
action seeking the Court’s declaration that it has no duty to defend or provide coverage for HCA
under TIG’s excess worker compensation insurance policy with regard to Gardner’s workers’
compensation claim. TIG argues that HCA failed to provide timely notice of the Gardner claim
to TIG in violation of a condition precedent to coverage under the excess workers’ compensation
policy. Specifically, TIG maintains that the policy required notice to be given to TIG
immediately upon an injured worker sustaining “disability for a period of nine months or more.”
(Roth Decl., Exhibit A, 2-3.) In July of 2011, HCA filed an answer and counterclaim against
TIG seeking declaratory relief that TIG has an obligation to indemnify HCA for all losses and
sums it has paid or has been obligated to pay for the Gardner claim in excess of the self-insured
retention and for breach of contract.
Over two and a half years later1, HCA filed this current motion to dismiss this action for
lack of subject matter jurisdiction arguing that the Court should refuse to exercise its
discretionary jurisdiction over TIG’s declaratory judgment claim. Additionally, HCA argues that
dismissal of the complaint is warranted under Fed. R. Civ. P. 12(b)(1) because there is not an
actual case and controversy between the parties. HCA also moves to amend its counterclaim in
order to add counterclaims for common-law bad faith and statutory bad faith against TIG and to
withdraw its declaratory judgment counterclaim against TIG.
1
HCA correctly points out that it filed the same motion to dismiss for lack of jurisdiction on April 27,
2012; however, due to the parties settlement negotiation, the Court dismissed the motion with leave to refile.
2
II. MOTION TO DISMISS
A. Declaratory Judgment Act
A court’s exercise of jurisdiction under the Declaratory Judgment Act, 28 U.S.C. §
2201(a), is not mandatory. Bituminous Cas. Corp. v. J & L Lumber Co., 373 F.3d 807, 812 (6th
Cir. 2004) (citing Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 494 (1942)). Instead,
the Sixth Circuit has held that courts must examine five factors to determine whether a case is
appropriate for declaratory judgment. Id. at 813. These factors are:
(1) whether the judgment would settle the controversy;
(2) whether the declaratory judgment action would serve a
useful purpose in clarifying the legal relations at issue;
(3) whether the declaratory remedy is being used merely
for the purpose of “procedural fencing” or “to provide an arena for
a race for res judicata”;
(4) whether the use of a declaratory action would increase
the friction between our federal and state courts and improperly
encroach on state jurisdiction; and
(5) whether there is an alternative remedy that is better or
more effective.
Id. (citing Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 968 (6th Cir. 2000) (citations omitted)).
1. Settlement of the Controversy & Clarification of Legal Relations
In the context of lawsuits by insurance companies to determine policy coverage
obligations, most courts consider the first and the second factors together. See Scottsdale Ins.
Co. v. Flowers, 513 F.3d 546, 557 (6th Cir. 2008) (noting that “it is almost always the case that if
a declaratory judgment will settle the controversy, then it will clarify the legal relations in
issue”). However, there is a split within the Sixth Circuit regarding each factor. One line of
cases suggests that the declaratory judgment action must settle the entire controversy that is
ongoing in state court and clarify the legal relationship between all the parties. See Travelers
Indem. Co. v. Bowling Green Professional Associates, PLC, 495 F.3d 266, 271 (6th Cir. 2007)
3
(holding that the failure to resolve the controversy or clarify the legal relationship between all the
parties in the underlying state case weighed against exercising jurisdiction). Another line of
cases suggests that the declaratory judgment need only settle the controversy and clarify the
relations between those involved in the declaratory judgment action. See Northland Ins. Co. v.
Stewart Title Guar. Co., 327 F.3d 448, 454 (6th Cir. 2003) (holding that the first factor weighed
in favor of accepting jurisdiction because the declaratory judgment would settle the insurance
coverage issue between the parties).
The Sixth Circuit recognized this apparent conflict in Flowers, noting that “[t]he
difference between these lines of cases appears to rest on the competing policy considerations of
consolidating litigation into one court versus permitting a party to determine its legal obligations
as quickly as possible.” 513 F.3d at 555. The Court then went on to present an alternative
explanation, stating that “the contrary results in these cases might also be explained by their
different factual scenarios.” Id. Specifically, where the Sixth Circuit required the declaratory
action to resolve the entire controversy and clarify the legal relations between all parties, there
were factual disputes regarding the insured that would have to be resolved in the declaratory
judgment action. See, e.g., Bituminous Cas. Corp., 373 F.3d at 813 (recognizing a dispute as to
whether the injured party was the insured’s employee). In each of the cases where the Sixth
Circuit reached the opposite conclusion, such factual disputes did not exist. See, e. g., Northland
Ins. Co., 327 F.3d at 454.
Some federal courts are not persuaded by these Flowers explanations, finding that the
Sixth Circuit has essentially adopted contrary, irreconcilable positions. See, e.g., Grange Mut.
Cas. Co. v. Safeco Ins. Co. of Am., 565 F. Supp. 2d 779, 787 (E.D. Ky. 2008). The Court shares
many of these courts’ concerns. However, there are factual distinctions between the lines of
4
cases that post- Flowers courts have found important. See, e.g., Auto Owners Ins. Co. v.
Aldridge, 2009 WL 4782115, *2–3 (E.D. Ky. Dec. 7, 2009). Therefore, as stated in previous
opinions, this Court joins those cases in concluding that where the district court in the
declaratory judgment action will only have to decide purely legal questions or engage in factfinding that does not affect the parties in the underlying action, the declaratory action need only
settle the controversy and clarify the legal relations between the parties in the district court.
In this case, it appears that the only issues to be decided by the Court in the declaratory
relief action are whether HCA failed to provide timely notice of the Gardner claim and whether
TIG is entitled to deny coverage as a result. To make a determination on these issues, the Court
will have to examine the policy language, determine when notice was required to be given under
the policy, and determine if the notice given by HAC to TIG was timely. Therefore, here, the
Court will not be addressing the merits of the Gardner’s workers’ compensation claim. Further,
the issues presented in this case will not affect or disturb the resolution of the issues presented in
the workers’ compensation case. Accordingly, the Court finds that this declaratory action will
settle the parties’ controversy2 and clarify the coverage issues between the insurance company
and its insured. The first two factors weigh in favor of exercising jurisdiction.
2. Procedural Fencing and Res Judicata
“The third factor is meant to preclude jurisdiction for ‘declaratory plaintiffs who file their
suits mere days or weeks before the coercive suits filed by a ‘natural plaintiff’ and who seem to
have done so for the purpose of acquiring a favorable forum.’” Flowers, 513 F.3d at 558 (citing
AmSouth Bank v. Dale, 386 F.3d 763, 788 (6th Cir. 2004)). The Sixth Circuit has held that it is
2
If the Court were to permit the proposed amendment to the Defendant’s counterclaim and permit a bad
faith claim, the declaratory judgment may not settle the question of whether TIG acted in bad faith. Even if the
Court were to decide that the first factor weighs against exercising jurisdiction, it would not change the outcome of
the decision.
5
“reluctant to impute an improper motive to a plaintiff where there is no evidence of such in the
record.” Id.
HCA maintains that it is the natural plaintiff in this case because it is claiming a right to
coverage for the Gardner claim. HCA contends that this factor weighs in favor of dismissing
TIG’s declaratory judgment action because TIG sued HCA after participating in the defense of
the Gardner claim for over four years and participating in settlement negotiations. HCA argues
that by suing first, TIG seized for itself the valuable position of being the plaintiff in the action
and being able to present evidence first. While acknowledging that insurance companies are
permitted to bring declaratory judgment actions in certain circumstances, HCA argues that TIG
is abusing the declaratory judgment remedy in order to gain a procedural advantage over the
natural plaintiff by filing first.
In this case, contrary to the arguments of the Defendant, there is no evidence of a “race
for judicata” or an improper motive. TIG issued a reservation of rights to HCA on February 12,
2007, less than a month after being notified of the Gardner claim. The letter identified its
concerns regarding HCA’s notice in reporting the Gardner claim. Additionally, on June 30,
2010, HCA requested reimbursement on the Gardner claim from TIG. In September of 2010,
TIG sent a second reservation of rights letter reiterating its concerns regarding the delayed
reporting of the claim. TIG then waited seven months after issuing its second reservation of
rights prior to filing suit.
The undisputed facts belie HCA’s argument of a race to the
courthouse. Additionally, the fact that TIG participated in the defense of the Gardner claim does
not negate TIG’s reservation of rights. Furthermore, counsel indicated that HCA would have
chosen the federal district court forum. For these reasons, the Court finds that factor weighs in
favor of exercising jurisdiction.
6
3. Increase of Friction and Improper Encroachment
As to the fourth factor, the Sixth Circuit has held that courts must analyze three additional
sub-factors when determining whether an exercise of jurisdiction would increase friction
between the federal and state courts. These factors are:
(1) whether the underlying factual issues are important to
an informed resolution of the case;
(2) whether the state trial court is in a better position to
evaluate those factual issues than is the federal court; and
(3) whether there is a close nexus between the underlying
factual and legal issues and state law and/or public policy, or
whether federal common or statutory law dictates a resolution of
the declaratory judgment action.
Bituminous Cas. Corp., 373 F.3d at 814–15 (citing Scottsdale, 211 F.3d at 968). The Court
considers each sub-factor in turn.
Importance of Underlying Factual Issues to Resolution of Case. The first sub-factor
weighs in favor of exercising jurisdiction, as the coverage question is not dependent on the
outcome of a factual inquiry made in the underlying state workers’ compensation claim. As
discussed above, the main issue to be decided in this action is whether TIG is obligated to defend
or provide coverage for HCA under TIG’s excess worker compensation insurance policy with
regard to Gardner’s workers’ compensation claim.
Since this issue can be answered by
referencing the insurance policy, any underlying factual issues in the workers’ compensation
claim are not important to an informed resolution of this case. The first sub-factor thus weighs in
favor of exercising jurisdiction.
State Court's Position to Evaluate Factual Issues. The Court also finds that the second
subfactor weighs in favor of exercising jurisdiction. As to this factor, the question is whether the
Kentucky court is in a better position to evaluate the factual issues than the federal court. It is
not. Again, there is little overlap, if any, between the factual issues presented in the workers’
7
compensation action and this declaratory judgment action, and the state court is not in a better
position to address the issues presented. Importantly, the insurance company is not a party to the
workers’ compensation claim and neither the scope of insurance coverage nor the obligation to
defend is before a state court.
Close Nexus between Issues and State Law and Policy. With respect to the third subfactor, the Court finds that it does weigh against exercising jurisdiction. The interpretation of
insurance contracts is a “question[ ] of state law with which the Kentucky state courts are more
familiar and, therefore, better able to resolve.” Bituminous, 373 F.3d at 815. Thus, there is a
close nexus between the underlying legal issues and state policy and this sub-factor weighs
against exercising jurisdiction. Nevertheless, this does not mean that the Court must abstain from
hearing the matter. After all, “not all issues of insurance contract interpretation implicate such
fundamental state policies that federal courts are unfit to consider them.” Flowers, 513 F.3d at
561. In this case, the question is whether HCA timely reported the claim to TIG. Kentucky
courts are clear on the interpretation of contractual language. See Bituminous Cas. Corp. v.
Kenway Contracting, Inc., 240 S.W.3d 633, 638 (Ky. 2007). The Court thus finds that while the
third sub-factor weighs against the exercise of jurisdiction, this does not mandate dismissal of the
case. The overall effect of the three sub-factors (and thus the overall effect of the fourth factor)
still supports the Court’s exercise of jurisdiction.
4. Alternative Remedy
Finally, the Court must consider the fifth factor: whether there is an alternative remedy
that would be better or more effective. As is almost always the case, there are alternative
remedies. For example, Kentucky provides a declaration of rights procedure. See K.R.S. §
418.040. The Court finds, however, that the facts do not suggest that the Kentucky state court
8
forum would be better or more effective for this declaratory judgment action. Additionally, both
parties agree that this Court the proper venue for resolution of the dispute. Because the Court
finds that the relevant factors weigh in favor of its exercise of jurisdiction, the Court will
exercise federal discretionary jurisdiction over this declaratory judgment action.
B. Actual Controversy
Federal Rule of Civil Procedure 12(b)(1) provides that a party may file a motion asserting
“lack of subject-matter jurisdiction.” Fed. R. Civ. P. 12(b)(1). “Subject matter jurisdiction is
always a threshold determination,” American Telecom Co., L.L.C. v. Republic of Lebanon, 501
F.3d 534, 537 (6th Cir. 2007) (citing Steel Co. v. Citizens for a Better Environment, 523 U.S. 83,
101 (1998)), and “may be raised at any stage in the proceedings,” Schultz v. General R.V.
Center, 512 F.3d 754, 756 (6th Cir. 2008). “A Rule 12(b)(1) motion can either attack the claim of
jurisdiction on its face, in which case all allegations of the plaintiff must be considered as true, or
it can attack the factual basis for jurisdiction, in which case the trial court must weigh the
evidence and the plaintiff bears the burden of proving that jurisdiction exists.” DLX, Inc. v.
Kentucky, 381 F.3d 511, 516 (6th Cir. 2004). “A facial attack on the subject-matter jurisdiction
alleged in the complaint questions merely the sufficiency of the pleading.” Gentek Bldg.
Products, Inc. v. Sherwin–Williams Co., 491 F.3d 320, 330 (6th Cir. 2007). “If the court
determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the
action.” Fed. R. Civ. P. 12(h)(3).
HCA argues that dismissal of the complaint is warranted under Fed. R. Civ. P. 12(b)(1)
because there is not an actual case and controversy between the parties. HCA maintains that TIG
has admitted that it has not denied the claim, but instead requests the Court to advise it on how it
should handle HCA’s claim. “The Sixth Circuit has held that a ‘declaratory judgment generally
9
is sought before a completed injury-in-fact has occurred. . . . Nevertheless, when seeking
declaratory or injunctive relief, the plaintiff must demonstrate actual present harm or a
significant possibility of future harm to justify pre-enforcement relief.’” KeyBank National
Association v. First American Title Ins. Co., 2011 WL 4625969, *3 (N.D. Ohio Sept. 30,
2011)(quoting Peoples Rights Organization, Inc. v. City of Columbus, 152 F.3d 522, 527 (6th
Cir. 1998) (internal citations omitted)). “The Sixth Circuit explained that ‘it is clear that an
individual does not have to await the consummation of threatened injury to obtain preventive
relief. . . . Rather, if the injury is certainly impending, that is sufficient.’” Id. (citing Babbitt v.
United Farm Workers Nat. Union, 442 U.S. 289 (1979)).
Applying these standards, the Court finds that TIG has pleaded an actual controversy
sufficient to survive dismissal. TIG has pleaded actual harm, for example, HCA requested
reimbursement on the Gardner claim from TIG in June of 2010, and, HCA has refrained from
granting the request and issued reservation of rights letters advising HCA that it believed that it
has no duty to defend or provide coverage for Defendant under the excess worker’s
compensation insurance policy because HCA failed to provide timely notice of the Gardner
claim to TIG. Additionally, in TIG’s complaint, TIG requests the Court to declare that “TIG has
no legal duty or obligation, whether contractual, equitable or otherwise to DEFENDANT
HOSPITAL CORPORTATION OF AMERICA under TIG’s excess worker compensation
insurance policy, with regard to the workers’ compensation claim of . . . Eileen Gardner.”
(Complaint, Prayer for Relief ¶ 1.)
The purpose of the declaratory judgment action on an insurance policy is to determine the
extent of coverage, the duty to defend, or other issues arising from the insurance contract. Based
on the allegations contained in the complaint and given HCA seeks reimbursement, the Court
10
finds that TIG seeks declaratory relief on an actual case or controversy. Accordingly, HCA’s
motion to dismiss is denied.
III. MOTION TO AMEND ANSWER AND COUNTERCLAIM
Defendant seeks leave to amend its Answer and Counterclaim in order to add
counterclaims for common law bad faith and statutory bad faith against TIG and to withdraw its
declaratory judgment counterclaim. TIG does not object to HCA’s motion to withdraw its
declaratory judgment action. However, TIG objects to the motion to amend the counterclaim to
add the bad faith claims. In the event the Court permits HCA to amend its counterclaim, TIG
moves to bifurcate and hold discovery in abeyance of the bad faith claims.
A. Motion to Amend
Fed. R. Civ. P. 15(a)(2) states that after a responsive pleading has been served, “a party
may amend its pleading only with the opposing party’s written consent or the court’s leave.” A
district court should freely grant a plaintiff leave to amend a pleading “when justice so requires.”
Fed. R. Civ. P. 15(a)(2). The determination of whether the circumstances of a case are such that
justice would require the allowance of an amendment is committed to the sound discretion of the
district court. Hayden v. Ford Motor Co., 497 F.2d 1292, 1294 (6th Cir. 1974). A trial court may
consider a number of factors in making this determination, including undue delay, bad faith or
dilatory motive on the part of the movant, undue prejudice, futility of the amendment, or the
repeated failure to cure deficiencies by amendments previously allowed. Foman v. Davis, 371
U.S. 178, 182 (1962). In the absence of any of these factors, a plaintiff should be afforded the
opportunity to amend its complaint. Id.
First, TIG argues that the motion to amend should be denied because of HCA’s undue
delay in seeking the amendment. TIG contends that HCA was aware at the time it filed its
11
answer and counterclaim of TIG’s reservation of rights and position that HCA failed to timely
report the claim. While delay alone ordinarily does not justify denial of leave to amend, at some
point “delay will become ‘undue,’ placing an unwarranted burden on the court, or will become
‘prejudicial,’ placing an unfair burden on the opposing party.” Morse v. McWhorter, 290 F.3d
795, 800 (6th Cir. 2002)(quoting Adams v. Gould, Inc., 739 F.2d 858, 863 (3d Cir. 1984)).
“Courts typically find undue delay in cases that are post-judgment . . . and in cases where
discovery has closed and dispositive motions deadlines have passed.” Owners Insurance Co. v.
Hutsell, 2014 WL 2460132, *3 (E.D. Tenn. June 2, 2014). Here, the delay is not undue given the
fact that limited discovery has taken place and no scheduling order has been entered in the case.
Furthermore, TIG has not articulated that delay would cause them any prejudice. Accordingly,
the undue delay argument fails.
Second, TIG argues that the amendment of the counterclaim is futile. “A proposed
amendment is futile if the amendment could not withstand a Rule 12(b)(6) motion to dismiss.”
Rose v. Hartford Underwriters Ins. Co., 203 F.3d 417, 420 (6th Cir. 2000) (internal citations
omitted). “The bad faith inquiry essentially probes whether, ‘in the investigation, evaluation,
and processing of the claim, the insurer acted unreasonably and either knew or was conscious of
the fact that its conduct was unreasonable.’” Philadelphia Indem. Ins. Co. v. Youth Alive, Inc.,
732 F.3d 645, 649-650 (6th Cir. 2013)(quoting Phelps v. State Farm Mut. Auto. Ins. Co., 680
F.3d 725, 732 (6th Cir. 2012) (internal quotation marks omitted). In its proposed counterclaim,
HCA brings both statutory and common law bad faith claims alleging in part that TIG failed to
implement reasonable standards for the prompt investigation of HCA’s claim under the policy
and has refused to pay TIG’s claim in violation of the Kentucky Unfair Claims Settlement
Practices Act and common law duty of good faith and fair dealing. (Answer and Counter claim
12
¶30-¶33, ¶51-¶53.) A review of the counterclaim reveals that HCA has sufficiently pleaded facts
to support the bad faith claims. Because the proposed bad faith claims could withstand a Rule
12(b)(6) motion to dismiss, HCA’s proposed amendment is not futile. As such, the motion to
amend is granted.
B. TIG Motion to Bifurcate
TIG moves to bifurcate the bad faith claims in the event the Court permitted HCA to
amend its counterclaim. Federal Rule of Civil Procedure 42(b) provides that, “[f]or convenience,
to avoid prejudice, or to expedite and economize, the court may order a separate trial of one or
more separate issues, claims, [or] crossclaims.” “Courts should look to case-specific facts to
determine whether bifurcation is proper, placing the burden on the party seeking bifurcation to
show separation of issues is the most appropriate course.” Nationwide Mutual Fire Ins. Co. v.
Jahic, 2013 WL 98059, *2 (W.D. Ky. Jan. 7, 2013)(citing Brantley v. Safeco Ins. Comp. of
America, 2011 WL 6012554, at *1 (W.D. Ky. Dec. 1, 2011)). The Sixth Circuit listed “potential
prejudice to the parties, the possible confusion of the jurors, and the resulting convenience and
economy” as other important considerations in determining whether to bifurcate. Brantley, 2011
WL 6012554, *1 (quoting Wilson v. Morgan, 477 F.3d 326, 339 (6th Cir. 2007)).
Numerous courts “throughout Kentucky, and beyond, . . . have considered insurance
contract claims and bad faith claims and consistently granted motions to bifurcate and stay
discovery.” Everage v. Safeco Inc. Co. of Illinois, 2013 WL 5888287, *1 (E.D. Ky. 2013).
Bruckner v. Sentinal Ins. Co., 2011 WL 589911, *2 (E.D. Ky. Feb. 10, 2011); Brantley, 2011
WL 6012554, at *2 (citing several cases); Hoskins v. Allstate Prop. & Cas. Ins. Co., 2006 WL
3193435, at *2 (E.D. Ky. Nov. 2, 2006). Bifurcation is so prevalent in this area because of the
three elements that must be proven to prevail on a bad faith claim:
13
(1) the insurer is obligated to pay the claim under the terms of the
policy; (2) the insurer lacks a reasonable basis in law or fact for
denying the claim; and (3) the insurer either knew there was no
reasonable basis for denying the claim or acted with reckless
disregard for whether such a basis existed.
Everage, 2013 WL 5888287, *2 (citing Bruckner, 2011 WL 589911, *2). Thus, HCA prevails
on the breach of contract action, HCA will be unable to properly support all of those elements.
Thus, “one issue may obviate the need to try another issue . . . and judicial economy may be
furthered by bifurcating the claims.” Id.; Smith v. Allstate, 403 F.3d 401, 407 (6th Cir. 2005)).
Furthermore, the Court recognizes TIG’s prejudice inherent in trying the bad-faith claim
simultaneously with the parties’ coverage issue. The risk of prejudice to either party is minimal.
Therefore, the Court grants TIG’s motion to bifurcate.
C. Motion to Stay Discovery
The decision to stay discovery on a bad-faith claim while the underlying contract claim is
pending is likewise within the discretion of the trial court. Smith v. Allstate Ins. Co., 403 F.3d
401, 407 (6th Cir. 2005). “Where the bad-faith claim depends on resolution of the underlying
contractual dispute regarding the policy of insurance, it is reasonable for a court to resolve the
coverage question before allowing the bad-faith claim to proceed.” Nationwide Mut. Fire Ins.,
2013 WL 98059, *2. “Staying discovery of the bad-faith claim pending resolution of the
underlying contractual dispute would both prevent prejudice and further judicial economy.” Id.
at *3 (citing Brantley, 2011 WL 6012554, at *3; Bruckner, 2011 WL 589911, at *2; Secura Ins.
Co. v. Gorsick, 2008 WL 152101, at *2 (W.D. Ky. Jan. 15, 2008); Pollard v. Wood, 2006 WL
782739, *2–3 (E.D. Ky. Mar. 27, 2006)). Accordingly, the Court finds that staying discovery of
HCA’s bad-faith claims pending resolution of the coverage issue would prevent prejudice,
eliminate potentially unnecessary litigation expenses, and also further the interests of judicial
14
economy. Forest B. White, Jr. Masonry, Inc. v. ABC Caulking Contractors, Inc., 2014 WL
991734, *1 (W.D. Ky. March 13, 2014). Accordingly, the Court will grant TIG’s motion to stay
discovery.
IV. CONCLUSION
For the reasons set forth above, IT IS HEREBY ORDERED that the motion by
Defendant, Hospital Corporation of America, to dismiss this action for lack of subject matter
jurisdiction and for a hearing [DN 70] is DENIED and its motion for leave to file an amended
answer and counterclaim [DN 72] is GRANTED.
IT IS FURTHER ORDERED that the motion by Plaintiff, TIG Insurance Company, to
bifurcate and stay discovery is GRANTED. Discovery relating to HCA’s bad faith claims is
stayed pending resolution of the underlying coverage dispute.
cc: counsel of record
July 7, 2014
15
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?