Shannon et al v. New York Central Mutual Insurance Company
Filing
35
MEMORANDUM (Order to follow as separate docket entry) re 19 MOTION to Quash filed by Cheryl Mary Shannon, Robert F. Shannon, 12 MOTION to Strike Pursuant to Rule 12(f) filed by Cheryl Mary Shannon, Robert F. Shannon Signed by Honorable Richard P. Conaboy on 11/20/13. (cc)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
Cheryl Mary Shannon and
:
Robert F. Shannon,
:
assignees of Marcial Gonzalez :
:
Plaintiffs
:
:
v.
:
:
New York Central Mutual
:
Insurance Company
:
:
Defendant
:
Case No. 3:13-CV-1432
(Judge Richard P. Conaboy)
___________________________________________________________________
Memorandum
We consider here two motions. The first of these is a Motion
to Strike (Doc. 12) filed by Plaintiffs Cheryl Marie and Robert F.
Shannon (“Plaintiffs”) on July 23, 2013.
Specifically, Plaintiffs
seek to strike Paragraph 120 of the Affirmative Defenses (Doc. 10)
filed by Defendant New York Central Mutual Life Insurance Company
(“Defendant” or “New York Central”) on July 8, 2013.
The second
motion is Plaintiff’s Motion to Quash Subpoenas (Doc. 19) filed
September 10, 2013.
The object of this motion is to quash numerous
subpoenas directed to various employers and medical providers who
have treated Plaintiff Cheryl Marie Shannon.
The parties have
briefed their respective positions and both motions are ripe for
disposition. We shall consider each in turn.
I.
Background.
This case concerns Plaintiff’s allegations that Defendant, the
1
insurer of the vehicle that caused injuries to Plaintiff Cheryl
Marie Shannon in an automobile accident that occurred on March 6,
2003, violated its duty of good faith to its insured by failing to
offer the policy limits ($25,000.00) in settlement in a timely
manner and, thus, violated the Pennsylvania Bad Faith Statute, 42
Pa. C.S.A. § 8371.
Plaintiffs contend further that between July
1, 2003 (the date Plaintiff’s counsel first communicated with the
Defendant) and February 24, 2004 (the date that Plaintiffs rejected
Plaintiff’s final offer of ($12,500.00) their counsel provided
Defendant with ample medical documentation to conclude that the
Plaintiff’s damages easily exceeded the policy limits.
On March 8, 2004, Plaintiffs filed a lawsuit in the Lackawanna
County Court of Common Pleas against Marcial Gongalez, the driver
of the insured vehicle.
1
Plaintiffs aver that Defendant’s counsel
finally offered the $25,000.00 policy limit on September 1, 2004.
Plaintiff’s contend that they rejected this offer because it came
only after they had incurred the time and expense of written
discovery and depositions.
(Doc. 9 at ¶ 29).
This case ultimately
went to trial and concluded with a jury award of $1,106,000.00 that
resulted in a molded verdict of $906,000.00 in compensatory damages
against Defendant’s insured after deducting $200,000.00 that the
Plaintiffs had received from their own carrier.
1
The Plaintiffs have standing to sue in this case due to an assignment from Marcial
Gonzalez, Defendant’s insured in the Lackawanna County personal injury action.
2
II.
Legal Discussion.
A.
Plaintiff’s Motion to Strike.
Paragraph 120 of Defendant’s Answer with Affirmative Defenses
sets forth a lengthy series of allegations to the effect that
Plaintiff’s counsel in the Lackawanna County action orchestrated
what Defendant describes as a “bad faith set-up” to obtain punitive
damages available under the Pennsylvania Bad Faith Statute that
dwarfed the minimal limits of Defendant’s insured’s policy.
2
Beyond that, paragraph 120(g) and (h) attribute to Plaintiff’s
trial counsel violations of unspecified state and federal criminal
statutes.
The Pennsylvania Bad Faith Statute, 42 Pa. C.S.A. §8371,
states:
In an action arising under an insurance policy, if the
Court finds that the insurer has acted in bad faith
toward the insured, the Court may take all the following
actions:
(1)
Award interest on the amount of the claim from the date
the claim was made by the insured in an amount equal to
the prime rate of interest plus 3%.
(2)
Award punitive damages against the insurer.
(3)
Assess court costs and attorneys fees against the
2
Defendant defines this “bad faith set-up” as “a quick settlement demand, followed by a
quick closing of the window before important information is provided so that any subsequent limits
offers by the insurer are bemoaned as too late.” (Doc. 18 at 9, n. 3).
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insurer.
As a federal court sitting in diversity it is axiomatic that
we must apply the substantive law of Pennsylvania here.
The
standard for determining whether an insurer has acted in bad faith
under Pennsylvania Law has been set forth in a two-part test, both
parts of which must be supported with clear and convincing
evidence: (1) that the insurer lacked a reasonable basis for
denying benefits; and (2) that the insurer knew or recklessly
disregarded the fact that it lacked such a reasonable basis.
Terletsky v. Prudential Property and Casualty Insurance Company,
437 Pa. Super. 108, 125 (1994), appeal denied, 540 Pa. 641 (1995).
Our Circuit has predicted that, should the Pennsylvania Supreme
Court actually confront the question of how to determine bad faith,
the Pennsylvania Supreme Court would adopt the Terletsky test.
See
Klinger v. State Farm Mutual Insurance Company, 115 F.3d 230, 233
(1997).
Accordingly, this Court is compelled to look at this case
through the Terletsky lens.
In order to assess whether Defendant exhibited bad faith visa-vis its insured, it is necessary to review the various
communications that passed back and forth between the insurer and
Plaintiff’s counsel during the negotiations that preceded the
filing of the third party action in the Lackawanna County Court of
Common Pleas.
Only in that way can the fact finder answer the
ultimate question here - - whether, at some point before September
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1, 2004, when Defendant finally offered its policy limits, the
Defendant had enough information to indicate that the injured
party’s damages exceeded the value of the policy limits and, thus,
the Defendant unreasonably exposed its insured to the sort of
financially crippling excess verdict that resulted in this case.
Most of Paragraph 120 seems reasonably related to New York
Central’s maintenance of its defense in this matter.
Rule 8 (c) of
the Federal Rules of Civil Procedure provides, in pertinent part,
that a party must set forth various enumerated affirmative defenses
“and any other matter constituting an avoidance or affirmative
defense.”
The Court finds that, for the most part, the allegations
contained in Paragraph 120 would, if proven, assist in establishing
an “avoidance” under the terms of Rule 8 (c).
3
Accordingly most of
Paragraph 120 will remain intact.
However, the Court also concludes that subsections “g” and “h”
of Paragraph 120 must be stricken.
Subsections “g” and “h”
attribute to the Plaintiff’s counsel violations of unspecified
state and federal criminal statutes.
In light of the fact that
there are literally hundreds of such statutes, the allegations in
Paragraph 120 (g) and (h) do not comport with the “fair notice”
requirement that represents the core of the pleadings process in
the Federal Rules of Civil Procedure.
3
More specifically, to comply
The Court also finds that these allegations may not provide an affirmative defense because
Defendant cites no Pennsylvania appellate case that confirms the existence of a “bad faith set-up”
defense.
5
with the pleading requirements of Rule 8(a)(2) that the pleader
provide “a short and plain statement of the claim”, it is also
necessary that the pleading give fair notice of the nature of the
claim and the grounds upon which it rests.
Swierkiewicz v. Sorema
N. A. 534 U.S. 506, 512 (2002), citing Conley v. Gibson, 335 U.S.
41, 47 (1957); see also Phillips v. County of Allegheny, 515 F.3d
224, 233 (3d Cir. 2008).
Subsections “g” and “h” of Paragraph 120
simply do not comport with the above-referenced “fair notice”
standards and accordingly must be stricken.4
An Order consistent
with this determination will be filed contemporaneously with this
memorandum.
B.
Plaintiff’s Motion to Quash.
Defendant has served subpoenas on Plaintiff’s counsel for
various records concerning Plaintiff Cheryl Marie Shannon that are
in the possession of numerous medical providers, three employers
and two insurers.
Plaintiff seeks to quash these subpoenas as
unduly burdensome, duplicative and irrelevant.
With respect to Plaintiff’s assertion that these subpoenas are
unduly burdensome, we note that none of the record custodians for
the information Defendant seeks have advised the Court that it
would be oppressive or unduly burdensome to comply with Defendant’s
request.
Moreover, in this day of computerized record keeping,
4
The Court also notes that this is a civil matter and the Court does not need to hear further
hazy allegations of criminal behavior.
6
such a claim would be facially suspect.
The Court will not quash
these subpoenas on the basis that they are unduly burdensome.
With respect to Plaintiff’s assertion that the information
sought through these subpoenas has already been provided to the
Defendant during the course of the action in the Lackawanna County
Court of Common Pleas, Defendant contends that the only records
received by its counsel in the Lackawanna County action via
subpoena were provided by Fitness Quest, USAA, and Fortis
Insurance.
(Doc. 22 at 12).
Consistent with this admission, the
subpoenas directed to Fitness Quest, USAA, and Fortis Insurance
will be quashed as duplicative.
With respect to Plaintiff’s assertion that the information
sought through these subpoenas is categorically irrelevant,
Plaintiff contends: “The focus of the relevant evidence for the
fact finder in this action is what evidence the Defendant was
provided as to the Plaintiff’s injuries and damages, when such
evidence was obtained, and what, i.e. investigation and evaluation,
the Defendant did with said evidence.”
(Doc. 21 at 10-11).
In
response, the Defendant asserts that Plaintiff is seeking to
improperly narrow the scope of this Court’s inquiry.
Defendant
contends that “...if there is a reasonable basis for delaying
resolution of a claim, even if it is clear that the insured did not
rely on that reason, there cannot, as a matter of law, be bad
faith....” Williams v. Hartford Casualty Insurance Company, 83
7
F.Supp. 2d 567, 574 (ED.Pa. 2000).
The Court must observe that, while the opinions of other
district judges are entitled to persuasive weight, they do not
constitute controlling precedent.
This Court is mindful that the
purpose behind the Pennsylvania Bad Faith Statute was the
legislature’s intent to protect insureds from unreasonable denials
of coverage.
See General Accident Insurance Company v. Federal
Kemper Insurance Company, 452 Pa. Super. 581, 587-88 (1996). Given
the remedial purpose underpinning the Bad Faith Statute, we are not
persuaded that permitting an insurer to evade its statutory
obligation due to some fortuitous fact to which it was oblivious is
consistent with the legislature’s intent.
5
Nevertheless,
consistent with the liberal policies that govern discovery in the
federal courts, we will direct Plaintiff to provide the records
requested in the subpoenas in question (other than those listed
above as duplicative)with the proviso that these subpoenas should
be interpreted to include only the relevant records as they existed
on November 9, 2010, the date the jury verdict in the Lackawanna
County Court of Common Pleas fixed the value of Plaintiff’s
damages.
5
One exception might be a case in which a claimant purposefully obstructs an insurer’s
investigation of a claim.
8
An Order consistent with this determination will be filed
contemporaneously with this Memorandum.
BY THE COURT
s/Richard P. Conaboy
Honorable Richard P. Conaboy
United States District Court
Dated: November 20, 2013
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