Poznanski v. Pennsylvania Life Insurance Company
Filing
12
DECISION AND ORDER signed by Judge Rudolph T Randa on 7/5/2011 granting 6 Defendants Motion to Bifurcate the breach of contract and bad faith claims; and granting 6 Defendant's Motion to Stay discovery on the bad faith claim. (cc: all counsel) (Zik, Linda)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
WALTER M. POZNANSKI, JR.
Plaintiff,
Case No. 11-C-260
-vsPENNSYLVANIA LIFE INSURANCE CO.,
Defendant.
DECISION AND ORDER
The Plaintiff, Walter M. Poznanski, Jr. (“Poznanski”), filed this action alleging
state law claims for breach of contract (first cause of action) and bad faith denial of benefits
after his claim for disability insurance benefits was declined by the Defendant, Pennsylvania
Life Insurance Company (“Penn Life”). He commenced the action in the Circuit Court for
Milwaukee County, Wisconsin.
Thereafter, Penn Life removed the action to this district court, pursuant to 28
U.S.C. § 1441(a), invoking diversity jurisdiction based on 28 U.S.C. § 1332, because the
action is between citizens of different States, and the matter in controversy exceeds the sum
or value of $75,000, exclusive of interest and costs. Venue is proper in this District pursuant
to 28 U.S.C. § 1391(a) because the alleged events underlying the Complaint occurred within
this District. The lawsuit was randomly assigned to this Court.
Penn Life’s motion, pursuant to Rule 42(b) of the Federal Rules of Civil
Procedure, to bifurcate and stay discovery on the bad faith claim is fully briefed. The motion
is addressed herein.
Motion for Bifurcation
In seeking bifurcation of the breach of contract and bad faith claims and a stay
of discovery on the bad faith claim, Penn Life relies on Dahmen v. American Family Mutual
Insurance Co., 635 N.W.2d 1 (Wis. Ct. App. 2001). While Poznanski agrees that bifurcation
of the claims is correct pursuant to Dahmen, he opposes the request to stay discovery on the
bad faith claim, contending that “virtually every fact that elicited in discovery will overlap”
the breach of contract and the bad faith causes of action because they flow from the same
nexus of facts. (Pl.’s Br. Opp’n, 2 [unnumbered].)
Complaint
Poznanski alleges that he is entitled to disability benefits from his truck driving
occupation as of June 8, 2009, onward, as a result of a motor vehicle accident that occurred
on October 23, 2000. He quotes the following portion of the policy that he asserts affords
coverage:
We will pay the Total Disability Benefits shown in the
Application if: (1) a Motor Vehicle Injury causes Total
Disability within 30 days of the accident; and (2) you or your
Covered Spouse are under the Regular and Personal Care of a
Physician. (If the benefits are payable for less than one month,
the amount payable for each day will be 1/30th of the monthly
benefit.) Payment will be made as long as such Total Disability
and Regular and Personal Care of a Physician continue.
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(Compl. ¶ 5). Poznanski alleges that, following the October 30, 2000, accident, the status
of his disability improved for a period of time; however, as of June 8, 2009, the injury from
the October 23, 2000, accident progressed so that he became disabled again prompting him
to submit the disability claim to Penn Life. Penn Life denied the claim in December 3, 2009,
and July 19, 2010, letters. Thereafter, counsel for Poznanski submitted an October 8, 2010,
letter to Penn Life asserting that Poznanski was entitled to benefits. On October 25, 2010,
Penn Life continued to deny the claim – it disagreed that the disability was the result of
Poznanski’s injuries in the October 23, 2000, accident, noting he had returned to work and
worked more than six years after the accident. (Compl. ¶ 8).
Analysis
Under Federal Rule of Civil Procedure 42(b), a district judge may separate
claims or issues for trial if the separation would prevent prejudice to a party or promote
judicial economy. Chlopek v. Fed. Ins. Co., 499 F.3d 692, 700 (7th Cir. 2007). Wisconsin
substantive law 1 provides that disputes regarding coverage typically can be determined by
comparing the policy’s provisions to the Complaint, Estate of Sustache v. Am. Family Mut.
Ins. Co., 751 N.W.2d 845, 851 (Wis. 2008), and may often may be resolved through
summary judgment motions. See Ehlers v. Johnson, 476 N.W.2d 291, 292-93 (Wis. Ct.
App.1991). Poznanski’s breach of contract claim is likely to be resolved prior to trial.
Moreover, Poznanski concurs with bifurcation of claims. Therefore, Penn Life’s request for
bifurcation is granted.
1
The parties are in apparent agreement that the substantive law of Wisconsin is controlling in this diversity
action.
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With respect to a stay of discovery, the Court considers the reasoning in
Dahmen, reversing the denial of an insurer’s motion to bifurcate the trial of the insureds’
breach of contract claim for uninsured motorist benefits and the insureds’ bad faith claim,
emphasizing that “a claim for benefits is separate and distinct from a claim of bad faith.” 635
N.W.2d at 5 (citing Anderson v. Cont’l Ins. Co., 271 N.W.2d 368 (Wis. 1978) (bad faith
conduct by an insurer towards its insured is a tort separate and apart from any breach of
contract)). The court explained that “the evidence necessary to support a claim of bad faith
is very different from that necessary to support a claim for benefits,” indicating that while
the insureds’ claim for coverage would depend on the amount of their damages, a claim of
bad faith would examine insurer’s handling of the insured’s claim. Id.
Even more to germane to the requested stay of discovery on the bad faith
claim, the appellate court observed that “in litigating a claim of bad faith, the [insureds] will
be entitled to discovery of [the insurer’s] work product and attorney/client material
containing information relevant as to how the insureds’ claim was handled,” including the
insurer’s internal determination to deny benefits, its evaluation as to how a jury might value
the insureds’ claim, and its approach to settlement.” Id. at 5. Such information would not
be available to the insureds if they were proceeding solely on a claim for benefits. Id. The
court observed that there is the risk of prejudice to the insurance carrier when discovery
proceeds on a bad faith claim while an underlying claim against the same defendant remains
unresolved. Id.
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In Brethorst v. Allstate Property and Casualty Insurance Co., 798 N.W. 2d
467, 483 (Wis. 2011), decided after the briefing of Penn Life’s motion, the Wisconsin
Supreme Court held that “the insured may not proceed with discovery on a first party bad
faith claim until it has pleaded a breach of contract claim by the insurer as a part of a separate
bad faith claim and satisfied the court that the insured has established such a breach or will
able to prove such a breach in the future . . . [t]o go forward with discovery, these allegations
must stand rebuttal by the insurer.” Brethorst, involving an action with a sole claim for the
bad faith denial of uninsured motorist benefits, emphasized that the insured must establish
that the claimed breach of contract is “well founded and can be proved in the future” before
the insured may proceed with discovery on the bad faith claim. Id.
While Wisconsin law is not controlling on whether discovery should be stayed,
it provides insight regarding why the Wisconsin state courts delay discovery on the issues
pertinent to a bad faith claim. Although Poznanski argues that virtually all the discovery on
the two claims will overlap, his argument is conclusory. Moreover, based on the policy
language, the breach of contract claim may be amenable to resolution on summary judgment.
Therefore, Penn Life’s motion for bifurcation of the claims and a stay on discovery on the
bad faith cause of action is granted.
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NOW, THEREFORE, BASED ON THE FOREGOING, IT IS HEREBY
ORDERED THAT:
Penn Life’s motion to bifurcate and stay discovery on the bad faith claim
(Docket No. 6) is GRANTED.
Dated at Milwaukee, Wisconsin, this 5th day of July, 2011.
BY THE COURT
s/ Rudolph T. Randa
HON. RUDOLPH T. RANDA
U.S. District Judge
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