In Osbourne Renfrow v. Redwood Fire and Casualty Ins. Co., et al., 288 F.R.D. 514 (D. Nev. 2013), the U.S. District Court, District of Nevada recently denied an insurer’s motion to bifurcate breach of contract and bad faith claims into two separate proceedings. The court ruling arose out of an underinsured motorist (UIM) claim involving Plaintiff Osbourne Renfrow, who was involved in an accident with an underinsured motorist, causing injuries to Renfrow’s neck, back and shoulders. Renfrow received $50,000 in insurance proceeds from the other driver’s liability carrier, plus an additional $5,000 in medical payments coverage from his own insurer, Redwood Fire and Casualty Insurance Company (“Redwood”).
Renfrow presented a claim pursuant to the underinsured coverage under his policy with Redwood, seeking the full policy limits of $1 million. The parties were unable to settle, so Renfrow brought suit against Redwood for, inter alia, breach of contract and bad faith causes of action, namely, for breach of the duty of good faith and fair dealing, insurance bad faith, and engaging in unfair settlement claims practices under Nevada law.
Redwood moved to bifurcate the bad faith claims from the breach of contract claim, arguing that the bad faith claims are not ripe for decision as they will not have accrued, if at all, until the underlying contractual dispute has been resolved. Redwood also argued that allowing both claims to proceed simultaneously would be prejudicial to Redwood, given that its valuation, investigation, and good faith efforts to reach a resolution on Plaintiff’s claim for UIM benefits remains ongoing. Finally, Redwood argued that bifurcation advances the interests of convenience, avoidance of prejudice, and expeditious and economical resolution of the dispute because it would simplify the issues for trial and reduce any prejudice by allowing the trier of fact to hear evidence on bad faith only where the breach of the underlying contract is established.
In opposing Redwood’s motion to bifurcate, Renfrow argued that Nevada law does not require that a plaintiff establish success on a contractual claim prior to proceeding with a bad faith claim where the actions supporting the breach of contract and bad faith claims arise from the same facts. Renfrow noted that his bad faith claims were not brought due to a denial of his claim. Instead, they related to Redwood’s alleged ongoing dilatory handling of his claim. Therefore, Renfrow asserted the bad faith claims could be decided concurrently with the breach of contract claim.
The Court agreed with Renfrow, observing that Nevada law does not require a plaintiff to establish success on a contractual claim prior to proceeding with a bad faith claim. The Court went on to find that Renfrow’s claim for bad faith related to Redwood’s actions which occurred during the handling of Renfrow’s claim. Accordingly, the Court found that the claims for breach of contract and bad faith may be brought concurrently and bifurcation of the claims was not mandatory. The Court also weighed the convenience and efficiency factors of Federal Rule of Civil Procedure Rule 42(b), determining that bifurcation would require the parties to present much of the same evidence and make the same arguments twice, require the same witnesses to testify twice, and increase the cost of litigation. The Court also noted that place an unnecessary burden on the Court, which would be required to hear the duplicative arguments, presentation of evidence, and testimony.
The Court’s refusal to bifurcate the proceedings, so as to allow coverage and bad faith issues to be litigated separately, represents a departure from the procedure most courts generally apply. Moreover, it is potentially bad news for Nevada insurers, who could be exposed to significant prejudice – not to mention increased discovery burdens – if insureds may seek to inject unrelated arguments concerning the insurer’s claims handling into coverage disputes.