Specifically, USAA contended that the Fergusons' bad faith claim was contingent on success of their breach of contract claim, so that resolution of the breach of contract claim first would determine whether the bad faith claim was viable.

USAA also argued that litigating the bad faith claim at the same time as litigating the breach of contract claim would entitle the Fergusons to portions of USAA's insurance file that arguably were work product or privileged materials, which would give the Fergusons an unfair advantage in pursing their breach of contract claim. In USAA's opinion, litigating both claims at the same time would open the door to insureds filing bad faith claims where there was no legitimate basis for their claims and thus would allow them to acquire privileged information "merely by paying a filing fee."

Finally, USAA emphasized that severing was more judicially efficient because resolution of the breach of contract claim might result in settlement of the entire case.

The District Court's Decision

The district court denied USAA's motion.

In its decision, the district court observed that the Middle District of Pennsylvania had previously held that a plaintiff can maintain a bad faith claim even when the plaintiff's breach of contract claim was unresolved or unsuccessful. See Hyjurick v. Commonwealth Land Title Ins. Co., No. 3:11-CV-1282 (M.D. Penn. Apr. 27, 2012). The district court added that the Middle District also had rejected requests to stay discovery and bifurcate breach of insurance policy and bad faith claims. See, e.g., Newhouse v. GEICO Casualty Co., No. 4:17-CV-00477 (M.D. Pa. Sept. 18, 2017); Griffith v. Allstate Ins. Co., 90 F. Supp. 3d 344, 346 (M.D. Pa. 2014).

However, the district court continued, cases in the Eastern and Western Districts of Pennsylvania had reached the opposite conclusion. See Hampton v. Geico Ins. Co., 759 F. Supp. 2d 632 (W.D. Penn. 2010) ("[W]here an insurer prevails on a breach of contract claim, there can be no claim for bad faith.") (citing Pizzini v. Am. Int'l Specialty Lines Ins. Co., 249 F. Supp. 2d 569, 570-71 (E.D. Penn. 2003)); but see Winterberg v. CNA Ins. Co., 868 F. Supp. 713, 722 (E.D. Pa. 1994) ("[C]ourts have held that success on a bad faith claim under [the Pennsylvania bad faith law, 42 Pa. C.S.A. § 8371 ("Section 8371")] does not depend on the success of the underlying insurance benefits claim.").

The district court then reasoned that Section 8371 was designed to generally regulate dishonest conduct by insurers and was meant "to encourage insurers to thoroughly investigate claims made by policyholders, respond to them promptly, negotiate reasonable claim settlements, and generally treat insureds honestly while caring for their interests." According to the district court, the Fergusons' breach of contract claim was "not a pre-requisite to evaluating their bad faith claim" and although the two claims were "conceptually distinct," they were "significantly intertwined" from a practical perspective.

As such, the district court continued, separating the claims and staying discovery "would potentially create a discovery mess, requiring truncated depositions, interrogatories, and requests for production, only to have them all re-started following the conclusion of the first leg." This risk of "judicial inefficiency" warranted denial of USAA's request, the district court ruled.

The district court concluded by declaring that USAA's request was, "at root," asking the court "to manipulate this case's procedural framework in a way that will make litigation convenient for insurers, which the court will not do."

The case is Ferguson v. USAA General Indemnity Co., No. 1:19-cv-401 (M.D. Penn. Dec. 5, 2019). Attorneys involved include: For Dale L. Ferguson, Georgia A. Ferguson, Plaintiffs: Matthew E Hamlin, LEAD ATTORNEY, Persun & Hamlin, PC, Mechanicsburg, PA. For USAA General Indemnity Company, Defendant: Daniel J. Twilla, LEAD ATTORNEY, Burns White LLC, Pittsburgh, PA; Kathleen P Dapper, LEAD ATTORNEY, Burns White LLC, West Conshohocken, PA.