Mullowney v. USAA Casualty Insurance Company

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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
___________________________________
)
JAMES T. MULLOWNEY, 	)
)
Plaintiff, 	)
)
v. 	) 	C.A. No. 22-404 WES
)
USAA CASUALTY INSURANCE COMPANY, 	)
)
Defendants. 	)
___________________________________)
MEMORANDUM AND ORDER
WILLIAM E. SMITH, District Judge.
Currently 	before 	the 	Court 	is 	Defendant 	USAA 	Casualty
Insurance 	Company’s 	Motion 	to 	Bifurcate 	Plaintiff’s 	Bad 	Faith
Claims and to Stay Related Discovery, ECF No. 24. 	For the reasons
that follow, the Motion is GRANTED IN PART and DENIED IN PART.
I. 	Background
Plaintiff’s 	historic 	property 	located 	at 	38 	Pelham 	Street,
Newport, Rhode Island, incurred water loss on July 5, 2021, which
caused 	“significant 	and 	extensive 	damage.” 	Am. 	Compl. 	¶¶ 	5, 	9,
11, 	ECF 	No. 	9. 	At 	the 	time, 	a 	homeowners 	insurance 	policy 	from
Defendant 	covered 	Plaintiff’s 	property. 	See 	id. 	¶¶ 	6-7. 	On 	the
same day as the water loss, Plaintiff filed a claim with Defendant.
See 	id. 	¶ 	10. 	As 	a 	result, 	Defendant 	paid 	out 	money 	for 	repairs
and other covered benefits. 	Id. ¶ 14-21; Def.’s Mot. to Bifurcate
Pl.’s 	Bad 	Faith 	Claims 	and 	to 	Stay 	Related 	Discovery 	(“Def.’s
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Mot.”) 1, ECF No. 24. 	Plaintiff alleges that Defendant “failed to
conduct 	an 	adequate 	and 	comprehensive 	investigation,” 	failed 	to
make prompt payment, and failed to provide Plaintiff with “actual
cash 	value” 	for 	the 	property’s 	damage. 	Am. 	Compl. 	¶¶ 	12-13, 	15.
These 	alleged 	failures 	prevented 	Plaintiff 	from 	renting 	out 	his
property 	for 	more 	than 	twelve 	months, 	causing 	uninsured 	losses.
Id. ¶¶ 16-17, 19. 	Based on these events, Plaintiff initiated suit
alleging breach of contract (Count I), breach of the duty of good
faith 	and 	fair 	dealing 	(“fair 	dealing 	claim”) 	(Count 	II), 	common
law bad faith (Count III), and statutory bad faith under R.I. Gen.
Laws § 9-1-33 (Count IV). 	Id. ¶¶ 32-70.
Now, 	after 	Plaintiff 	served 	written 	discovery, 	Defendant
brings 	this 	Motion 	to 	bifurcate 	Plaintiff’s 	bad 	faith 	claims
(Counts II-IV) from his breach of contract claim (Count I), and to
stay discovery on the bad faith claims until the breach of contract
claim has been resolved. 	Def.’s Mot. 1.
II. 	Discussion
Defendant seeks relief under Federal Rule of Civil Procedure
42(b) which provides “[f]or convenience, to avoid prejudice, or to
expedite 	and 	economize, 	the 	court 	may 	order 	a 	separate 	trial 	of
one or more separate issues [or] claims . . . .” 	The movant bears
the burden of demonstrating that such relief is appropriate. 	See
Bank 	of 	R.I. 	v. 	Progressive 	Cas. 	Ins. 	Co., 	293 	F.R.D. 	105, 	106
(D.R.I. 2013).
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Determining 	whether 	bifurcation 	and 	stay 	of 	discovery 	is
appropriate 	requires 	a 	case-by-case 	analysis 	in 	which 	the 	Court
“weigh[s] the risk of prejudice to the defendant . . . against the
possible efficiency to be gained” by allowing the claims to proceed
in 	tandem. 	Wolf 	v. 	Geico 	Ins. 	Co., 	682 	F. 	Supp. 	2d 	197, 	201
(D.R.I. 	2010); 	Bank 	of 	R.I., 	293 	F.R.D. 	at 	106. 	Prejudice 	may
include 	“discovery 	on 	bad 	faith 	[that] 	exposes 	insurers’ 	work-
product 	protected 	or 	privileged 	materials 	to 	disclosure 	. 	. 	.
before 	it 	is 	clear 	whether 	the 	plaintiff 	an 	even 	proceed 	with 	a
bad faith claim by establishing a breach of contract.” 	Wolf, 682
F. 	Supp. 	2d 	at 	199. 	At 	the 	same 	time, 	“simultaneous 	discovery
‘avoids 	discovery 	disputes 	over 	which 	documents 	pertain 	to 	the
contract 	claim 	and 	which 	relate 	to 	the 	bad 	faith 	claim[,]
eliminates 	duplicative 	discovery 	should 	[Plaintiff] 	establish 	a
contract 	claim[,]’ 	and 	allows 	for 	expeditious 	trials 	assuming
Plaintiff’s” 	breach 	of 	contract 	claim 	is 	successful. 	Glocester
Country 	Club 	v. 	Scottsdale 	Indem. 	Co., 	No. 	20-184 	WES, 	2020 	WL
6945937, at *1 (D.R.I. Nov. 25, 2020) (quoting Wolf, 682 F. Supp.
2d at 199).
“Because 	‘a 	bad 	faith 	action 	does 	not 	exist 	until 	the
plaintiff 	first 	establishes 	a 	breach 	of 	contract[,]’ 	bad 	faith
claims 	often 	lend 	themselves 	well 	to 	separation 	and 	stay 	of
discovery.” 	Glocester 	Country 	Club, 	2020 	WL 	6945937, 	at 	*1
(quoting 	Wolf, 	682 	F. 	Supp. 	2d 	at 	198). 	This 	is 	because, 	under
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Rhode 	Island 	law, 	“[t]here 	cannot 	be 	a 	showing 	of 	bad 	faith 	when
the insurer is able to demonstrate a reasonable basis for denying
benefits.” 	Bartlett v. John Hancock Mut. Life Ins. Co., 538 A.2d
997, 	1000 	(R.I. 	1988), 	abrogated 	on 	other 	grounds 	by 	Skaling 	v.
Aetna Ins. Co., 799 A.2d 997 (R.I. 2002).
Here, 	Plaintiff 	does 	not 	dispute 	that 	bifurcation 	is
appropriate. 	See generally Pl.’s Obj. to Def.’s Mot. to Bifurcate
Pl.’s 	Bad 	Faith 	Claims 	and 	to 	Stay 	Related 	Discovery 	(“Pl.’s
Opp.”), ECF No. 25. 	Given this and the fact that courts routinely
bifurcate 	bad 	faith 	claims 	and 	breach 	of 	contracts 	claims 	as 	a
matter of course, see, e.g., TranSched Sys. Ltd. v. Fed. Ins. Co.,
958 	F. 	Supp. 	2d 	331, 	338 	n.7 	(D.R.I. 	2013) 	(“It 	is 	considered
normal course to bifurcate a bad faith claim and stay discovery on
that claim until there is first a finding of coverage.”); Skaling,
799 	A.2d 	at 	1010, 	the 	Court 	concludes 	that 	bifurcation 	is
appropriate in this case.
The 	parties’ 	primary 	dispute 	is 	whether 	discovery 	on
Plaintiff’s 	bad 	faith 	claims 	should 	be 	stayed. 	This 	issue 	comes
down to “how much the subject matter of discovery on the bad faith
and contract claims will overlap.” 	Wolf, 682 F. Supp. 2d at 200.
According 	to 	Defendant, 	Plaintiff’s 	discovery 	for 	his 	bad 	faith
claims “will be entirely removed from” the discovery for his breach
of 	contract 	claim. 	Def.’s 	Mot. 	6. 	Defendant 	provides 	an
illustrative 	list 	of 	discovery 	requests 	that 	do 	not 	relate 	to
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Plaintiff’s 	breach 	of 	contract 	claim 	and 	are 	otherwise
prejudicial:
• 	All 	documents 	that 	comprise 	the 	entire 	contents 	of
the 	claim 	file 	(includes 	all 	communications,
including 	but 	not 	limited 	to 	e-mail 	correspondence,
notes, and memoranda, electronic recordkeeping, claim
committee 	and/or 	roundtable 	reports 	and 	the 	like)
related 	in 	any 	way 	to 	the 	Plaintiff’s 	claim 	and/or
the Incident;
• 	All 	Defendant 	documents, 	manuals 	(claims, 	training,
operations 	and 	the 	like), 	guidelines, 	policies 	and
procedures 	(whether 	stored 	in 	hard 	copy 	or 	in
electronic form) used for claims handling that relate
to investigating coverage;
• 	All 	Defendant 	documents, 	manuals 	(claims, 	training,
operations 	and 	the 	like), 	guidelines, 	policies 	and
procedures 	(whether 	stored 	in 	hard 	copy 	or 	in
electronic form) used for claims handling that relate
to 	investigating 	the 	value 	of 	the 	loss 	relating 	to
the dwelling;
• 	All 	Defendant 	documents, 	manuals 	(claims, 	training,
operations 	and 	the 	like), 	guidelines, 	policies 	and
procedures 	(whether 	stored 	in 	hard 	copy 	or 	in
electronic form) used for claims handling that relate
to 	investigating 	the 	value 	of 	the 	loss 	relating 	to
the contents;
• 	All 	Defendant 	documents, 	manuals 	(claims, 	training,
operations 	and 	the 	like), 	guidelines, 	policies 	and
procedures 	(whether 	stored 	in 	hard 	copy 	or 	in
electronic form) used for claims handling that relate
to 	evaluating 	the 	amount 	of 	benefits/legal 	damages
owed on a claim made pursuant to a homeowner’s policy;
• 	Any 	and 	all 	documentation 	and/or 	information 	to
support the following:
o 	How 	Plaintiff’s 	claim 	was 	approached 	by
Defendant;
o 	Whether fair consideration was actually extended
to Plaintiff’s claim;
o 	Whether 	Plaintiff’s 	claim 	was 	promptly
considered;
o 	Whether 	Defendant 	employed 	competent 	adjusters
to consider this particular type of loss; and
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o 	Whether 	Defendant 	has 	exercised 	good 	faith
concerning Plaintiff’s uninsured claim;
• 	Copies all complaints filed against Defendant, or any
related 	companies, 	its 	parent 	companies 	or
subsidiaries in the last ten years that allege breach
of 	contract 	and/or 	bad 	faith 	with 	regard 	to 	claims
and 	losses 	involving 	water 	losses 	for 	the 	last 	ten
(10) years;
• 	Complete 	copies 	of 	all 	claims 	manuals 	or 	training
manuals . . . that address the handling of claims made
pursuant to homeowner’s policies;
• 	A 	complete 	copy 	of 	all 	claims 	bulletins, 	directives,
guidelines 	or 	memorandum 	issued 	including 	QA
guidelines that relate in any way to the adjusting or
handling 	of 	claims 	made 	pursuant 	to 	a 	homeowner’s
policy;
• 	Copies of any documents addressing goals, training or
meetings for claims adjusters;
• 	Any 	and 	all 	documentation 	reciting 	company
philosophies 	and 	policies 	regarding 	claims 	handling
policies, 	providing 	service 	to 	policy 	holders,
good/bad 	faith 	claim 	handling 	practices, 	extra
contractual damages and suits, compliance with unfair
claims 	practices 	statutes, 	wrongful 	claims 	handling
and employee handbooks or orientation materials.
Def.’s 	Mot. 	2-3 	(quoting 	DX2, 	Pl.’s 	First 	Request 	for 	Prod. 	of
Documents Propounded on Def. 5-6, ECF No. 24-2).
Plaintiff asserts there is “significant overlap” between his
breach of contract claim and bad faith claims but does not provide
examples 	or 	an 	explanation 	of 	how 	that 	is 	the 	case. 	See 	Pl.’s
Opp. 	5-7. 	Instead, 	Plaintiff 	argues 	that 	Defendant’s 	motion 	“is
premised 	on 	the 	false 	proposition 	that 	[Plaintiff’s 	fair 	dealing
claim] is a bad faith claim” when actually, Plaintiff says, it is
another type of breach of contract claim. 	Id. at 5. 	Thus, because
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the 	two 	claims 	are 	the 	same, 	Plaintiff 	should 	be 	“allowed 	to
conduct 	discovery 	related 	to 	that 	claim 	at 	this 	stage 	of 	the
litigation.” 	Id. at 6.
First, and most obviously, this position fails to account for
the 	fact 	that 	Counts 	III 	and 	IV 	are 	“true” 	bad 	faith 	claims.
Second, 	the 	cases 	Plaintiff 	relies 	on 	fail 	to 	support 	his 	point.
He relies on Houle v. Liberty Insurance Corp., 271 A.3d 591 (R.I.
2022), 	and 	McNulty 	v. 	Chip, 	116 	A.3d 	173 	(R.I. 	2015), 	for 	the
proposition 	that 	a 	fair 	dealing 	claim 	is 	a 	claim 	for 	a 	breach 	of
contract. 	Pl.’s 	Opp. 	5. 	It 	is 	important 	to 	note 	that 	neither
Houle 	nor 	McNulty 	involved 	a 	motion 	to 	bifurcate 	or 	discovery 	in
general. 	In 	Houle, 	the 	Rhode 	Island 	Supreme 	Court 	noted 	that 	“a
[fair 	dealing 	claim] 	is 	not 	an 	independent 	cause 	of 	action 	that
must 	be 	pled 	separate 	and 	apart 	from 	a 	claim 	for 	breach 	of
contract.” 	Houle, 	271 	A.3d 	at 	595 	(citing 	McNulty, 	116 	A.3d 	at
185). 	Rather than support Plaintiff's argument that he is entitled
to discovery on his fair dealing claim, Houle and McNulty suggest
that Plaintiff’s breach of the duty of good faith and fair dealing
count and breach of contract count are duplicative.1
Plaintiff 	further 	argues 	the 	“factors”2 	laid 	out 	in 	Wolf
counsel in favor of bad faith discovery proceeding because (1) he
1 The Court need not decide that question given Defendant has
not presented it to the Court.
2 The Court disagrees with Plaintiff’s characterization of the
above 	referenced 	considerations 	as 	“factors.” 	See 	Pl.’s 	Obj. 	to
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is 	not 	seeking 	a 	significant 	amount 	of 	privileged 	materials, 	(2)
the 	bad 	faith 	claims 	are 	not 	a 	significant 	portion 	of 	his 	claims
against 	Defendant, 	(3) 	he 	is 	not 	seeking 	special 	damages 	related
to emotional distress,3 and (4) expert testimony will only play a
limited role in proving his claims against Defendant. 	Pl.’s Opp.
7-8.
Plaintiff 	has 	no 	basis 	to 	suggest 	it 	is 	not 	seeking 	a
significant 	amount 	of 	privileged 	material. 	In 	support 	of 	his
position, 	Plaintiff 	points 	out 	that 	“USAA 	. 	. 	. 	does 	not 	raise 	a
single 	argument” 	that 	Plaintiff 	is 	seeking 	privileged 	documents.
Pl.’s 	Opp. 	7. 	That 	is 	beside 	the 	point. 	Plaintiff 	originally
served 	his 	requests 	for 	production 	on 	August 	1, 	2023. 	It 	is
unlikely Defendant has completed its privilege review, preventing
Defendant from indicating whether there is a significant amount of
privileged 	material 	at 	issue. 	And 	the 	requests 	Defendant
identified, 	see 	supra 	pp. 	5-6, 	will 	likely 	elicit 	privileged
materials. 	See Def.’s Reply 6, ECF No. 26.
Def.’s Mot. to Bifurcate Pl.’s Bad Faith Claims and to Stay Related
Discovery (“Pl.’s Opp.”) 7, ECF No. 25. 	Instead, they are better
seen 	as 	only 	considerations 	that 	can 	aid 	a 	court 	in 	determining
the 	extent 	to 	which 	there 	is 	non-overlapping 	bad 	faith 	discovery
in this kind of case. 	See Wolf v. Geico Ins. Co., 682 F. Supp. 2d
197, 201 (D.R.I. 2010).
3 The 	Court 	takes 	note 	that 	Plaintiff 	is 	not 	seeking 	special
damages. 	Pl.’s Opp. 8.
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Plaintiff 	also 	misstates 	the 	second 	consideration 	discussed
in Wolf. 	There, the Court identified the “alleged continuing bad
faith activity during litigation over the contract” as a reason to
stay discovery and conserve judicial resources. 	Wolf, 682 F. Supp.
2d 	at 	201. 	Here, 	Plaintiff 	admits 	that 	Defendant’s 	alleged 	bad
faith 	is 	“ongoing” 	because, 	as 	Plaintiff 	contends, 	Defendant
continues 	to 	not 	pay 	what 	is 	owed 	to 	Plaintiff. 	Pl.’ 	Opp. 	8.
Because 	Defendant’s 	alleged 	bad 	faith 	is 	continuing 	as 	Plaintiff
admits, there will likely be non-overlapping discovery.
Finally, the Court in Wolf noted that simultaneous discovery
would not be prudent if the case will involve “expert analyses of
whether coverage and investigation decisions show bad faith given
industry 	practice.” 	682 	F. 	Supp. 	2d 	at 	201. 	Plaintiff 	states
that 	he 	will 	need 	an 	expert 	“to 	establish 	that 	[Defendant’s]
investigation 	. 	. 	. 	was 	unreasonable” 	and 	“that 	[Defendant’s]
claims 	handling 	process 	was 	unreasonable 	and 	did 	not 	conform 	to
the 	industry 	standard.” 	Pl.’s 	Opp. 	8-9. 	The 	expert 	discovery
Plaintiff proposes, however, will have no relevance to the question
of 	whether 	Defendant 	violated 	the 	insurance 	policy 	at 	issue.
Again, 	this 	demonstrates 	that 	judicial 	resources 	will 	likely 	be
spared with a stay of bad faith discovery.
In sum, the considerations outlined in Wolf lead the Court to
conclude 	that 	this 	case 	will 	benefit 	from 	a 	stay 	of 	discovery 	on
the 	bad 	faith 	claims. 	Accordingly, 	Defendant 	has 	met 	its 	burden
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of showing that allowing bad faith discovery at this time would be
an 	“inefficient 	use 	of 	both 	the 	parties’ 	and 	this 	Court's
resources,” 	Bank 	of 	R.I., 	293 	F.R.D. 	at 	106, 	as 	there 	appears 	to
be little discovery overlap between the breach of contract and bad
faith claims.
But 	the 	Court 	will 	allow, 	as 	it 	has 	done 	in 	previous 	cases,
“witnesses 	[who] 	have 	knowledge 	relevant 	to 	both 	the 	breach 	of
contract claims and the bad faith claims” to be questioned on “both
sets 	of 	issues 	. 	. 	. 	during 	the 	first 	round 	of 	discovery.”
Glocester Country Club, 2020 WL 6945937, at *2. 	This will mitigate
the 	necessity 	of 	having 	the 	parties 	organize 	and 	prepare 	for 	two
depositions for one witness.
III. 	Conclusion
For 	the 	reasons 	stated 	herein, 	Defendant's 	Motion 	to
Bifurcate 	Plaintiff’s 	Bad 	Faith 	Claims 	and 	to 	Stay 	Related
Discovery, ECF No. 24, is GRANTED IN PART and DENIED IN PART.
IT IS SO ORDERED.
William E. Smith
District Judge
Date: September 22, 2023
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