Light v. Allstate Ins. Co.

Decision Date07 July 1998
Docket NumberNo. 24365.,24365.
CourtWest Virginia Supreme Court
PartiesIra LIGHT, et al., Plaintiffs Below, Respondents, v. ALLSTATE INSURANCE COMPANY, Defendant Below, Petitioner.

Brent K. Kesner, Renatha G. Garner, Ellen R. Archibald, Kesner, Kesner & Bramble, Charleston, for Petitioner.

Kevin B. Burgess, Hamilton, Burgess, Young & Pollard, Oak Hill, for Respondents.

DAVIS, Chief Justice:

This Court is presented with a certified question from the United States District Court for the Southern District of West Virginia involving the issue of mandatory bifurcation and a stay of a first-party bad-faith claim against an insurer, pending resolution of the underlying contract or tort claim. We conclude that in a first-party bad faith action against an insurer that also involves an underlying contract or tort claim against the insurer, it is not mandatory that the trial court bifurcate and stay the bad faith claim. Nor, is it mandatory that discovery be stayed on the first-party bad faith claim when bifurcation is ordered.

I. FACTUAL AND PROCEDURAL HISTORY

On January 27, 1993, a motor vehicle operated by Ira Light was struck by a motor vehicle owned by Juanita Keller and driven by her teenage son, Shawn Keller.1 The Keller vehicle crossed the center line of the roadway. Consequently, the Kellers were "at fault" for the accident. As a result of the collision, Nila Light, a passenger in the vehicle operated by Ira Light, her husband, sustained serious injuries. At the time of the accident, the Lights had a motor vehicle insurance policy with Allstate. The Allstate policy included underinsured motorist coverage in the amount of $100,000. The Kellers were insured by State Farm Mutual Automobile Insurance Company (hereinafter State Farm).

On July 7, 1993, the Lights accepted the full policy limits of $100,000 from State Farm. The Lights executed a release discharging the Kellers from any further claims concerning the accident. Thereafter, the Lights submitted a claim to Allstate for their underinsured motorist coverage, as a result of Mrs. Light's damages exceeding the amount recovered from State Farm. By letter dated November 8, 1993, the Lights were notified by Allstate that Allstate refused to pay the underinsured motorist coverage. The underinsured motorist provision contained in the Allstate policy included the following exclusion: "Allstate will not pay any damages an insured person is legally entitled to recover because of ... bodily injury or property damage to any person if that person or that person's legal representative makes a settlement without our written consent." The policy also stated: "When we pay, an insured person's rights of recovery from anyone else become ours up to the amount we have paid. You must protect these rights and at our request help us enforce them." The Lights contend that Allstate knew they were attempting to settle with the Kellers; but, did not intervene or try to prevent them from settling the claim.

As a result of Allstate's failure to pay the uninsured motorist claim, the Lights filed a complaint on January 5, 1995, alleging a breach of contract claim against Allstate. Subsequently, in an amended complaint filed February 22, 1995 the Lights asserted a claim against Allstate for unfair settlement practices under W.Va.Code § 33-11-4(9)(1985). The Kellers were not named as parties.2 Although the action originated in the Circuit Court of Fayette County, it was removed by Allstate to the United States District Court for the Southern District of West Virginia based upon diversity of citizenship on February 6, 1995.3

Allstate maintains it was unaware of the settlement between the Lights and State Farm. Therefore, Allstate did not consent to such a settlement. Allstate has asserted that in the event it were to pay underinsured motorist benefits, the settlement and release executed by the Lights prejudiced Allstate's subrogation rights against the Kellers. As such, Allstate contends that the Lights breached their policy of insurance. Thus, the Lights are not entitled to the underinsured motorist coverage. In contrast, the Lights assert that any breach of their policy was inconsequential because the Lights were never advised by Allstate of the consent-to-settle provision in their policy. In addition, the Lights assert that, inasmuch as the Kellers were apparently "judgment proof," Allstate's subrogation rights against the Kellers were meaningless. Therefore, Allstate was not prejudiced by the settlement and release. Consequently, the Lights assert that they are entitled to underinsured motorist coverage under their Allstate policy.

In October, 1995, Allstate filed a motion to bifurcate the proceedings. Allstate argued that the litigation of the unfair settlement practices claim with the underlying claim for underinsured motorist coverage was prejudicial to Allstate. The District Court denied the motion. Subsequently, in October, 1996, Allstate filed a motion to reconsider. Allstate sought bifurcation of the two claims. Additionally, Allstate urged the court to stay of the unfair settlement practices claim pending resolution of the underlying claim for underinsured motorist coverage. As a result of the motion to reconsider, the District Court, on July 2, 1997, certified the following question to this Court:

In a case in which the plaintiffs assert an insurance contract claim for first-party underinsured motorist benefits, and a "bad faith" claim pursuant to the Unfair Claims Settlement Practices Act arising out of the contract claim, is it mandatory, under State ex rel. State Farm Fire & Casualty Co. v. Madden, 192 W.Va. 155, 451 S.E.2d 721 (1994), for the trial court to bifurcate the claims and stay the "bad faith" claim pending resolution of the contract claim?

The question as advanced does not permit this Court to adequately address the issues posed by the District Court. There are actually three legal issues presented by the one certified question: (1) is bifurcation mandatory and, if so, (2) is it mandatory that trial of the bad faith claim be stayed, and (3) is it mandatory that discovery on the bad faith claim be stayed? Because there are actually three legal issues emanating from the one certified question, this Court will modify the question as follows:4

In a case in which the plaintiffs assert an insurance contract claim for first-party underinsured motorist benefits, and a "bad faith" claim pursuant to the Unfair Claims Settlement Practices Act arising out of the contract claim, is it mandatory, under State ex rel. State Farm Fire & Casualty Co. v. Madden, 192 W.Va. 155, 451 S.E.2d 721 (1994), for the trial court to: (1) bifurcate the claims, (2) stay trial of the "bad faith" claim, and (3) stay all discovery on the bad faith claim pending resolution of the contract claim?

This Court has before it the order of the District Court entered on July 2, 1997, certifying the above question to this Court, all matters of record and the briefs and argument of counsel. We now proceed to review the parties' arguments and analyze the applicable law.

II. STANDARD OF REVIEW

In syllabus point 1 of Gallapoo v. Wal-Mart Stores, Inc., 197 W.Va. 172, 475 S.E.2d 172 (1996), this Court held "[t]he appellate standard of review of questions of law answered and certified by a circuit court is de novo." See Lawson v. County Commission of Mercer County, 199 W.Va. 77, 80, 483 S.E.2d 77, 80 (1996); King v. Lens Creek Limited Partnership, 199 W.Va. 136, 140, 483 S.E.2d 265, 269 (1996). Similarily, we hold that a de novo standard is applied by this Court in addressing the legal issues presented by a certified question from a federal district or appellate court.

III. DISCUSSION
A.

In a case in which the plaintiffs assert an insurance contract claim for first-party underinsured motorist benefits, and a "bad faith" claim pursuant to the Unfair Claims Settlement Practices Act arising out of the contract claim, is it mandatory, under State ex rel. State Farm Fire & Casualty Co. v. Madden, 192 W.Va. 155, 451 S.E.2d 721 (1994), for the trial court to: (1) bifurcate the claims; and (2) stay trial of the "bad faith" claim?

Allstate contends that the underlying claim for underinsured motorist coverage and the bad faith claim5 resulting therefrom should be bifurcated. Allstate further contends that the bad faith claim must be stayed pending resolution of the underlying contract claim. To support its position, Allstate asserts that the "general business practice" component, required by statute to be established by plaintiffs in unfair settlement practices cases, involves the submission of evidence to an extent well beyond that contemplated by the underlying claim for underinsured motorist coverage.6 Accordingly, bifurcation and a stay are required because such evidence would otherwise be prejudicial to the underlying claim. The Lights, on the other hand, contend that bifurcation and a stay in the instant context should not be mandatory, because bifurcation ordinarily rests within the discretion of the trial court. More specifically, the Lights suggest that, inasmuch as they are suing their own insurer on both claims, the question of "insurance" is present throughout the litigation. Therefore, bifurcation and a stay are unwarranted.7

Upon initial review, the issue presented seems to have been previously resolved by this Court. In State ex rel. State Farm Fire & Casualty Co. v. Madden, 192 W.Va. 155, 451 S.E.2d 721 (1994), this Court addressed the issue of bifurcation and the staying of a bad faith claim in the context of a third-party action against an insurer. In Madden, the plaintiff brought an action against a restaurant as a result of a slip and fall incident. Subsequently, via the filing of an amended complaint, the restaurant's insurance carrier, State Farm, was joined in...

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