Rhodes v. Usaa Cas. Ins. Co..

• Decision Date: 17 May 2011
• Citation: 2011 PA Super 105,21 A.3d 1253
• Parties: William F. RHODES, Jr. and Carrie E. Rhodes, Appellantsv.USAA CASUALTY INSURANCE COMPANY.
• Court: Pennsylvania Superior Court

21 A.3d 1253

2011 PA Super 105

William F. RHODES, Jr. and Carrie E. Rhodes, Appellants

v.USAA CASUALTY INSURANCE COMPANY.

Superior Court of Pennsylvania.

Argued Nov. 15, 2010.Filed May 17, 2011.

Richard M. Serbin, Altoona, for appellants.Patricia A. Monahan, Pittsburgh, for appellee.BEFORE: FORD ELLIOTT, P.J., BENDER and FREEDBERG, JJ.OPINION BY FORD ELLIOTT, P.J.:

William F. Rhodes, Jr. and Carrie E. Rhodes (“the Rhodeses”) appeal from the order of August 31, 2009, granting, in part, appellee USAA Casualty Insurance Company's (“USAA”) motion to compel. We reverse.

The relevant facts and procedural history underlying this appeal are, in abbreviated form, as follows. On July 1, 2000, while Mr. Rhodes was driving his brother's motorcycle, he was involved in an accident, from which he suffered numerous injuries sufficiently serious as to require hospitalization in an intensive care unit for several days. The Rhodeses filed a claim with State Farm Insurance Company, which was the insurer of the tortfeasor, i.e., the driver of the vehicle that collided with Mr. Rhodes's motorcycle. State Farm paid $50,000, which was the liability limit of the tortfeasor's policy, to the Rhodeses. Subsequently, on August 20, 2001, the Rhodeses contacted USAA, their insurer,[Footnote 1] and Progressive Insurance Company, the insurer of the motorcycle, with notice of an underinsured motorist claim. Progressive tendered payment of $15,000 to the Rhodeses on October 12, 2001.

On May 10, 2002, the Rhodeses submitted to USAA their statement of demand settlement package, which included medical records and other documentation as to Mr. Rhodes's injuries and damages. The Rhodeses placed a total value on their claim of $235,000, and offered to settle for $175,000. On July 10, 2002, Linda Barboza, the USAA claims examiner for large loss claims assigned to the Rhodeses' claim, offered to settle for $5,000.[Footnote 2] USAA contended that there was a question as to causation for one of Mr. Rhodes's injuries, specifically a neck injury. The Rhodeses rejected the offer as “ridiculous” and “not made in good faith” and requested arbitration. ( See Complaint, item 23).

At this point, Alma Trevino, a USAA senior litigation manager for the northeast region, and Joel Kormanski, outside counsel, took over the Rhodeses' claim. After reviewing the Rhodeses' file and in light of the $65,000 already paid by other insurance carriers on the claim, Ms. Trevino determined that Ms. Barboza's $5,000 settlement offer was fair. However, when Mr. Kormanski initially reviewed the case, he determined that the Rhodeses' claim was worth more than $5,000, but less than the Rhodeses' $200,000 policy limit. Mr. Kormanski informed Ms. Trevino of his determination via letter dated August 6, 2002. Slightly more than a month later, on September 15, 2002, Mr. Kormanski informed Ms. Trevino that it would probably require $50,000 to $65,000, or more, to resolve the Rhodeses' case. Mr. Kormanski sought an independent medical examination of Mr. Rhodes, particularly with regard to the disputed neck injury. Dr. Kelly Agnew, an orthopedic physician, conducted the examination on November 14, 2002, immediately following which Dr. Agnew wrote a report favorable to USAA's position as to causation of Mr. Rhodes's neck injury. Mr. Rhodes underwent a surgical procedure related to his neck injury in January 2003.

By letter dated July 1, 2003, USAA increased its settlement offer to $50,000, which the Rhodeses rejected. USAA then made several other offers, of $65,000; of $80,000; and on November 21, 2003, a “bottom line” offer of $100,000, all of which were rejected. ( See Letter from Mr. Kormanski to Attorney Serbin, the Rhodeses' counsel, dated November 21, 2003). On December 4, 2003, the Rhodeses renewed their settlement demand of $175,000, and stated that if the offer were not accepted by December 29, 2003, it would be withdrawn and the parties would proceed to arbitration. USAA agreed to settle the claim for $175,000 on December 22, 2003. After rejecting two drafts of a settlement/release agreement, the Rhodeses accepted and signed the final agreement on January 12, 2004.

On July 15, 2004, the Rhodeses filed suit against USAA for breach of its contractual duty to act in good faith in the handling of their underinsured motorist claims and sought compensatory and punitive damages in accordance with 42 Pa.C.S.A. § 8371 and Pennsylvania common law. (Complaint at 12, 16). After nearly two years of discovery, on July 13, 2006, the Rhodes[es] filed a motion for partial summary judgment; and on August 17, 2006, USAA filed its own motion for summary judgment. Oral argument on the cross motions was held on September 15, 2006, after which the trial court denied the Rhodeses' motion for partial summary judgment, but granted USAA's motion for summary judgment and dismissed the Rhodeses' complaint with prejudice. The Rhodeses filed a timely appeal, and USAA cross-appealed.

Prior to the above appeal, on October 11, 2006, the trial court granted in part USAA's Motion to Compel Plaintiffs' Response to Defendant's First Set of Interrogatories and Request for Production of Documents. In its order, the trial court directed that the Rhodeses provide USAA with the entire content of their attorney's file on the underlying UIM claim, excluding any information protected by the attorney-client privilege. The trial court reasoned that Attorney Serbin's file was discoverable because whether the Rhodeses acted in good faith in the underlying UIM claim was relevant to whether USAA's conduct constituted bad faith. (Order, 10/11/06 at 9.) USAA claimed that it needed the information to evaluate whether its insureds, the Rhodeses, acted in good faith, and the trial court agreed with this rationale:

In the context of a bad faith insurance claim, the conduct of the plaintiffs and the possibility that their actions constituted bad faith is relevant because the possibility exists that the defendant acted in reliance on information provided to it by the plaintiffs that was inaccurate as a result of bad faith on the plaintiffs' part.

Id. at 10.²

On November 8, 2006, the trial court granted reconsideration and vacated its October 11, 2006 order pending review. However, before argument could take place on the Rhodeses' reconsideration motion, summary judgment was granted in favor of USAA. As described above, on January 31, 2008, this court reversed and remanded for further proceedings.

On remand, the Honorable Charles C. Brown, Jr., Senior Judge, was assigned to preside over the matter. On August 31, 2009, Judge Brown reinstated the October 11, 2006 order granting USAA's motion to compel. This timely appeal followed. On February 2, 2010, Judge Brown filed a Rule 1925(a) opinion, relying on the Honorable Elizabeth A. Doyle's October 11, 2006 opinion and order.

The Rhodeses have raised the following issues for this court's review on appeal:

1. Did the trial court commit an error of law when it directed the insureds to produce the work product of their attorneys, non-parties over whom they have no control?

2. Did the trial court abuse its discretion by ordering the insureds to produce their attorney's entire work product, without identifying, performing a relevancy analysis, or examining any of counsel's protected records under Pa.R.C.P. 4003.3?

Rhodeses' brief at 5.

Before we proceed, we must first determine whether the trial court's discovery order is appealable. The Rhodeses claim that the order is appealable as a collateral order.

Accordingly, we examine the appealability of the discovery orders pursuant to the collateral order doctrine. “[I]n general, discovery orders are not final, and are therefore unappealable.” Jones v. Faust, 852 A.2d 1201, 1203 (Pa.Super.2004). However, “discovery orders involving privileged material are nevertheless appealable as collateral to the principal action” pursuant to Pa.R.A.P. 313 (“Collateral Orders”). Id. Rule 313(a) states that “[a]n appeal may be taken as of right from a collateral order of [a] ... lower court.” Pa.R.A.P. 313(a).

A collateral order is an order separable from and collateral to the main cause of action where the right involved is too important to be denied review and the question presented is such that if review is postponed until final judgment in the case, the claim will be irreparably lost.

Pa.R.A.P. 313(b). “A discovery order is collateral only when it is separate and distinct from the underlying cause of action.” Feldman v. Ide, 915 A.2d 1208, 1211 (Pa.Super.2007).

T.M. v. Elwyn, Inc., 950 A.2d 1050, 1056 (Pa.Super.2008). Generally, discovery orders involving purportedly privileged material are appealable because if immediate appellate review is not granted, the disclosure of documents cannot be undone and subsequent appellate review would be rendered moot. Id. at 1057, citing Ben v. Schwartz, 556 Pa. 475, 729 A.2d 547 (1999). Accordingly, we will review the trial court's order directing the Rhodeses to disclose their attorney's entire UIM file to USAA as part of the instant bad faith litigation. See id., quoting Berkeyheiser v. A–Plus Investigations, Inc., 936 A.2d 1117, 1123–1124 (Pa.Super.2007) (“Pennsylvania courts have held that discovery orders involving potentially confidential and privileged materials are immediately appealable as collateral to the principal action.”); compare Gocial v. Independence Blue Cross, 827 A.2d 1216 (Pa.Super.2003) (disclosure orders adverse to the attorney-client privilege are permitted pursuant to Pa.R.A.P. 313).

“Generally, in reviewing the propriety of a discovery order, our standard of review is whether the trial court committed an abuse of discretion. However, to the extent that we are faced with questions of law, our scope of review is plenary.” Gormley v. Edgar, 995 A.2d 1197, 1202 (Pa.Super.2010), citing Berkeyheiser, 936 A.2d at 1125.

In their first issue on appeal, the Rhodeses claim that their attorney...