Abatement, Bifurcation, and Stay: Make My Mind Up!

    Abatement is a defense.  An Insurance Company asks a Judge to "abate" a Bad Faith Claim when the Insurance Company is also sued for Breach of Contract or other Claims.  Bifurcation is similar.  A party asks a Judge to "bifurcate" one Claim from other Claims that have been alleged against a Defendant. This can include "separate trials" such as under Federal Rule of Civil Procedure 42.  Bifurcation should refer, and often is used as a shorthand way to refer, to separate Trials.  Stay is not a defense, as such.  "Stay" usually means a stay of Discovery on one or more Claims or Issues while proceeding with Discovery on other Claims or Issues.

    Abatement, Bifurcation, and Stay each have their separate requirements.  Three recent Federal District Court decisions illuminate and confuse these requirements.   These three Federal Cases involve all sorts of Claims including "Third Party Bad Faith" Claims, "First Party Bad Faith" Claims, Statutory Bad Faith Claims, and Common Law Bad Faith Claims.  (No wonder the results seem on the surface to be confusing.)

    In CNL Hotels & Resorts, Inc.,  Download M.D. Fla. Case No. 6.06cv324, Opinion Filed October 16, 2006).pdf, the Federal District Judge was confronted with Claims pleaded by a Policyholder for Insurance Coverage and also with Claims pleaded for Statutory Bad Faith and, apparently, for Common Law Bad Faith.  The Insurance Policies at issue were described as "liability policies" and the Policyholder argued that they provided "indemnification in regard to a then-ongoing securities class action case."  However, the Plaintiff and the Defendants could not agree if this lawsuit was a First Party or a Third Party Bad Faith Case.  Regardless, the Federal Judge in CNL, applying Florida law, granted Abatement of the Bad Faith Claims until the issue of Insurance Coverage is determined.  The Court also said that the Bad Faith Claims "should be bifurcated" and "are hereby STAYED pending resolution of the coverage claim."

    In the case of Jones v. St. Paul Travelers, Download N.D. Cal. Case No. C 06-00717, Opinion Filed October 16, 2006).pdf, the parties involved in a case pending in California apparently agree that it involves "Third Party Bad Faith" Claims, but they disagree on whether Georgia or California law applies.  The Plaintiffs in this Federal Case are judgment creditors of a judgment previously recovered against Watkins Engineers & Constructors, Inc.  The Federal District Judge decided to apply California substantive law to the two alleged Claims in that case.  One Claim was alleged under California Insurance Code § 11580, which allows a judgment creditor to pursue an action to shift to the shoulders of the current Defendant-Insurance Company, the previous Judgment entered against a Policyholder or other Defendant.   Specifically, the previous Defendant was Watkins, a subsidiary of the Insurance Company's Policyholder.  The second Claim is a Bad Faith Claim "based upon defendants' allegedly unreasonable refusal to pay the judgment obtained against Watkins."  The Federal District Court ordered that "in light of the potential prejudice to defendants," the two Claims should be Bifurcated for Trial, but that "there is no need to bifurcate discovery".

    Parenthetically, on the date of this post, Wednesday, November 8, 2006, the Court entered an Order insulating a settling Defendant Insurance Company, Zurich, from various Claims of co-Defendants based on the Federal Court's determination that Zurich's settlement was in Good Faith:  Download Jones_v. St. Paul Travelers November 8, 2006 Order  Granting Zurich's Motion For Good Faith Determination of Settlement.pdf.

    The third of three Federal District Court cases illuminating and confusing these areas of Abatement, Bifurcation, and Stay is the recent decision in Hoskins v. Allstate Property & Casualty Insurance Co., Download (E.D. Ky. Case No. 6.06.389, Opinion Filed November 2, 2006).pdf.  That Federal Case involves alleged First Party Bad Faith Claims, and also alleged Contract Claims.  The Federal Judge granted Bifurcation of these Claims for Trial.  The Court further held in that Federal Case that "in order to avoid any prejudice," Discovery will be "stayed" regarding the Plaintiffs' Bad Faith Claims "until the underlying contract issue has been resolved."

    The "third time" is not just "the charm," because each one of these three Federal Cases is based on its own reasoning.  The last of the three mentioned here,  Hoskins, presents a clear picture of when Bifurcation or Separate Trials is likely to be ordered under Federal Rule 42, and when Discovery is likely to be Stayed on Bad Faith Claims when other Claims dependent on first proving Insurance Coverage are also alleged.

REMINDER: THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP. ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY IN AND FAMILIAR WITH THE PARTICULAR LEGAL ISSUE, THE JURISDICTION AND ITS LAWS, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.