Free Motion to Bifurcate - District Court of Colorado - Colorado

Case 1:04-cv-01143-JLK

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 04-K-1143 (CBS) DOLLY LAU, Plaintiff, vs. ALLSTATE INSURANCE COMPANY, Defendant. BRIEF IN SUPPORT OF DEFENDANT'S MOTION TO BIFURCATE PLAINTIFF'S BREACH OF CONTRACT CLAIM FROM PLAINTIFF'S BAD FAITH CLAIM Defendant, Allstate Insurance Company ("Allstate"), through its attorneys, Walberg, Dagner & Tucker, P.C., requests this Honorable Court to order separate trials for Plaintiff's breach of contract claim and Plaintiff's bad faith claim. As grounds therefore, Defendant states as follows: RULE 121 CERTIFICATION Undersigned counsel certifies that she has conferred with Plaintiff's counsel about the subject of this Motion and about the filing of the Motion to which Plaintiff's counsel objects. I. BACKGROUND Plaintiff, Dolly Lau ("Lau"), was involved in an automobile accident on September 28, 2001. Subsequent to the accident, Lau filed a claim against the tortfeasor's insurer for injuries sustained. Lau settled with the tortfeasor's insurer and then brought a lawsuit against her own insurer, Allstate, for underinsured motorist ("UIM") coverage. When Allstate would not pay Lau

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the amount of UIM coverage she felt she was entitled to, Lau sued Allstate for breach of contract, bad faith breach of contract, and violation of the Colorado Consumer Protection Act.1 The Colorado Consumer Protection Act claim was withdrawn on December 22, 2004.2 On May 27, 2005, Allstate filed a Motion in Limine seeking to preclude Lau from offering expert testimony concerning the value of her claim, precluding Lau from disclosing the tortfeasor's liability limits, precluding Lau from disclosing her UIM limits, and precluding Lau from disclosing the specific dollar amount she received from the tortfeasor's insurer. Lau responded by indicating that this evidence was necessary to support her bad faith claim. II. SUMMARY OF THE ARGUMENT A separate trial on Lau's breach of contract claim and bad faith claim is both logical and necessary. A determination that Allstate failed to fulfill its contractual obligations to Lau should be made before a jury has to determine whether Allstate acted in bad faith with respect these contractual obligations. Proceeding with a shorter trial on one issue could effectively resolve all claims in the interests of judicial economy. Moreover, separating the issues is necessary in order to avoid the jury from hearing evidence in support of the bad faith claim that is inadmissible and prejudicial with respect to the breach of contract claim. Even if a limiting instruction was provided, it would do very little to protect against misleading the jury and confusing the issues. Bifurcation is the appropriate remedy. III. LEGAL STANDARD The court is authorized to order a separate trial of any claim when separation is in the

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Amended Complaint, dated October 5 2004 (hereinafter "Exhibit A"). See Stipulated Motion to Withdraw Plaintiff's Claim Under the Colorado Consumer Protection Act, December 20, 2004.

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interest of judicial economy, will further the parties' convenience, or will prevent undue prejudice.3 The decision to bifurcate is within the sound discretion of the trial court.4 Bifurcation is particularly appropriate when resolution of a single claim or issue could be dispositive of the entire case.5 An order as to a joint or separate trial will not be disturbed absent a clear showing of an abuse of discretion.6 IV. ARGUMENT A. Separate Trials Are Appropriate Because The Breach of Contract Issue May be Dispostive of The Entire Case

Lau's breach of contract claim alleges that Allstate did not pay UIM benefits due under the contract and that Allstate failed to timely pay PIP benefits in accordance with the contract.7 In conjunction with this claim, Lau also asserts that Allstate knowingly or recklessly disregarded the validity of these claims in bad faith.8 Similarly, in Cook v. USAA, plaintiff, after being injured in an automobile accident and receiving payment from the adverse driver's liability carrier up to limits, filed a claim against her own insurer for UIM benefits.9 USAA denied coverage and the plaintiff filed suit against USAA for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of

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F.R.C.P. 42(b). Easton v. City of Boulder, 776 F.2d 1441, 1447 (10th Cir. 1985). Cook v. USAA, 169 F.R.D. 359, 361 (5th Cir. 1996); see also 9 WRIGHT & MILLER FEDERAL PRACTICE AND PROCEDURE: Civil 2d §2388, 476 (1994). U.S. v. Furman, 31 F.3d 1034, 1037 (10th Cir. 1994). Exhibit A, ¶¶ 36­43. Exhibit A, ¶¶ 44­52. Cook, 169 F.R.D. at 360.

6 7 8 9

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fiduciary duty, negligence, and agency.10 USAA sought to sever and abate the plaintiff's breach of contract claim from her bad faith claims until the court found plaintiff was entitled, if at all, to UIM coverage.11 The court agreed, finding that: bifurcating the breach of contract claim from the extra-contractual claims is appropriate [because] [i]f the plaintiffs do not prevail on their breach of insurance contract claim, there [could] be no basis for concluding that the defendant acted in bad faith.12 In addition, the court found that "bifurcation furthered the interests in expedient resolution of the litigation" and "simplified the issues for trial, " noting: In a bifurcated trial, the jury may hear the underlying underinsured motorist coverage claim without the issue being obscured by the concurrent presentation of evidence relating tot he bad faith claims. 13 The same analysis applied by the court in Cook applies in this case. If a jury finds there was no breach of contract because Allstate was justified in not paying UIM benefits to Lau and in paying Lau's PIP claims when it did, then there is no need to address and present evidence with regard to Allstate acting knowingly or recklessly with respect to Plaintiff's claims. The interest of judicial economy warrants bifurcation of this matter. B. If Both Claims Are Tried Together, Evidence Admitted on Lau's Bad Faith Claim Will Confuse the Jury and Prejudice Allstate When The Jury Evaluates Lau's Breach of Contract Claim

As noted above, Lau's first claim is that Allstate breached the terms of its contract by not paying UIM benefits and by not timely paying PIP benefits.14 Lau's second claim is that Allstate
10 11 12 13 14

Id. at 361. Id. Id. Id. at 362. Exhibit A, ¶¶ 36­43.

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knew or consciously disregarded the value of Lau's UIM claim and knew or should have known that its untimely delay in paying PIP benefits was unreasonable.15 Thus, the essence of the issues to be addressed at trial are the value of Lau's damages and Allstate's action in evaluating those damages. These claims will involve different types of evidence, which, if presented in the same trial will likely result in the jury using evidence supportive of one claim to evaluate the other claim when such evidence is normally prohibited as irrelevant and prejudicial. In order to prove her bad faith claim, Lau will need to establish what information Allstate knew about when evaluating her claims.16 This information will include the amount of the policy limits paid by the tortfeasor and the amount of UIM limits available under Lau's policy. Lau will then need to establish why, based on this information, Allstate acted in bad faith. Whether an insurer has acted unreasonably in denying or delaying approval of a claim must be "determined on an objective basis, requiring proof of the standards of conduct in the industry."17 Thus, Lau will need to present expert testimony regarding the standard conduct of insurers in similar situations. If this evidence is presented in the same trial with the breach of contract claim, Allstate will be severely prejudiced. With respect to the breach of contract claim, jurors need to determine the value of Lau's damages and whether, based on the damages, she is entitled to benefits under her policy. In determining the value, jurors should not be swayed by what amounts are available under Lau's policy. If jurors were made aware of this information, they may automatically base their decision on what the amount of coverage available to Plaintiff.

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Exhibit A, ¶¶ 44­52. Travelers Ins. Co. v. Savio , 706 P.2d 1258, 1275 (Colo. 1985). Id.

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Similarly, jurors should not be allowed to hear evidence of the liability limits of the tortfeasor's policy or what amount Lau received from the tortfeasor. First, the Supreme Court of Colorado has held that the policy limits of a defendant's liability insurance are not admissible in evidence in automobile tort cases.18 Secondly, the jurors may use the value paid by the tortfeasor's insurer to determine what additional amount is due. Where evidence is inadmissible on one issue and may prejudice one of the parties, a separate trial is justified. 19 Lastly, jurors should not be swayed by any expert testimony regarding how others may value Lau's claim and what an alleged standard and reasonable value should be. The jurors may rely upon evidence of the "standard" reasonable value, which is intended as support for the bad faith claim, when determining the value of Lau's UIM claim without fully evaluating the damages for themselves. As the court noted in Cook, a jury should hear the underlying UIM claim, without the issues being obscured or by the concurrent presentation of the bad faith claim.20 In addition, to obscuring the issues, there is also a danger of presenting irrelevant, inadmissible, and substantially prejudicial information to the jury. While a limiting instruction may inform the jurors of considering separate evidence for separate issues, jurors will likely be unconsciously influenced by such evidence to the detriment of Allstate. In order to assure an unprejudiced evaluation of the breach of contract claim, separate trials on Lau's claims are necessary. WHEREFORE, Defendant, Allstate Insurance Company, requests this Court to grant separate trials for Plaintiff's breach of contract claim and bad faith claim.
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Denver and Rio Grande Western Railroad Company v. District Court of City and County of Denver, 141 Colo. 208 (Colo. 1959). 7 Wright & Miller, Federal Practice and Procedure: Civil 2d §2388 (2005). Cook v. USAA, 169 F.R.D. 359, 362 (5th Cir. 1996)

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DATED: July 21, 2004 Respectfully submitted, WALBERG, DAGNER & TUCKER, P.C.

By:

Deana R. Dagner Attorneys for Defendant Allstate Walberg, Dagner & Tucker, P.C. Quebec Centre II 7400 E Caley Ave Suite 300 Centennial, CO 80111-6714 303-694-9300

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CERTIFICATE OF MAILING I hereby certify that a true copy of the foregoing BRIEF IN SUPPORT OF DEFENDANT'S MOTION TO BIFURCATE PLAINTIFF'S BREACH OF CONTRACT CLAIM FROM PLAINTIFF'S BAD FAITH CLAIM was placed in the U.S. Mail, with postage prepaid, on July 21, 2004, copies addressed to: Pete Cordova, Esq. P.O. Box 1124 1604 H. Street Salida, CO 81201 Clerk of the Court United States District Court District of Colorado Alfred A. Arraj United States Courthouse 901 19th Street, Room A105 Denver CO 80294-3589

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