Opinion ID: 160861
Heading Depth: 3
Heading Rank: 2

Heading: Bad faith settlement practices as to SSI

Text: 64 Marathon also complains that Maryland Casualty unreasonably failed to consent to Marathon's settlement offer to SSI. As the district court recognized, this is a third-party bad faith cause of action. See Jarvis v. Farmers Ins. Exchange, 948 P.2d 898, 900 (Wyo. 1997) (stating that third-party bad faith cause of action lies when insurer refuses in bad faith to settle a third-party claim against its insured within policy limits). The Wyoming Supreme Court has held that such a claim will not accrue until after a judgment has been entered against the insured in excess of the policy limits. See id. at 902. Because it is undisputed that the judgment against SSI has not been enforced against it, we agree with the district court that Maryland Casualty was entitled to summary judgment on this claim, which constitutes part of the ninth claim in the complaint. 65 In sum, all of the assigned claims involving SSI were properly dismissed by the district court, including the entire eighth claim and a portion of the ninth claim. B. Bad faith refusal to offer SELI limits 66 As to its first-party bad faith claim, Marathon asserts that Maryland Casualty acted in bad faith towards it when it failed to offer the $1 million dollar SELI coverage limits during the Berg settlement conference. The district court held that this claim was dependent upon Marathon being covered and granted summary judgment to Maryland Casualty on that basis, see App., Vol. 4 at 958. However, we concluded above that Marathon has SELI coverage. 15 67 The Wyoming Supreme Court has recognized that where an insurer fails to accept a reasonable settlement offer within policy limits, that conduct is the basis of a bad faith cause of action. See Western Cas. & Surety Co. v. Fowler, 390 P.2d 602, 604 (Wyo. 1964). See also Eric Mills Holmes & Mark S. Rhodes, Appleman's on Insurance 2d 8.9 at 471 (2d ed. 1996) (citing cases that follow this rule). Since then, other courts have held an insurer's failure to offer the limits of the insurance policy during settlement may amount to bad faith when the claim against the insured has merit and the insured's potential liability exceeds the policy's limits, as was the case here. See, e.g., Courvoisier v. Harley Davidson of Trenton, Inc., 742 A.2d 542, 549, 550 (N.J. 1999) (insurer's offer of only a fifth of the policy limits where claim had merit and far exceeded the policy limits was remanded for trial on claims of bad faith); Opperman v. Nationwide Mut. Fire Ins. Co., 515 So.2d 263, 267 (Fla. Dist. Ct. App. 1987) (insurer's repeated refusal to offer full limits of policy in face of convincing evidence that value of plaintiff's case far exceeded those limits constituted sufficient allegations of bad faith to survive summary judgment); Rova Farms Resort, Inc. v. Investors Ins. Co., 306 A.2d 77, 78-79 (N.J. Super. Ct. App. Div. 1973) (insurer's failure to offer policy limits constituted bad faith notwithstanding there was no assurance from plaintiff that action could be settled within policy limits). In Ahrenholtz, 968 P.2d at 951, the Wyoming Supreme Court held that where the record shows any conduct which has been held to constitute bad faith, the claim must go to the jury. Indeed, in Jarvis, 958 P.2d at 902, the Wyoming Supreme Court recognized just this type of claim, although it held the claim would not accrue until a judgment in excess of the policy limits was entered against the insured. 68 Important here is the fact that the magistrate judge ordered Maryland Casualty to be at the settlement conference with full authority to offer the limits of the policy. Maryland Casualty claims this order did not include the SELI limits. Whether this belief was in good faith is a question of fact for the jury. 69 Consequently, we reverse the district court's grant of summary judgment regarding whether Maryland Casualty's failure to offer the limits of the SELI coverage during settlement amounted to bad faith as to Marathon. V DISCOVERY ISSUES 70 As set forth above, Maryland Casualty appointed the law firm of Murane & Bostwick on May 29, 1997, to defend SSI against Marathon's third-party complaint. On that same day, according to the deposition testimony of Maryland Casualty employees and an attorney at Murane & Bostwick, Maryland Casualty hired Murane & Bostwick to prepare a coverage opinion regarding whether Marathon and Platte were covered under SSI's policy as additional insureds, apparently finally acting on Marathon's initial tender from April 14. 71 Maryland Casualty received that coverage opinion on July 8, 1997, but it did not act upon it. A week later, on July 15, a month before the settlement conference in the Berg litigation and in the face of Maryland Casualty's unresponsiveness, Marathon filed this action. On July 25, Maryland Casualty retained litigation counsel from the Wyoming-based firm of Lathrop & Rutledge and the San Francisco-based firm of Wright, Robinson, Osthimer & Tatum to defend against Marathon's claims. At some point Ms. Griffith, Maryland Casualty's claims adjuster, asked James Nielsen, an attorney at the latter firm, to write Marathon's counsel and offer a defense to Marathon in the Berg litigation under a reservation of rights. He did so on August 15. 72 Maryland Casualty explains its failure to respond to Marathon's repeated tenders until August 15 with the assertion that it had been waiting for Murane & Bostwick's coverage opinion, and that Marathon filed this action before it had a chance to act upon that opinion. During discovery, Marathon sought production of the entire claims file for its claim, the coverage opinion from Murane & Bostwick, and any documents showing when Maryland Casualty requested a coverage opinion from Murane & Bostwick and when the policy and endorsements were provided to Mr. O'Neill to aid in that effort. Maryland Casualty resisted production of these documents, asserting attorney-client privilege. 73 Marathon filed a motion to compel. The magistrate judge ordered the production of several documents which he held were not privileged. In addition, he ordered production of all the documents he found were privileged, ruling that Maryland Casualty could not assert its privilege for several reasons. See App., Vol. 3 at 548. Among those reasons was the magistrate judge's conclusion that Maryland Casualty created a conflict of interest for Murane & Bostwick by hiring the firm to represent SSI against Marathon's third-party complaint while simultaneously representing Maryland Casualty for purposes of the coverage opinion. Citing no case law, the magistrate judge ruled that Maryland Casualty's claim to privilege would be inequitable under these circumstances. Continuing this reasoning and citing Shapiro v. Allstate Ins. Co., 44 F.R.D. 429 (E.D. Penn. 1968), the magistrate judge held that SSI's assignment of claims to Marathon permitted Marathon to learn all the information to which SSI was entitled. Id. at 549. He also said that because Maryland Casualty was relying on the advice of counsel as a defense to Marathon's claims of bad faith, it had waived its attorney-client privilege. The Magistrate Judge accordingly ordered Maryland Casualty to produce the documents. 74 Maryland Casualty appealed to the district court. The district court first concluded that any conflict which Murane & Bostwick might have had did not waive Maryland Casualty's attorney-client privilege. See App., Vol. 3 at 694, 702. The court then addressed Maryland Casualty's alleged reliance on the advice of counsel. Although the court cautioned that Maryland Casualty may have, under the tests discussed in Frontier Refining, [Inc. v. Gorman-Rupp Co., Inc., 136 F.3d at 695, 699 (10th Cir. 1998),] have [sic] waived its privilege, it would nonetheless accept Maryland Casualty's assertion that it was not relying on advice of counsel as a defense to the bad faith claims. Id. at 704. As a consequence, the district court ruled it would not allow Maryland Casualty to offer any advice-of-counsel defense at trial, or present any evidence relating to such a defense. See id. The court ordered Maryland Casualty to produce the documents for its in camera review to determine whether they showed when Maryland Casualty asked for and received legal advice relating to Marathon's claims of coverage. See id. at 705. After an in camera review, the district court held that Maryland Casualty had claimed a valid attorney-client privilege and was therefore not required to produce the materials. See App., Vol. 4 at 855. In denying Marathon's motion to reconsider, the district court pointed to its original ruling that Maryland Casualty was not relying on the advice of counsel and that it would not be allowed to use a privilege defense at trial. See id. at 911. 75 Marilyn Griffith, the adjuster who handled Marathon's claims for Maryland Casualty, ended her employment with Maryland Casualty during this litigation. On July 31, 1998, after the district court's rulings on the coverage issues but before its rulings on the bad faith claims, the magistrate judge ordered the production of Marilyn Griffith's personnel file. Maryland Casualty appealed this ruling to the district court. Not reaching the appeal until after its grant of summary judgment to Maryland Casualty on the bad faith claims, the court dismissed the appeal as moot. 76 Marathon appeals these various orders. 16 We will not reverse a trial court's order denying discovery absent an abuse of discretion. See Frontier Refining, 136 F.3d at 699. In this context, however, we review the court's underlying factual determinations for clear error and review de novo purely legal questions. Id. 77 A. Claims File Documents and Coverage Opinion 78 On appeal, Marathon encourages us to adopt the magistrate judge's reasoning and hold that Murane & Bostwick's conflict of interest waived Maryland Casualty's attorney-client privilege, or, alternatively, that Maryland Casualty's reliance on advice of counsel as a defense to the bad faith claims waives the privilege. We decline to adopt either conclusion. 1. Conflict as a waiver 79 Believing that Maryland Casualty created a conflict by hiring Murane & Bostwick to undertake both representations, the magistrate judge determined that [u]nder these circumstances, it would be inappropriate to allow Maryland Casualty to raise the attorney-client privilege and protect documents from discovery concerning the Marathon/Platte coverage issue. App., Vol. 3 at 549. To the extent the conflict argument relates to the assigned claims of SSI, the issue has become moot given our affirmance of the district court's dismissal of these claims. To the extent the conflict issue may impact any of Marathon's claims upon which we have reversed the district court, we remand any discovery issues to the district court for further consideration. 2. Reliance upon advice of counsel 80 The district court accepted Maryland Casualty's assertion 17 that it was not relying on the advice of counsel, but Marathon strenuously disagrees. After reviewing the record and Maryland Casualty's position throughout the litigation below and continuing here on appeal, we find this to be a close question because of Maryland Casualty's continued assertion that it was waiting for advice from counsel before acting. 81 Nevertheless, we have confidence that the district court will faithfully enforce its order that Maryland Casualty may not enter anything into evidence at trial concerning matters about which it claimed a privilege. After our own in camera review of these documents, we are convinced that the dates Maryland Casualty has admitted to concerning when it requested and received the coverage opinion are supported by the privileged documents. We therefore find no abuse of discretion in the district court's order. B. Marilyn Griffith's Personnel File 82 In its reply brief, Marathon urges us to rule on this issue because, although it became moot in the district court, it is squarely before this court. Because we are remanding in any event, we remand this issue as well for consideration by the district court in the first instance. 83 In summary, we affirm in part and remand in part the district court's discovery orders for further consideration. 18 VI COSTS 84 The district court, in its final order, granted Maryland Casualty's motion for deposition costs amounting to $1,114.75, without responding to Marathon's strenuous objection. Marathon appeals this grant of costs, asserting that the district court violated its local rule and therefore abused its discretion. As the district court's power to grant costs is discretionary, we accordingly review its grant for an abuse of that discretion. See Jones v. Unisys Corp., 54 F.3d 624, 633 (10th Cir. 1995). 85 Although a federal statute provides that a judge may tax deposition expenses as costs if the depositions are 'necessarily obtained for use in the case,' 28 U.S.C. 1920, a more stringent local district court rule allows costs only for depositions received in evidence. Hernandez v. George, 793 F.2d 264, 268-69 (10th Cir. 1986). Local Rule 54.2(f) addresses when the district court here will allow costs, and subsection (2)(D) sets forth the following: 86 Costs of depositions are taxable if the depositions or portions thereof were read into evidence at trial in lieu of the appearance of the deponent; or if the deposition is used at trial to impeach a witness on the witness stand with his/her prior testimony; or it is necessary during the course of trial that a witness's recollection be refreshed from his/her deposition testimony. 87 D. Wyo. L.R. 54.2(f)(2)(D). From this rule it is clear that the district court is only empowered under its own rules to grant costs in three separate situations, all of which involve using evidence from the deposition at trial. This case was decided prior to trial. The record does not reflect that the court was intentionally overlooking its local rule and exercising its more general statutory authority as Maryland Casualty suggests. In any event, since we are reversing the grant of summary judgment in favor of Maryland Casualty, the district court will need to redetermine costs when these proceedings become final. Consequently, we reverse the grant of deposition costs to Maryland Casualty. VII