United States District Court, E.D. Virginia, Newport News Division
MEMORANDUM OPINION AND ORDER
LAWRENCE R. LEONARD UNITED STATES MAGISTRATE JUDGE
the Court are Defendant Continental Casualty Company
("Continental") and Defendant Lexington Insurance
Company's ("Lexington") Joint Motion to
Bifurcate (ECF No. 47) and Joint Motion to Stay Discovery
(ECF No. 49), which were referred to the undersigned by Order
of Court dated September 21, 2017 (ECF No. 59). The Motions
are fully briefed and ready for disposition. Continental and
Lexington (collectively "Defendants") have
requested a hearing on the aforementioned Motions (ECF No.
63), however, the Court finds that oral argument is
unnecessary and will rule upon the subject motions without a
Factual and Procedural Background
dispute arises out of excess insurance policies procured by
Plaintiff from Defendants for liability coverage to Plaintiff
for any and all sums Plaintiff would become legally obligated
to pay as damages because of personal injury, property
damage, or advertising injury that occurred during the
relevant policy periods of approximately 1971 through 1974
and 1974 through 1977. Beginning in 1979, Plaintiff was named
in over a hundred thousand lawsuits brought by individuals
who claim to have suffered personal or bodily injury as a
result of their alleged exposure to asbestos fibers contained
in marine interior materials sold by Plaintiff.
Plaintiff has and continues to incur substantial costs and
expenses in defending and settling these lawsuits. Up until
recently, these defense costs were covered by other insurance
policies, however, those polices were exhausted or were close
to exhaustion. In 2013, Plaintiff contacted Defendants, who
were insurers that provided the excess policy coverage, to
advise of the exhaustion or expected exhaustion of previous
polices, and the impending need for Defendants to honor their
excess coverage policies. Continental began making payments,
but stopped in or about July 2014. Defendant Lexington never
began making payments. On December 27, 2016 Plaintiff filed a
two count Complaint, after approximately four (4) years of
pre-suit settlement negotiations proved unfruitful. In so
doing, Plaintiff included in its prayer for relief as to all
counts, a request for attorneys' fees pursuant to Va.
Code § 38.2-209, which provides:
Notwithstanding any provision of law to the contrary, in any
civil case in which an insured individual sues his insurer to
determine what coverage, if any, exists under his present
policy or fidelity bond or the extent to which his insurer is
liable for compensating a covered loss, the individual
insured shall be entitled to recover from the insurer costs
and such reasonable attorney fees as the court may award.
However, these costs and attorney's fees shall not be
awarded unless the court determines that the insurer, not
acting in good faith, has either denied coverage or failed or
refused to make payment to the insured under the policy.
Defendants were unsuccessful in their Motions to Dismiss,
Motions to Transfer Venue, and Motions to Stay Proceedings
based on abstention principles, Defendants ultimately filed
their respective Answers on or about May 1, 2017. ECF Nos.
32-33. Plaintiff served Defendants with its First Set of
Requests for Discovery Production on or about May 26, 2017.
Pursuant to the parties' agreement, Defendants submitted
their objections, responses, and a Privilege Log on June 27,
2017. On July 7, 2017, Plaintiffs counsel sent a letter to
Defendants outlining what Plaintiff considered deficiencies
in Defendants' discovery responses to which Defense
counsel responded on July 13, 2017. In an effort to resolve
these disputes, the parties conferred by telephone on August
16, 2017, but contested issues persisted.
Defendants' Motion to Bifurcate and Motion to Stay
Discovery (ECF Nos. 47-48; 49-50)
about September 8, 2017, Defendants filed a Motion to
Bifurcate Discovery and accompanying memorandum, ECF Nos.
47-48, and a Motion to Stay Discovery Relating to "Bad
Faith", ECF Nos. 49-50,  to which Plaintiff filed a single
Opposition, ECF No. 53. Defendants filed their Joint Reply on
September 20, 2017, ECF No. 58. Essentially, the gravamen of
Defendants' Motions appears to be their desire for the
Court to bifurcate not only the claim for attorneys'
fees, but also discovery related thereto, and specifically
with regards to Plaintiffs Requests for Production of
Documents Nos. 11 and 12. See ECF No. 48 at 4-5; ECF No.
50 at 4-5. Defendants insist that their efforts are necessary
"to protect Defendants from [Plaintiffs] sandbagging
discovery." ECF No. 58 at 4.
initial matter it should be noted that Defendants, through
two footnotes, ECF No. 48 at 3 nn.1-2; ECF No. 50 at 3
nn.1-2, seem to suggest that the Virginia statute providing
for additional recovery of attorneys' fees for bad faith
in a contract claim is not applicable to the claim sub
judice, and instead "submit the law of New York
applies" and their filings cite to the pertinent
Virginia statute only because Plaintiffs claims are
predicated thereon. Neither the Motions to Bifurcate/Stay
Discovery nor memoranda in support appear to make any further
mention of the applicability of New York law beyond these two
footnotes. In the event that they did, Plaintiff vehemently
rejects this notion, and the Court is inclined to agree. As
Plaintiff notes, in Virginia "everything related to the
making of the contract is to be governed by the law
of the place where it is made; everything related to the
performance of the contract is to be controlled by
the law of the place of performance." Black v.
Powers, 628 S.E.2d 546, 554 n.8 (Va. Ct. App. 2006)
(emphasis in original) (citation and internal quotation marks
omitted). Thus, because Plaintiff is incorporated in
Virginia, and has been headquartered there since at
least 1976, its sole office is in Virginia, and
Defendants' duty to perform is to pay Plaintiff for the
asbestos-related liabilities at its Virginia headquarters,
Virginia law controls Defendants' performance under the
contracts and their potential liability for costs and
attorneys' fees. See Seneca Specialty Ins. Co. v.
Dockside Dolls, Inc., No. 3:12CV19-REP-DJN, 2012 WL
3579879, at *3 (E.D. Va. June 22, 2012),
report and recommendation adoptedo. 3:12CV19, 2012
WL 3562755 (E.D. Va. Aug. 17, 2012) ("It is Seneca's
failure to pay Dockside that might constitute a breach of the
insurance policy. Because those funds are to be paid at
Dockside's place of business in Virginia, Seneca's
alleged failure to perform occurred in Virginia. Thus,
Virginia law governs issues of performance.").
Rule of Civil Procedure 42(b) governs a party's motion to
bifurcate. Saint John's African Methodist Episcopal
Church v. GuideOne Specialty Mut. Ins. Co., 902
F.Supp.2d 783, 785 (E.D. Va. 2012) (citing Epps v. Arise
Scaffolding & Equip., Inc., No. 2:10cvl89, 2011 WL
1566004, at *12 (E.D. Va. Feb. 17, 2011)). Rule 42(b)
provides that "[f]or convenience, to avoid prejudice, or
to expedite and economize, the court may order a separate
trial of one or more separate issues . . ." Fed.R.Civ.P.
42(b). In the Fourth Circuit, it is well-established that the
decision whether to bifurcate pursuant to Rule 42(b) "is
within the sound discretion of the trial judge."
Bowie v. Sorrell, 209 F.2d 49, 51 (4th Cir. 1953).
As identified earlier, the crux of Defendants' Motions to
Bifurcate and Stay Discovery relating to "Bad
Faith" is that a Plaintiff verdict on the breach of
contract claim is a prerequisite to any discovery on the
matter of bad faith. According to Defendants, unless and
until Plaintiff secures a favorable disposition on its
breach of contract claim (to wit: that Defendants improperly
denied Plaintiffs insurance claims and demands for payment),
Plaintiff is not entitled to discovery on the subject, and
specifically whether such denials were in bad faith.
Defendants are not entirely incorrect. See Styles v.
Liberty Mut. Fire Ins. Co., No. 7:06CV00311, 2006 WL
1890104, at *1 (W.D. Va. July 7, 2006) ("The defendant
is correct that an award of fees and costs under this statute
cannot be adjudicated until a decision has been issued on the
breach of contract claim. It is incorrect, however, in
asserting that the statutory remedy must be dismissed until
the contract claim is decided."). However, it is a
misstatement of the applicable law in the Fourth Circuit to
contend that a decision to bifurcate the award of
attorneys' fees based on bad faith unequivocally extends
such bifurcation to discovery as well.
their Motions, Defendants rely heavily on two (2) cases in
support of their argument for bifurcation and a stay of
discovery: Massachusetts Bay Ins. Co. v. Decker, No.
7:11-CV-00342, 2012 WL 43614 (W.D. Va. Jan. 9, 2012) and
Seneca Ins. Co. v. Shipping Boxes I LLC, 30
F.Supp.3d 506 (E.D. Va. 2014). As Judge Jackson observed in
one such case cited by Defendants in support of their
Motions, "[t]he statute is 'designed to punish an
insurer guilty of bad faith in denying coverage or
withholding payment and to reimburse an insured who has been
compelled by the insurer's bad-faith conduct to incur the
expense of litigation.'" Seneca Ins. Co. v.
Shipping Boxes I, LLC, 30 F.Supp.3d 506, 512 (E.D. Va.
2014) (hereinafter "Shipping Boxes")
(quoting CUNA Mut. Ins. Soc. v. Norman, 237 Va. 33,
375 S.E.2d 724, 726 (1989)). In Shipping Boxes,
Judge Jackson ultimately granted the Motion to Bifurcate,
observing that "[o]ther district courts have granted
similar requests, noting that delaying discovery on the issue
of the insurer's bad faith is 'expedient' where
it may not even ultimately be necessary." Seneca
Ins. Co. v. Shipping Boxes I, LLC, 30 F.Supp.3d 506, 513
(E.D. Va. 2014) (citing Massachusetts Bay Ins. Co. v.
Decker, No. 7:ll-CV-00342, 2012 WL 43614, at *2 (W.D.
Va. Jan. 9, 2012); Tiger Fibers, LLC v. Aspen Specialty
Ins. Co., 594 F.Supp.2d 630, 655 (E.D.Va. 2009) ("A
claim under § 38.2-209 may not therefore be brought as a
separate cause of action ... but only as a source of recovery
of costs and attorney's fees once a judgment is
entered against the insurer.") (emphasis in
original)). Shipping Boxes is distinguishable from
the instant case in two respects.
the opposing party (Shipping Boxes) did not object to the
Motion to Bifurcate. The same can certainly not be said for
this Plaintiff whose Motion to Compel (ECF No. 45) appears to
be the impetus for Defendants' Motions to Bifurcate and
Stay Discovery. In their Joint Reply (ECF No. 58), Defendants
minimize this distinction as "irrelevant" because
"it is 'the interest of efficient judicial
administration that is to be controlling under the rule,
rather than the wishes of the parties." ECF No. 58 at 5
(citing Freeman v. Globe Life and Accident Ins. Co.,
No. 5:13-cv-05249, 2013 WL 12180763, at *2 (S.D. W.Va. Aug.
2, 2013) (quoting 9A Charles Alan Wright & Arthur R.
Miller, Federal Practice and Procedure § 2388 (3d ed.
2012))). The Court notes that while the Freeman
decision arises out of a sister division within the Fourth
Circuit, its holding does not amount to controlling law in
this district and in this case. See McBurney v. Young,
661 F.3d 454, 465 (4th Cir. 2012), aff'd,
569 U.S. 221 (2013) ("First, as out-of-circuit
authority, it is not binding on this Court.");
United States ex rel Carter v. Halliburton Co., 866
F.3d 199, 211 (4th Cir. 2017) (same). Furthermore,
Freeman sought the bifurcation of the bad faith
issue at trial, as opposed to discovery of the same. As
discussed further herein, the Court does not equate
bifurcation of a triable issue with bifurcation of discovery
regarding the issue. The Freeman Court articulated
the sentiments shared by this Court: "although the
evidence needed to properly support the declaratory judgment
question and any asserted breach of contract claim may likely
be similar, the evidence and legal dispute relative to the
coverage question and any asserted bad faith claim will be
different." Freeman v. Globe Life & Accident
Ins. Co., No. 5:13-CV-05249, 2013 WL 12180763, at *2
(S.D. W.Va. Aug. 2, 2013).
second point of distinction, in Shipping Boxes, the
request for bifurcation occurred very early on in the
proceedings, via a Motion to Bifurcate which was filed
concomitantly with a timely filed Motion to Dismiss. Here,
the timing of Defendants' Motions to Bifurcate and Stay
Discovery could be indicative of dilatory tactics
and a tacit admission of bad faith denials. According to
Plaintiff, this is merely Defendants' attempt to thwart
Plaintiffs previously filed Motion to Compel, which seeks,
among other things, discovery production regarding
Defendants' alleged bad faith in denying payment of
Plaintiff s claims. See ECF No. 45. As Plaintiff
notes, and is corroborated by the docket entries, it does
appear that Defendants had ample opportunity to raise this
issue before September 8, 2017 and did not. Defendants have
requested (and been denied) several other forms of relief
(i.e., a Motion to Transfer Venue to New York, Motion to
Dismiss, Motion to Stay these Proceedings pending resolution
of a New York station action, etc.), but at no time was the
relief now sought by the Motions to Bifurcate and Stay
"Bad Faith" Discovery requested, nor were these
arguments regarding bifurcation or discovery raised. Indeed
Plaintiff has only ever proceeded on one Complaint: the
original one filed on December 27, 2016 which included the
required references to Defendants' alleged bad faith and
notice that Plaintiff planned to seek attorneys' fees
pursuant to Va. Code § 38.2-209. See ECF No. 1
at 8, ¶ 40; id. at 9, ¶ C. This is an
approved method of complying with the notice requirements
pursuant to the operative statute and case law interpreting
the same. See Seneca Specialty Ins. Co. v. Dockside
Dolls, Inc., No. 3:12CV19-REP-DJN, 2012 WL 3579879, at
*4 (E.D. Va. June 22, 2012), report and recommendation
adopted, No. 3:12CV19, 2012 WL 3562755 (E.D. Va. Aug.
17, 2012) (explaining that "[t]o obtain fees under
§ 38.2-209, 'a party must notify its adversary in
its complaint that it plans to seek costs and attorneys'
fees, and the complaint must contain an allegation of bad
faith ... so that the allegation may be investigated during