In lawsuits involving insurance coverage disputes, insureds typically allege that an insurance company breached the insurance policy contract and that it acted with bad faith when handling the claim. The bad faith allegations permit recovery of punitive damages from the insurance company. While Ohio requires claims for punitive damages to be bifurcated or separated at trial from the jury’s consideration from the breach of contract/coverage issues, the Eighth District Court of Appeals recently broadened the insurers rights to not only bifurcate the damages portion of trial, but also to bifurcate the breach of contract claims from the bad faith claims at trial.
In DeVito v. Grange Mutual Cas. Co., 8th Dist. No. 99393, 2013-Ohio-3435, the Eighth District Court of Appeals held that the insurance company was entitled to first complete discovery and proceed to trial on the question of whether the insurer breached the insurance policy. Per the DeVito decision, if, and only if, the jury determines that the insurance policy was breached, then the parties may conduct discovery and proceed to a second trial on the issues of 1) whether the insurer acted in bad faith and 2) whether punitive damages were warranted.
In DeVito, the Plaintiff made a property damage claim with her insurer for repairs to the roof on her house. The insurer denied the claim on the basis that the damages were not covered by the relevant insurance policy. The insured sued for breach of contract and bad faith. The court of appeals held in a 2 to 1 decision that the trial court abused its discretion by not bifurcating the bad faith claim from the breach of contract action, and by not staying discovery on the bad faith claim.
This case has potential broad significance in insurance coverage and bad faith cases, as it could require every bad faith case to be bifurcated until such time as the court (or a jury) addresses whether the insurer breached the insurance policy terms and conditions. Ohio R.C. 2315.21 and the Ohio Supreme Court case authority have mandated that punitive damage claims be bifurcated from compensatory damages for several years. However, this case expands the concept to also require bifurcation of any breach of contract case from a bad faith claim.
In addition, DeVito stands for the proposition that a trial court’s order denying bifurcation of these claims is a final appealable order, subject to immediate appellate review.
DeVito is helpful to insurance companies in Ohio that are sued for alleged bad faith. It is not yet known if the Ohio Supreme Court will review this decision or whether other Ohio appellate courts will follow this holding.
If you have any questions regarding this decision or concerning any other bad faith or insurance coverage issues, please call on one of our Insurance Coverage/Bad Faith Practice Group attorneys.