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State ex rex. Nationwide Property and Casualty Insurance Company vs. Kaufman

State ex rex. Nationwide Property and Casualty Insurance Company vs. Kaufman

Case No. 
Type of Proceeding: 
Writ of Prohibition
  1. Did the trial court err when it gave an adverse inference instruction resulting from Nationwide’s spoliation of its complaint register?
  2. Did the trial court err when it granted summary judgment for the insured, finding that he had substantially prevailed against his insurer, Nationwide?

This case arises out of a fire that substantially damaged the home of Respondent, Caleb Banks, on October 22, 2017.  Respondent was insured by Petitioner, Nationwide.  Because the fire had two points of origin, Nationwide deemed it “suspicious” and began an investigation.  At no time, however, did Nationwide produce any evidence suggesting that Respondent had any involvement in the fire.  Initially, Nationwide agreed to pay benefits covering Respondent’s living expenses.  When Nationwide abruptly terminated those benefits, Respondent filed suit seeking all coverage benefits and damages for Nationwide’s bad faith handling of the fire claim.  Eventually, Nationwide agreed that coverage existed under Respondent’s policy and proceeded to pay for the fire loss.

During discovery, Respondent requested production of Nationwide’s complaint register.  Nationwide objected.  Respondent then moved to compel, noting that the complaint register was relevant to proving Nationwide’s “general business practice.”  The trial court granted Respondent’s motion.  Thereafter, Respondent deposed a Rule 30(b) witness produced by Nationwide, who acknowledged that the complaint register was incomplete.  Respondent requested an instruction advising the jury that it could infer bad faith on the part of Nationwide based on its spoliation of its complaint register.  Respondent’s request was granted.

Respondent also moved for summary judgment on the issue of whether he substantially prevailed, entitling him to damages under Hayseeds vs. State Farm Fire and Casualty Company, 177 W.Va. 323, 352 SE2nd 73 (1986).  The trial court granted summary judgment in Respondent’s favor.

Petitioner seeks a review of these two rulings via a writ of prohibition.

Positions of the Parties: 

Petitioner (Nationwide):

Nationwide argues that Respondent received a full and complete list of all complaints involving homeowner coverage--i.e., the same coverage under which Respondent was suing.  Furthermore, the list of cases in the complaint register itself was not admissible in evidence and, therefore, any alleged spoliation of the list could not provide a basis for an adverse inference instruction.

Regarding the substantially prevailing issue, Nationwide argues that Respondent never made a demand, even after litigation had begun.  Furthermore, Respondent did not demonstrate that counsel’s services were, in fact, “necessary” in order for Respondent to receive payment of the policy benefits.

Respondent (Banks):  

Respondent argues that Nationwide’s failure to produce the entire complaint register violated the trial court’s discovery order and impaired the Respondent’s ability to discover and prove a critical element of his bad faith claim.  Respondent also argues that the adverse inference instruction was supported by Rule 37 because of Nationwide’s discovery violation.

Addressing the question of whether he substantially prevailed, Respondent points out that insurance regulations put the burden on an insurer to pay the undisputed amounts of a claim regardless of whether, or not, a demand has been made.  Furthermore, the facts show that it was only because of counsel’s appearance, filing of the complaint, and workup of the case that Nationwide paid the claim.

Probable Impact: 

This case raises issues that will certainly be of interest to attorneys handling bad faith cases.  If the Supreme Court affirms the adverse inference ruling, it could give insureds a powerful weapon to use against insurers who refuse to produce complaint registers or other discovery relating to general business practice.  The necessity-of-counsel issue is also an important one, and the Court’s insights on that issue will be helpful in future cases where the insured is seeking substantially prevailing damages.

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