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Ameritas Life Insurance Corp. v. Federal Insurance Co.

United States District Court, D. Nebraska

January 31, 2017

AMERITAS LIFE INSURANCE CORP., AMERITAS INVESTMENT CORP., AND AMERITAS HOLDING COMPANY, Plaintiffs,
v.
FEDERAL INSURANCE COMPANY, Defendant.

          MEMORANDUM AND ORDER

          Cheryl R. Zwart United States Magistrate Judge.

         This matter is before the court on Defendant's Motion to Bifurcate Bad Faith Claim for separate trial and to stay discovery on that claim, (Filing No. 46), and Plaintiffs' related Motion to Compel, (Filing No. 69). For the following reasons, the motion to bifurcate will be granted and the motion to compel will be denied without prejudice to re-filing if Plaintiff prevails on the contract action and is permitted to pursue its tort claim for bad faith.

         BACKGROUND

         Plaintiffs, Ameritas Life Insurance Corp., Ameritas Investment Corp., and Ameritas Holding Company (“Plaintiffs” or “Ameritas”) are Nebraska corporations licensed to sell insurance products and securities. Defendant Federal Insurance Company (“Federal”) insures life insurance companies and their agents for matters resulting from the alleged wrongful acts of life insurance agents. At the times relevant to Ameritas' complaint, Federal provided a Financial Institution Bond (the “Bond”) to Plaintiffs which, under its terms, indemnified Ameritas for “[l]oss resulting directly from dishonest acts . . . of any Employee . . . committed with intent to cause [Ameritas] to sustain such loss.” (Filing No. 1-7 at CM/ECF p. 3).

         From 2010 to 2012, Ameritas employed Jason Muskey as an agent and broker to solicit and sell policies and securities. Since that time, several Ameritas customers have alleged Muskey stole money from them (the “Muskey Claims”), and they demand compensation from Ameritas to make them whole, along with restoration or rescission of policies. At the time the Complaint was filed, Ameritas had paid $2, 547, 221.50 to resolve Muskey Claims, and at least two claims remained pending.

         Ameritas provided timely notice to Federal of the Muskey Claims. Federal issued two payments to Ameritas in the total amount of $709, 747.18 in 2015. But Ameritas claims that under the Bond, Federal still owes Ameritas approximately $1, 337, 474.32 plus additional costs, including the cost of any unresolved Muskey Claims.

         Ameritas alleges Federal has breached the Bond by failing to properly defend Plaintiffs' interests and by failing to fully reimburse Ameritas for settlement amounts paid to resolve the Muskey Claims. Federal claims it did not breach the terms of the Bond contract; that the Ameritas payments at issue in this lawsuit settled claims which were not covered under the Bond. Federal states there is no Bond coverage for claims arising from funds that customers “voluntarily provided to Muskey . . . not the Plaintiffs.” (Filing No. 33 at CM/ECF pp. 2-3).

         In addition to asserting a contract claim under the Bond, Ameritas alleges claims for unjust enrichment and bad faith. In support of the bad faith claim, Ameritas asserts that although Federal has reimbursed Ameritas for some losses resulting from Muskey's “dishonest” conduct, “Federal refuses to and continues to refuse to pay other covered losses.” (Filing No. 1 ¶¶ 38 & 39 at CM/ECF p. 6).

         Federal now seeks to bifurcate the discovery and trial of these proceedings, alleging a failure to do so will prejudice Defendant. Specifically, Federal seeks an order separating the contract claims from Ameritas' remaining claims, with the contract action proceeding first, followed by discovery and trial on the unjust enrichment and bad faith claims if Ameritas prevails on the contract action.

         ANALYSIS

         Fed. R. Civ. P. 42(b) provides:

For convenience, to avoid prejudice, or to expedite and economize, the court may order a separate trial of one or more separate issues, claims, crossclaims, counterclaims, or third-party claims. When ordering a separate trial, the court must preserve any federal right to a jury trial.

         Trial courts have great discretion in determining when to bifurcate proceedings; the burden is on the party seeking bifurcation to demonstrate it will be prejudiced if the claims are not bifurcated. See Athey v. Farmers Ins. Exchange, 234 F.3d 357, 362 (8th Cir. 2000).

In order for a court to grant bifurcation, the party seeking bifurcation has the burden of demonstrating that judicial economy would be served and that no party would be prejudiced by separate trials, based on the circumstances of the individual case. Novopharm Ltd. v. Torpharm, Inc.,181 F.R.D. 308, 310 (E.D. N.C. 1998). Thus, “even if bifurcation might somehow promote judicial economy, courts should not order separate trials when bifurcation would result in unnecessary delay, additional expense, or some other form of ...

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