Opinion

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

JOHNSTOWN DIVISION

NORCAL INSURANCE COMPANY, )

F/K/A NORCAL MUTUAL ) Civil Action No.:

INSURANCE COMPANY; ) 3:21-CV-00066-CBB

)

)

Plaintiff,

)

Christopher B. Brown

)

vs. United States Magistrate Judge

)

)

LAUREL PEDIATRIC ASSOCIATES,

)

INC.,

)

)

Defendant. )

MEMORANDUM AND ORDER

ON ECF No. 93

Christopher B. Brown, United States Magistrate Judge.

I. Introduction

This declaratory judgment action was initiated by Plaintiff Norcal Insurance

Company (“NORCAL”) against Defendant Laurel Pediatric Associates, Inc.

(“Laurel”) on April 12, 2021 seeking a judicial determination pursuant to 28 U.S.C.

§§ 2201, 2202 that NORCAL does not owe a duty to defend or indemnify under an

insurance policy issued to Laurel in connection with an underlying state court

lawsuit filed against Laurel and others seeking damages from sexual misconduct

perpetrated against minor-patients by a former Laurel pediatrician, Johnnie W.

Barto, M.D. (“Barto”). ECF No. 76 at ¶ 2. Laurel levied counterclaims against

NORCAL for declaratory relief that NORCAL owes it a duty to defend and

indemnify the underlying state court action (Count I), bad faith under 42 Pa. C.S.A.

§ 8371 (Count II) and a breach of fiduciary duty under Pennsylvania law (Count

III). ECF No. 91 at ¶¶ 91-109.

Presently before the Court is NORCAL’s partial motion to dismiss Laurel’s

counterclaims for bad faith and breach of fiduciary duty, or alternatively to

bifurcate and stay these counterclaims. ECF No. 93. The motion is fully briefed and

ripe for consideration. ECF Nos. 95, 99, 100. For the reasons that follow, NORCAL’s

motion to bifurcate and stay is GRANTED and its partial motion to dismiss is

dismissed without prejudice.1

II. Background

Because the Court writes primarily for the parties, only those facts necessary

to resolve the present motion are discussed. Laurel is a medical healthcare facility

located in Johnstown, Pennsylvania which provides pediatric services. NORCAL

issued a medical professional liability insurance policy to Laurel for a policy period

from January 1, 2016 to January 1, 2017. NORCAL initiated this Declaratory

Judgment Action to determine whether NORCAL has a duty to defend and/or

1 “[A] magistrate judge, without the consent of the parties, has the power to enter orders which

do not dispose of the case.” In re U.S. Healthcare, 159 F.3d 142, 145 (3d Cir. 1998). Generally, a

motion to bifurcate and stay are non-dispositive pretrial matters under 28 U.S.C. § 636(b) which a

magistrate judge may decide by order. See Evertz Microsystems Ltd. v. Lawo Inc., No. CV 19-302-

MN-JLH, 2021 WL 706457, at *2 (D. Del. Feb. 23, 2021) (motion to bifurcate); Celento v. Mon River

Towing, Inc., No. CIV.A. 05-478, 2007 WL 120027, at *1 (W.D. Pa. Jan. 10, 2007) (motion to

bifurcate); Noble v. City of Erie, No. CV 18-006, 2018 WL 4963614, at *2 (W.D. Pa. Oct. 15, 2018),

aff'd, No. 1:18-CV-6, 2019 WL 13555898 (W.D. Pa. Jan. 29, 2019) (motion to stay non-dispositive); In

re Milo's Kitchen Dog Treats, No. CIV.A. 12-1011, 2013 WL 6628636, at *4 (W.D. Pa. Dec. 17, 2013)

(motion to stay). Appeals from Orders issued by a Magistrate Judge on non-dispositive motions are

subject to the “clearly erroneous or contrary to law” standard of review. 28 U.S.C. § 636(b)(1)(A);

LCvR 72.C.2 (“Any party may object to a Magistrate Judge's determination made under this rule

within fourteen (14) days after the date of service of the Magistrate Judge's order[.]”).

indemnify Laurel in an underlying state court action. The underlying action

involves a civil lawsuit brought in the Court of Common Pleas of Cambria County,

Pennsylvania by over 100 minor plaintiffs against Laurel and others who were

patients of Laurel and claim to have been sexually abused by Barto who was a

former Laurel pediatrician and the founder of Laurel’s pediatric practice (the “state

court action”).2

NORCAL agreed to provide Laurel with a defense to the state court action

subject to a reservation of rights to seek the present declaratory relief. ECF No. 95

at 1-2. NORCAL maintains it does not owe a duty to defend or indemnify Laurel in

the state court action under the policies because the claims do not allege a “medical

incident” as required by the policy terms and are otherwise barred by the sexual

misconduct and criminal acts policy exclusions. Id.

Discovery in the state court action revealed additional facts theretofore

unknown to NORCAL: Laurel employees knew about the sexual misconduct

allegations against Barto but misrepresented these material facts by denying such

knowledge in Laurel’s insurance application. ECF No. 90 at ¶¶ 18-24; 60-67.

NORCAL then moved to amend its complaint in this action to include these

additional reasons for denying coverage and the Court granted NORCAL’s request.

2 The state court action is being heard in the Court of Common Pleas of Cambria County,

Pennsylvania against Laurel and others at Doe v. Laurel Pediatric Associates, Inc., 2019-2172 (C.P.

Cambria Cnty. 2019). It is also noted that Barto pleaded no contest to criminal charges of

aggravated indecent assault, indecent assault and endangering the welfare of a child, was sentenced

to a term of incarceration and had his medical license suspended in January 2018. ECF No. 90 at ¶¶

9-10.

ECF Nos. 50, 88. Thereafter, Laurel filed an answer to the amended complaint and

asserted counterclaims against NORCAL as outlined supra. The crux of the

counterclaims NORCAL seeks to dismiss are that NORCAL acted in bad faith and

breached its fiduciary duty when it amended its complaint in this action to include

allegations that Laurel’s employees were aware of the sexual misconduct allegations

against Barto and misrepresented their knowledge in its application for insurance.

ECF No. 91 at ¶¶ 98-109. Laurel maintains NORCAL’s allegations that its

employees made misrepresentations on its insurance application are false,

NORCAL knows the newly added allegations are false, and by adding such claims,

NORCAL is improperly attempting to prove the merits of the state court action, i.e.,

Laurel was aware of the sexual misconduct allegations against Barto. Id. at ¶¶ 99-

101. Laurel maintains a finding that Laurel was aware of these allegations in this

case supports an award of punitive damages in the state court action, and because

NORCAL maintains its policy does not cover punitive damages, NORCAL has

“placed its own interests ahead of Laurel’s, to Laurel’s substantial detriment.” Id. at

103-106.

NORCAL presently asks this Court to dismiss Laurel’s bad faith and breach

of fiduciary duty counterclaims or alternatively to bifurcate and stay these claims

pending resolution of the declaratory judgment claims and counterclaims under

Fed. R. Civ. P. 42(b). ECF No. 93. As for bifurcation and stay, NORCAL argues

Laurel’s bad faith and fiduciary duty claims are significantly distinct and require

distinct evidentiary proof, would promote judicial economy because a finding that

NORCAL owes no coverage would moot any bad faith or fiduciary duty claim, and

have no bearing on whether NORCAL owes coverage. ECF No. 95 at 11-13. Laurel

disagrees and argues the coverage claims and its counterclaims overlap because

through its counterclaims, Laurel seeks to prove there was no material

misrepresentation, NORCAL knew of these facts since the beginning of this action,

and NORCAL’s claims regarding Laurel’s knowledge of the sexual misconduct is

false. ECF No. 99 at 14-15. Laurel also argues a finding that NORCAL owes no

coverage does not automatically moot Laurel’s bad faith claim. Id. at 15.

III. Discussion

Federal Rule of Civil Procedure 42(b) gives the court broad discretion to

bifurcate discovery or a trial on claims in a case. Idzojtic v. Pennsylvania R. Co., 456

F.2d 1228, 1230 (3d Cir. 1972). Rule 42 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.”

Fed. R. Civ. P. 42(b). In exercising its discretion to bifurcate claims, a court “must

weigh the various considerations of convenience, prejudice to the parties,

expedition, and economy of resources.” Emerick v. U.S. Suzuki Motor Corp., 750

F.2d 19, 22 (3d Cir. 1984). The court should weigh the interests of both parties and

attempt to maintain a fair balance in deciding whether bifurcation and stay is

proper. Fuentes v. USAA Gen. Idemnity Co., No. CV 3:19-1111, 2021 WL 8017101,

at *1 (M.D. Pa. Mar. 30, 2021). While bifurcation is not the norm, it should “be

encouraged where experience has demonstrated its worth[.]” Lis v. Robert Packer

Hosp., 579 F.2d 819, 824 (3d Cir. 1978) (citations omitted). Similarly, incidental to

its inherent authority to manage its own docket, a court has wide latitude to stay

proceedings and should generally consider factors similar to the bifurcation factors

including: the interest of the non-moving party in proceeding expeditiously with the

litigation, the burden of proceeding with the litigation on the moving party, the

convenience to the court in managing its cases and efficient use of judicial

resources, the interests of any non-parties, and the public interest when considering

imposing a stay on proceedings. See e.g., Golden Quality Ice Cream Co. v. Deerfield

Specialty Papers, Inc., 87 F.R.D. 53, 56 (E.D. Pa. 1980). The court should consider

these factors with an objective to avoid prejudice. Volmar Distributors, Inc. v. New

York Post Co., 152 F.R.D. 36, 39 (S.D.N.Y. 1993). The moving party bears the

burden of demonstrating bifurcation and stay are appropriate. Acuity v. Cadillac

Transportation, Inc., No. CV 21-1090, 2022 WL 2490481, at *4 (W.D. Pa. May 24,

2022).

The specific facts and interests present in this case support a finding that

bifurcating discovery and staying Laurel’s bad faith and fiduciary duty

counterclaims pending the resolution of declaratory judgment claims is appropriate.

“In a declaratory judgment action brought to determine an insurer’s duty to defend

and indemnify, ‘the allegations raised in the underlying complaint alone fix the

insurer’s duty to defend.’” Fed. Ins. Co. v. Sandusky, No. 4:11-CV-02375, 2013 WL

785269, at *4 (M.D. Pa. Mar. 1, 2013) (quoting Erie Ins. Exch. v. Claypoole, 449 Pa.

Super. 142 (1996)). See also Westfield Ins. Co. v. Icon Legacy Custom Modular

Homes, 321 F.R.D. 107, 118 (M.D. Pa. 2017).

Staying and bifurcating discovery of the bad faith and fiduciary duty

counterclaims is the most expedient and economical way of managing this case.

This case has been pending in this Court for close to five years. The parties

completed discovery two years ago in January 2024 on all claims except for the

limited claims recently added to the amended complaint involving the alleged

misrepresentations. ECF No. 97 at ¶ 3. NORCAL maintains it does not need any

further discovery on these newly added allegations and Laurel maintains it requires

limited discovery related to these new allegations and does not indicate it requires

any new discovery on its own declaratory judgment claim. ECF No. 97 at ¶¶ 10-11.

The Court is inclined to grant Laurel’s request to grant a period of discovery limited

to the newly added allegations in the amended complaint and will give a period of

sixty days consistent with the below Order to do so and will schedule cross

dispositive motions on the declaratory judgment claims.

If the Court were to instead allow Laurel’s counterclaims to proceed now, the

Court would be required to reopen all discovery, essentially starting this case anew,

and would require additional court conferences, a possible return to an ADR session

and additional dispositive motions practice at great time, effort and expense to the

parties and to the Court. By staying the bad faith and fiduciary duty

counterclaims, the Court can expedite and resolve the threshold question of whether

Laurel is entitled to coverage in the first instance. Such an approach has several

advantages: “It disposes of the coverage determination first, it may justify

termination of coverage previously issued pursuant to a reservation of rights, it

eliminates the most straightforward claim for which the least discovery and

witnesses (if any at all) are required, and it may also entirely moot the bad faith

claim and any other attendant claims of which wrongful denial is an element.”

Westfield Insurance Company, 321 F.R.D. at 117 (collecting cases).

Laurel points out the discovery between the newly alleged misrepresentation

allegations and its counterclaims denying said misrepresentations overlap and

fairness dictates allowing the counterclaims to proceed. ECF No. 99 at 15.

Assuming Laurel is correct, by granting Laurel a limited period of discovery to

defend against the misrepresentation claims, it is free to use whatever relevant

evidence it finds to support its bad faith and fiduciary duty counterclaims,

(assuming such claims do not become moot) and Laurel would suffer little prejudice

from a stay. NORCAL on the other hand would suffer greater prejudice if it were

compelled to defend against these newly added counterclaims after the bulk of

discovery is closed and the parties are anticipating filing dispositive motions on the

declaratory judgment claims. It is also a strong consideration that if the Court

determines NORCAL owes no coverage, it would be prejudiced by expending

considerable time and resources to defend against claims that may be moot.3

3 Laurel argues a finding that NORCAL does not owe coverage would not automatically moot

out its bad faith and fiduciary duty counterclaims. ECF No. 99 at 15. Assuming Laurel’s position

true, allowing its counterclaims to proceed now would result in prolonged litigation given this case’s

procedural posture and a potential to prejudice NORCAL more than Laurel. Deciding the coverage

issues first will streamline any issues to be decided if the case progresses, and the Court can decide

the mootness issue, if necessary, following a decision on the coverage issue.

Moreover, even if the Court were to find in favor of Laurel for its own declaratory

judgment claim, it would streamline discovery related to its bad faith and fiduciary

duty counterclaims by identifying exactly the coverage owed. Therefore, a

bifurcation and stay of discovery of Laurel’s bad faith and fiduciary duty

counterclaims is warranted.

Accordingly, the following Order is entered:

AND NOW, this 23rd day of February, 2026,

IT IS HEREBY ORDERED that NORCAL’s motion to bifurcate and stay is

GRANTED and discovery of Laurel’s bad faith and fiduciary duty counterclaims are

STAYED pending the resolution of the parties’ competing declaratory judgment

claims;

IT IS FURTHER ORDERED that the parties shall conduct discovery for the

newly added declaratory judgment claim allegations related to misrepresentation

only and shall complete said discovery by April 24, 2026;

IT IS FURTHER ORDERED that cross dispositive motions on the parties

competing declaratory judgment claims are due June 1, 2026 and limited to

twenty-five (25) pages. Responses to motions due July 1, 2026 and limited to

twenty-five (25) pages. Replies due July 15, 2026 and limited to five (5) pages;

IT IS FURTHER ORDERED that NORCAL’s partial motion to dismiss

Laurel’s bad faith and fiduciary duty counterclaims is DISMISSED without

prejudice to reassert at the proper procedural juncture.

BY THE COURT:

s/Christopher B. Brown

United States Magistrate Judge