White Mountain Communities Hospital Incorporated v. Hartford Casualty Insurance Company et al

Filing 106

ORDER re 58 Motion to Compel. The motion at docket 58 is GRANTED in part and DENIED in part as set forth in the order. The additional responses required from Hartford shall be provided to White Mountain within 21 days from the date of this order. Because the motion has been granted in part and denied in part, the court declines to apportion expenses relating to the motion between the parties. See the PDF. Signed by Judge John W Sedwick on 12/8/14.(JWS)

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1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 DISTRICT OF ARIZONA 8 9 10 White Mountain Communities Hospital Incorporated, 11 12 Plaintiff, vs. 13 14 15 Hartford Casualty Insurance Company, Defendant. ) ) ) ) ) ) ) ) ) ) ) 3:13-cv-8194 JWS ORDER AND OPINION [Re: Motion at docket 58] 16 17 18 I. MOTION PRESENTED At docket 58 plaintiff White Mountain Communities Hospital Incorporated (“White 19 Mountain”) moves to compel defendant Hartford Casualty Insurance Company 20 (“Hartford”) to supplement its January 30, 2014 response to White Mountain’s discovery 21 requests. The statement required by local civil rule 37.1 is at docket 59, and there is a 22 supplement at docket 67. Hartford responds at docket 73, and W hite Mountain replies 23 24 25 at docket 82. Oral argument would not assist the court. II. STANDARD F REVIEW 26 Rule 37(a)(3)(B) authorizes a party to move for an order compelling discovery. 27 The scope of permissible discovery is broad. Rule 26(b)(1) provides that a party may 28 1 2 3 obtain discovery of any non-privileged information which is relevant to any claim or defense. The information sought need not be admissible at trial, but it must be reasonably calculated to lead to the discovery of admissible evidence. 4 5 6 III. BACKGROUND White Mountain obtained a commercial property insurance policy underwritten by 7 Hartford covering the period from April 1, 2011, thru April 1, 2012. The policy provided 8 coverage for business income losses in addition to property damage. White 9 Mountain’s hospital was affected by the wildfire known as the Wallow Fire. That wildfire 10 led to the temporary evacuation of many residents within the area served by White 11 12 Mountain. White Mountain sought payment under the policy for property damage and 13 business income losses. Hartford began its processing of White Mountain’s claim in 14 June of 2011. Hartford paid White Mountain $723,548 on the claims, of which 15 $683,520 was paid on the business income claim. Payment was made on or before 16 June 6, 2012, when Hartford issued its final claim correspondence. 17 18 19 White Mountain contends in this lawsuit that it is entitled to be paid substantially more money on the business income claim. Its expert has estimated the loss of 20 business income to be between $2,760,756 and $3,214,978. W hite Mountain’s claim is 21 based in large part on the proposition that the W allow Fire so devastated the area 22 served by White Mountain that residents were slow to return to the area and that their 23 prolonged absence led to a substantial, if temporary, diminution in the demand for 24 25 White Mountain’s services and an associated loss of income. 26 27 28 -2- 1 2 3 White Mountain filed suit against Hartford in state court on June 4, 2013. 1 Its complaint includes a claim for breach of the insurance contract, a claim of bad faith arising from the manner in which Hartford adjusted White Mountain’s request for 4 5 payment of insurance benefits, a claim that Hartford was unjustly enriched, and a claim 6 for punitive damages based on Hartford’s allegedly outrageous and malicious conduct 7 in delaying payment and denying full payment to White Mountain.2 8 9 IV. DISCUSSION White Mountain asks that Hartford be required to supplement some of its 10 January 30, 2014 discovery responses to White Mountain’s First Request for 11 12 Production of Documents. Specifically, it asks the court to order Hartford to respond 13 further to Requests for Production Nos. 2, 5 , 6, and 8. In its reply memorandum, White 14 Mountain seeks an order compelling Hartford to further respond to Requests for 15 Production Nos. 13, 14, and 17. The court declines to consider that request, because 16 the relief sought was first raised in a reply memorandum to which Hartford has not had 17 18 an opportunity to respond.3 19 20 21 1 22 The case was timely removed to this court based on diversity of citizenship. 2 23 Doc. 1-1 at pp. 14-16. 3 27 Carepartners, LLC v. Lashway, 2007 WL 321383 *3, n.6 (W.D. Wash. 2007) (taking same position). While the supplemental Local Rule 37.1 statement did precede Hartford’s response, there was no argument regarding Requests Nos. 13, 14 or 17 in the underlying motion. In responding to the motion, Hartford did not address the supplemental statement. There is nothing in Local Rule 37.1 which calls for a response to a statement itself. Moreover, filing a supplemental statement is at odds with the text of the local rule, which ties the statement to the underlying motion. 28 -3- 24 25 26 1 2 3 A. Request Nos. 2 and 5 As pertinent to the pending motion, Request No. 2 asked for copies of claims manuals, training manuals, and claim handling guidelines.4 Request No. 5 asked for all 4 5 documents relating to “Hartford Insurance’s Corporate Incentive Program.”5 As 6 explained in White Mountain’s motion papers, “Plaintiff requested disclosure of 7 Hartford’s claims standards and incentive program to understand how Hartford 8 employees evaluate claims of this type and how the Hartford compensates its 9 employees.”6 White Mountain contends that without these materials, it is not able to 10 assess the reasonableness of Hartford’s claims handling. Of course, this is a topic 11 12 13 relevant to both the contract and bad faith claims pled in the complaint. Hartford opposes production of these materials on several grounds. First, it 14 argues that when White Mountain deposed Hartford claims adjuster Michael Kenny and 15 Hartford’s forensic accountant Mary Faucher, White Mountain’s counsel asked no 16 questions about the subject matter of Requests Nos. 2 and 5. 7 The tacit assumption is 17 18 19 that failure to question the witnesses forecloses any further discovery, although Hartford cites no authority for that proposition. Mr. Kenny’s deposition was taken on June 3, 20 21 22 23 24 25 4 Doc. 59 at p. 2. The request sought additional materials, but they are not specifically addressed in White Mountains’ briefing. 5 Id. at pp. 3-4. 26 6 27 7 28 Doc. 58 at p. 5. Doc. 73 at pp. 4-5. -4- 1 2014.8 Ms. Faucher’s deposition was noticed for June 19, 2014, 9 and taken on that 2 date.10 By the time of the depositions, White Mountain had little information about the 3 topics save what was provided by Hartford’s initial response dated January 30, 2014, 4 5 6 and its supplemental response dated March 28, 2014. 11 Hartford’s initial response to Request No. 2 stated that “Hartford does not utilize 7 ‘claims manuals,’ training manuals,’ or ‘claim handling guidelines.’ Hartford will produce 8 relevant portions of its trade secret and proprietary Claims Excellence Standards upon 9 entry of an acceptable Protective Order.”12 In its supplemental response Hartford 10 stated that it was producing portions of the Claims Excellence Standards pursuant to 11 12 the protective order.13 Hartford’s initial response to Request No. 5 consisted of a 13 lengthy objection and a failure to produce any responsive documents.14 This position 14 was essentially repeated in its supplemental response. 15 15 16 As the preceding shows, before the depositions were taken, Hartford had produced no material responsive to Requests Nos. 2 and 5, save selected extracts from 17 18 its Claims Excellence Standards. Indeed, Hartford basically said the information sought 19 8 20 Doc. 74. 9 21 Docs. 33 and 73 at p. 4. 10 22 23 24 25 Doc. 73 at p. 4. 11 Doc. 73-1, at pp. 44 et seq. 12 Doc. 59 at p. 3. 13 Id. 26 14 27 15 28 Id. at pp. 4-5. Doc. 73-1 at p. 48. -5- 1 2 3 did not exist. Under these circumstances Hartford’s reliance on the lack of deposition questions by White Mountain’s counsel about the materials sought in Requests Nos. 2 and 5 is unreasonable. 4 5 Hartford’s second argument against production of additional documents is that, 6 aside from additional portions of the Claims Excellence Standards, it has nothing to 7 produce responsive to Requests Nos. 2 and 5. 16 It also resists providing additional 8 material from the Claims Excellence Standards on the grounds that the unproduced 9 portions are not relevant.17 10 The proposition that Hartford has nothing which is the functional equivalent of 11 12 claims manuals, training manuals or claims handling policies is implausible in the 13 extreme. It is inconceivable that a large insurance company which uses many claims 14 adjustors could operate without standards for training the adjustors and without 15 standards guiding the adjustors’ work. Perhaps Hartford uses terms other than 16 manuals or policies, but it must have the kind of standards embraced within the concept 17 18 19 of training manuals and claims handling manuals and policies. Hartford’s equivalent of training manuals, claims handling manuals, and claims handling polices may be 20 contained somewhere in what it calls Claims Excellence Standards, or elsewhere. The 21 nomenclature is not controlling. Moreover, White Mountain points to the testimony of 22 Mary Faucher, Hartford’s financial analyst which supports the proposition that Hartford 23 24 25 26 16 27 17 28 Doc. 73 at p. 5. Id. -6- 1 2 3 actually does have such standards. 18 In the Declaration of May Faucher submitted by Hartford, Ms. Faucher avers that “I prepare and present guidelines and procedures to insurance adjusters for smaller business interruption claims.”19 The declaration goes on 4 5 6 7 8 9 to say that she also provides adjustors with outlines of documents they should obtain and that she prepares loss tracking reports.20 Hartford’s remaining argument against providing a further response to Requests Nos. 2 and 5 is that the materials in its Claims Excellence Standards not already produced are both irrelevant and proprietary trade secrets. Given the broad scope of 10 discovery established by the Federal Rules of Civil Procedure, the argument that the 11 12 materials are irrelevant fails. The request for these materials is reasonably calculated 13 to lead to the discovery of admissible evidence. Neither is Hartford’s assertion that the 14 material include trade secrets a bar to disclosure to W hite Mountain. As the Ninth 15 Circuit has indicated, the fact that trade secrets are important does not support the 16 inference “that a trade secret need never be disclosed. A trade secret must . . . be 17 18 19 disclosed where upon a proper showing it is made to appear that such disclosure is relevant and necessary . . . .”21 White Mountain has shown that how Hartford handles 20 claims is critical to the success (or failure) of White Mountain’s lawsuit. In addition, it 21 bears emphasis that the existence of a comprehensive protective order created by 22 23 24 25 18 Doc. 58 at pp. 6-7. 19 Doc. 73-1 at p. 54. 26 20 27 21 28 Id. Hartley Pen Co. v. U.S. Dist. Court, 287 F.2d 324,328 (9th Cir. 1961). -7- 1 counsel and approved by the court22, as well as White Mountain’s recent representation 2 that it will not disclose any of the documents it seeks to third parties, 23 provides 3 adequate protection for Hartford’s interest in keeping its claim handling practices 4 5 shielded from competitors. Hartford will be ordered to supplement its responses to 6 Request Nos. 2 and 5. 7 B. Requests Nos. 6 and 8 8 9 10 Request No. 6 essentially sought the personnel file for each adjustor who worked on adjusting White Mountain’s claim. The persons known to be involved were listed as Eloisa E. Gutierrez, Aaron Byrum, Michael Kenny, and Mary Faucher.24 Hartford 11 12 objected and provided no documents.25 Request No. 8 sought “all quality assurance 13 audits since January 1, 2006,” for Byrum, Kenny, and Faucher, plus any other Hartford 14 employee who supervised them or made claims handling decisions on White 15 Mountain’s claim.26 Hartford responded with objections and produced no documents.27 16 With respect to Request Nos. 6 and 8, “Hartford objected on the grounds that 17 18 19 these requests are overbroad, the information sought is outside the proper scope of discovery and because the requests invade the employees’ rights and expectation of 20 21 22 22 23 24 25 Doc. 18. 23 Doc. 82 at p. 5. 24 Doc. 59 at pp. 5-6. 25 Id. at p. 6. 26 26 27 27 28 Id. at p.7. Id. -8- 1 2 3 privacy and confidentiality.”28 The court agrees that Request No. 6 is overly broad. First, the request seeks information covering the period from 2006 through the present. That time period is excessive. White Mountain’s claims were adjusted from June 2011 4 5 through June 2012. The court finds that a reasonable period of time is limited to years 6 2009 through 2013. Second, the request is overly broad in seeking information 7 regarding Ms. Gutierrez, who had almost nothing to do with processing the claim, as 8 well as unnamed persons whose involvement is speculative. The further response to 9 the request will be limited to Mr. Byrum, Mr. Kenny, and Ms. Faucher. 10 The argument that the request is outside the proper scope of discovery is not 11 12 persuasive. The contents of the personnel files of the three individuals may disclose 13 information showing that the adjustors had reasons to “low-ball” their evaluations, were 14 not actually competent to adjust the type of claim made by White Mountain, or did not 15 process the claim in a reasonable manner. Any such information would be highly 16 relevant to White Mountain’s claims in this lawsuit (and contrary information would 17 18 19 serve to defeat White Mountain’s claims). The argument that producing the requested information invades the employees 20 expectations of privacy and confidentiality is only partly persuasive. Certainly, the 21 employees have a reasonable expectation that no information will be disclosed which 22 would identify family members, social security numbers, place of residence, phone 23 numbers, private email addresses, anything relating to a medical condition, or similar 24 25 essentially private matters The material produced should be redacted by Hartford so 26 27 28 28 Doc. 73 at p. 10. -9- 1 2 3 that none of these matters are disclosed. However, an expectation that assessments of work performance and any financial incentives to minimize payments on claims would be kept private is unreasonable. Such an expectation would be inconsistent with 4 5 Hartford’s role as an insurer obligated to deal fairly and in good faith with its insureds, 6 for such obligations are sometimes the subject of litigation between Hartford and its 7 insureds. What is produced will be subject to the protective order, so anything negative 8 about an employee’s work, anything relating to an employee’s compensation, and 9 anything else reflected in the material produced will not be disseminated to any third 10 party. 11 12 Hartford also contends that White Mountain has not demonstrated a sufficient 13 need for the information. The court disagrees. The performance of the adjustors and 14 Ms. Faucher in handling White Mountain’s claims is at the center of this lawsuit. 15 Improper claims handling or incentivized claims handling–if it were to be disclosed in 16 the materials sought–would provide strong support for White Mountain’s position in this 17 18 19 20 21 22 23 lawsuit. A further response to Request Nos. 6 and 8 will be required to the extent required by the discussion above. V. CONCLUSION For the reasons given above, the motion at docket 58 is GRANTED in part and DENIED in part as set forth above. The additional responses required from Hartford shall be provided to White Mountain within 21 days from the date of this order. 24 25 26 27 28 -10- 1 2 3 Because the motion has been granted in part and denied in part, the court declines to apportion expenses relating to the motion between the parties. 29 DATED this 8th day of December 2014. 4 5 /S/ JOHN W. SEDWICK SENIOR UNITED STATES DISTRICT JUDGE 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 See, Fed. R. Civ. P. 37(a)(5)(C). -11-

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