Retirement Security Plan and Trust v Colonial Surety Company

Filing 50

MEMORANDUM DECISION AND ORDER. IT IS ORDERED THAT: Plaintiff's Motion to Compel 46 is granted in part and denied in part. Defendant's Motion for Protective Order 47 is granted in part and denied in part. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (st)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

JEANNE B. Bryant, solely in her
capacity as court-appointed Independent
Fiduciary for RETIREMENT
SECURITY PLAN AND TRUST,

Case No. 1:13-cv-00298-BLW
MEMORANDUM DECISION AND
ORDER

Plaintiff,
v.
COLONIAL SURETY COMPANY, a
Pennsylvania Corporation,
Defendant.

INTRODUCTION
Before the Court are: (1) Plaintiff’s Motion to Compel (Dkt. 46); and (2)
Defendant’s Motion for Protective Order (Dkt. 47). For the reasons set forth below, the
Court will order Defendant Colonial Surety Company to produce evidence of other badfaith claims made against it since January 2005 involving similar ERISA Fidelity Bonds.
BACKGROUND
On July 11, 2013, the Retirement Security Plan and Trust (“the Trust”) filed a
complaint against Colonial Surety Company, alleging that Colonial breached its Fidelity
Bond policy by failing to pay a claim based on Mathew Hutcheson’s malfeasance. The
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Trust further alleges that Colonial breached the policy in bad faith. It intends to add a
claim for punitive damages.
A discovery dispute arose between the parties, and in accordance with the Court’s
Case Management Order, the parties participated in an informal meet and confer with the
Court’s staff in an attempt to resolve the dispute. The parties were able to resolve most
issues. However, the parties continue to dispute whether the Trust is entitled to discovery
of other bad-faith claims made against Colonial. The Trust maintains that evidence of
other bad-faith claims made against Colonial is relevant to its impending motion to add a
claim for punitive damages. Specifically, the Trust has requested the following
information and documents from Colonial relating to other bad-faith claims:
Interrogatory No. 12: Please state and describe each instance in which any
person or entity has alleged claims or filed a lawsuit against the Defendant
alleging either in whole or in part any breach of a duty of good faith and
fair dealing, or alleging any tortious claim of bad faith, in the handling of
any first-party insurance claim, from January 2005 to the present. Please
include, in your identification of each such instance, the complete name of
each plaintiff or claimant, the complete name of each defendant, the
jurisdiction in which the action was filed (in the instances where such an
action was actually filed), the court docket number or other identifying
designation, and the ultimate disposition of the lawsuit.
Request for Production No. 17: Please produce the claims files relating to
every fiduciary insurance policy claim the Defendant caused to be denied
during the period starting January 1, 2010, to the present.
Request for Production No. 18: Please produce copies of each and every
complaint made against the Defendant for the period of January 1, 2005, to
the present concerning the manner in which any claim has been handled.
This should include complaints made to the Pennsylvania Department of
Insurance.

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Additionally, on November 21, 2014, the Trust noticed a Rule 30(b)(6) deposition
of Colonial. Among the categories of testimony requested in the 30(b)(6) notice was a
request for testimony about other fiduciary bond policy claims made against Colonial
since January 1, 2005, and the outcome of those claims. Colonial objected to this topic, as
well as other topics related to a punitive damage award. After providing notice to the
Trust, Colonial did not appear at the noticed deposition.
The Trust now moves to compel the requested information and documents related
to other bad-faith claims made against Colonial since 2005. It argues, first, that Colonial
waived its objection to producing this information because it failed to appear for the
30(b)(6) deposition. Alternatively, the Trust argues that “[e]vidence of Colonial’s
treatment of other bad faith claims, and/or the facts which lead to such claims, will tend
to show Colonial’s bad state of mind in dealing with [the Trust],” which the Trust must
show to make its claim for a punitive damages award. Pl’s Opening Br. at 2, Dkt. 46-1.
Colonial has filed a cross-motion for protective order.
LEGAL STANDARD
The Court may order the “discovery of any matter relevant to the subject matter
involved in the action.” Fed .R.Civ.P. 26(b)(1). Relevant evidence is any evidence
tending to make the existence of any consequential fact “more probable or less probable
than it would be without the evidence.” Federal Rule of Evidence 401. Although viewed
in light of Rule 401, “the question of relevancy is to be more loosely construed at the
discovery stage than at the trial....” See 8 Wright, Miller, and Marcus, Federal Practice &
MEMORANDUM DECISION AND ORDER - 3

Procedure, § 2008 at p. 125 (2010). That the evidence might be inadmissible does not
preclude discovery so long as the request “appears reasonably calculated to lead to the
discovery of admissible evidence.” Fed.R. Civ.P. 26(b)(1). However, whether the Court
orders information discoverable is subject to the balancing test of Rule 26(b)(2)(C),
which requires courts to weigh the probative value of proposed discovery against its
potential burden.
ANALYSIS
1. Colonial Did Not Waive Its Objections.
The Court refuses to find that Colonial waived its objections to the requested
information relating to other bad-faith claims. This Court’s Case Management Order
requires the parties to first conduct an informal mediation with Court staff before filing a
motion for protective order. The Court will not punish Colonial for doing exactly what
the Court required.
2. The Trust Is Entitled to Discovery of Other Similar, Bad-Faith Claims Made
Against Colonial.
Conduct justifying punitive damages requires “an intersection of two factors: a bad
act and a bad state of mind.” See Linscott v. Rainier Nat. Life. Ins. Co., 606 P.2d 958, 962
(1980). The defendant must (1) act in a manner that was an extreme deviation from
reasonable standards of conduct with an understanding of-or disregard for-its likely
consequences, and must (2) act with an extremely harmful state of mind, described
variously as with malice, oppression, fraud, gross negligence, wantonness, deliberately,
or willfully. See Myers v. Workmen's Auto Ins. Co., 95 P.3d 977, 983 (2004). For
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plaintiffs to be entitled to amend their complaint to add a claim for punitive damages,
they need to show “a reasonable likelihood of proving facts at trial sufficient to support
an award of punitive damages.” See Idaho Code § 6–1604(2).
In addition to these general concerns, the courts in Idaho have laid out five specific
factors that play a determinative role in deciding whether there is sufficient evidence to
support a punitive damages award: (1) the presence of expert testimony; (2) whether the
unreasonable conduct actually caused harm to the plaintiff; (3) whether there is a special
relationship between the parties, as in the ... insured-insurer relationship; (4) proof of a
continuing course of oppressive conduct; and (5) proof of the actor's knowledge of the
likely consequences of the conduct. Cuddy Mountain Concrete Inc. v. Citadel Const.,
Inc., 824 P.2d 151, 160–61 (Idaho Ct.App. 1992).
With these guidelines in mind, the Court concludes that Byrant is entitled to discovery
of other bad-faith claims that have been filed against Colonial under similar
circumstances. Evidence of other similar bad-faith claims could be used to show
Colonial’s alleged “bad state of mind.” More specifically, such evidence could be used to
show Colonial’s “knowledge of the likely consequences of the conduct,” as well as its
alleged malice, oppression, fraud, gross negligence, wantonness, deliberateness, or
willfulness. An insurer that has handled similar claims in the past which ended in badfaith litigation would be more likely to have knowledge of the likely consequences of its
conduct. Likewise, evidence that an insurer had acted with similar bad faith in the past
would tend to show its deliberateness or willfulness in handling the Trust’s claim here.
MEMORANDUM DECISION AND ORDER - 5

C
t
rant
ust’s motion to compel but it will limit the sc
n
l,
l
cope
The Court will therefore gr the Tru
of the Tr
rust’s reque to other bad-faith cl
est
laims made against Co
e
olonial invo
olving the sa
ame
type of policy at iss here: ER
p
sue
RISA Fidelity Bonds.
ORDER
O
IT IS ORDE
T
ERED that
t:
1. Plaintiff’s Motion to Co
P
M
ompel (Dkt 46) is GR
t.
RANTED in part and D
n
DENIED in part
in accordanc with this decision; and
n
ce
a
2. Defendant’s Motion for Protective Order (Dk 47) is GR
D
r
e
kt.
RANTED in part and
n
DENIED in part.
D
3. Defendant sh produce the requested inform
D
hall
mation relate to other b
ed
bad-faith
cl
laims made against it since Janua 2005 inv
e
s
ary
volving sim
milar ERISA Fidelity
A
Bonds.
B

DAT
TED: Febru
uary 17, 20
015

__________
__________
_____
___
B. L
Lynn Winm
mill
Chief Judge
ited
District Cou
urt
Uni States D

MEMORA
ANDUM DECIS
SION AND ORDER - 6
R