AKH Company, Inc. v. Universal Underwriters Insurance Company

Filing 152

MEMORANDUM AND ORDER granting in part and denying in part 117 Motion to Compel. Signed by Magistrate Judge Kenneth G. Gale on 6/18/14. (df)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS

AKH COMPANY, INC.,

)
)
Plaintiff,
)
)
v.
)
)
UNIVERSAL UNDERWRITERS
)
INSURANCE COMPANY,
)
)
Defendant,
)
______________________________ )

Case No. 13-2003-JAR-KGG

ORDER ON PLAINTIFF’S MOTION TO COMPEL
Now before the Court is Plaintiff’s “Motion to Compel Production of
Documents.” (Doc. 117.) For the reasons set forth below, the Court GRANTS in
part and DENIES in part this motion.
BACKGROUND
The above-captioned matter is a declaratory judgment action based on a
dispute concerning insurance coverage and the settlement of a trademark dispute
involving Plaintiff and a third party. (See Doc. 1; Doc. 75, sealed, at 5-6
(underlying litigation hereinafter referred to as “RT litigation” or “RT case).) The
facts of the case were summarized by District Court in its Order (Doc. 75, sealed)
denying Plaintiff’s Motion for Partial Summary Judgment (Doc. 7) and

Defendant’s Motion to Bifurcate (Doc. 68). The Court incorporates that factual
summary herein. (See Doc. 75, sealed, at 4-7.)
The present motion involves Plaintiffs request for an order compelling
Defendant to produce documents responsive to certain of Plaintiff’s second, third,
and fourth sets of Requests for Production of Documents.1 Plaintiff contends
Defendant’s responses to the second and third sets were untimely (resulting in a
waiver of any objections) and incomplete. Plaintiff further contends that no
responses were given to the fourth set. (Doc. 118, at 8.) Plaintiff also disputes
certain objections raised by Defendant in response to the discovery requests. Each
issue will be addressed in turn.
DISCUSSION
A.

Timeliness.
Plaintiff contends that Defendant waived its objections to Plaintiff’s second

and third document requests by failing to respond within the thirty days allotted by
Fed.R.Civ.P. 34. (Doc. 118, at 11-13.) Plaintiff continues that although Defendant
sought an extension to respond to the second set, the responses were still late and

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Defendant asserts that it has produced all documents responsive to Plaintiff’s
Second Requests Nos. 20, 21, and 47 and Third Requests Nos. 31, 80, 82, 83, 86, 87, 93,
104, and 105. (Doc. 129, at 32, 42-44.) Plaintiff does not contradict these assertions in
its reply brief. (See Doc. 135.) As such, the Court considers these issues resolved.
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that no extension was requested or received for the third set. (Id.) Plaintiff also
contends that Defendant did not respond to Plaintiffs Fourth Requests in a timely
fashion, thus waiving all objections. (Doc. 118, at 36-37.) Defendant responds
that its discovery responses and privilege log were timed according to agreements
between the parties. Thus, the responses were not “late” and no objections have
been waived. (Doc. 129, at 15-17.) These issues are not addressed in Plaintiff’s
reply. (Doc. 135.) As such, the Court will accept Defendant’s representations as
true and decide the issues between the parties on the merits.
B.

Standards for Discovery.
Fed.R.Civ.P. 26(b) states that “[p]arties may obtain discovery regarding any

matter, not privileged, that is relevant to the claim or defense of any party . . .
Relevant information need not be admissible at the trial if the discovery appears
reasonably calculated to lead to the discovery of admissible evidence.” As such,
the requested information must be both nonprivileged and relevant to be
discoverable.
“‘Discovery relevance is minimal relevance,’ which means it is possible and
reasonably calculated that the request will lead to the discovery of admissible
evidence.” Teichgraeber v. Memorial Union Corp. of Emporia State University,
932 F.Supp. 1263, 1265 (D. Kan. 1996) (internal citation omitted). “Relevance is
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broadly construed at the discovery stage of the litigation and a request for
discovery should be considered relevant if there is any possibility the information
sought may be relevant to the subject matter of the action.” Smith v. MCI
Telecommunications Corp., 137 F.R.D. 25, 27 (D.Kan.1991). Stated another way,
“discovery should ordinarily be allowed unless it is clear that the information
sought can have no possible bearing on the subject matter of the action.” Snowden
By and Through Victor v. Connaught Lab., 137 F.R.D. 325, 341 (D.Kan.1991),
appeal denied, 1991 WL 60514 (D.Kan. Mar. 29, 1991).
The scope of discovery is broad, but not unlimited. If the proponent has
failed to specify how the information is relevant, the Court will not require the
respondent to produce the evidence. Gheesling v. Chater, 162 F.R.D. 649 (D.
Kan. 1995). In this context, the Court will address the various objections raised
document requests at issue.
C.

Specific Requests.
1.

Claims file.

Plaintiff argues that it “needs the entire claims file to establish its rights” but
that Defendant has failed to produce it in its entirety “relying on unsupported
claims of privilege.” (Doc. 118, at 14.) Plaintiff continues that Defendant has
“withheld thousands of pages of claims file documents based on claims of privilege
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and has provided other documents with extensive redactions.” (Id.) Plaintiff
argues that these documents are not privileged because “decisions on claims
handling are part of the insurance company’s everyday business.” (Id.) Plaintiff
also argues that “communications explaining, justifying and acting on decisions
about defense and settlement are not only highly relevant to proving [Plaintiff’s]
claims of a duty to defend and settle, but are essential to claims of bad faith.”2 (Id.,
at 15.) “There is no substitute and no alternative,” according to Plaintiff. (Id.)
Defendant responds that it “did not withhold any documents that pertained to
the ordinary course of handling [Plaintiff’s] claim.” (Doc. 129, at 17-18.)
Defendant argues that it a) “withheld a small volume of documents” encompassing
communications between its claim professional and in-house counsel “providing
legal advice about coverage issues” and b) documents created within 2 months of
the filing of the present action “concern[ing] communications involving legal
advice about settlement of the RT Lawsuit and responding to this coverage action.”
(Id., at 18.)
The crux of the issue between the parties relates to the point at which
Defendant was reasonably anticipating litigation, thus creating a privilege for the

2

As discussed below, Plaintiff incorrectly characterizes its breach of the covenant
of good faith and fair dealing,” which is a contract claim, as one for “bad faith.” This is
incorrect.
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documents at issue based on the work product doctrine. The work product doctrine
is contained in Fed.R.Civ.P. 26(b)(3)(A) and
protects from discovery all documents and materials
prepared by an attorney, a party, or an agent of either, in
anticipation of litigation. To establish work product
protection, the party seeking to invoke work product
immunity must show that (1) the materials sought to be
protected are documents or tangible things; (2) they were
prepared in anticipation of litigation or for trial; and (3)
they were prepared by or for a party or a representative of
that party. The party invoking work product immunity
for a document has the burden to establish all the
elements of the immunity, and a mere allegation that the
work product privilege applies is insufficient to prove
applicability.
McNabb v. City of Overland Park, No. 12-2331-CM-TJJ, 2014 WL 1152958, at
*8 (D. Kan. March 21, 2014) (citations omitted). Although certain actions by an
adverse party, such as submitting a reservation of rights letter, might be considered
precursors to litigation, “the work product doctrine requires more than a mere
possibility of litigation.” Pouncil v. Branch Law Firm, No. 10-1314-JTM-DJW,
2011 WL 5025033, *4 (D. Kan. Oct. 21, 2011) (holding that the filing of a
complaint with the Disciplinary Board “might reasonably be expected to be the
precursor to a [legal] malpractice claim,” it did not create a reasonable anticipation
of litigation).
Courts have routinely applied a rebuttable presumption “that neither attorney
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work product nor attorney-client privilege protects an insurer’s investigatory file
on an insured’s claim from discovery before a final decision is made” as to that
claim. Lindley v. Life Investors Ins. Co. of America, 267 F.R.D. 382, 399 (N.D.
Okla. 2010).
Fed.R.Civ.P. 26(b)(3) requires that a document or thing
produced or used by an insurer to evaluate an insured's
claim in order to arrive at a claims decision in the
ordinary and regular course of business is not work
product regardless of the fact that it was produced after
litigation was reasonably anticipated. It is presumed that
a document or thing prepared before a final decision was
reached on an insured's claim, and which constitutes part
of the factual inquiry into or evaluation of that claim, was
prepared in the ordinary and routine course of the
insurer's business of claim determination and is not work
product. Likewise, anticipation of litigation is presumed
unreasonable under the Rule before a final decision is
reached on the claim. The converse, of course, is
presumed for documents produced after claims denial. To
overcome these presumptions, the insurer must
demonstrate, by specific evidentiary proof of objective
facts, that a reasonable anticipation of litigation existed
when the document was produced, and that the document
was prepared and used solely to prepare for that
litigation, and not to arrive at a (or buttress a tentative)
claim decision.
Id. (quoting Harper v. Auto–Owners Ins. Co., 138 F.R.D. 655, 663–664 (S.D.
Ind.1991).) ““[T]he question of whether insurer and adjuster documents were
created in anticipation of litigation depends on whether the party seeking
protection can point to a definite shift made by the insurer or adjuster from acting
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in its ordinary course of business to acting in anticipation of litigation.” U.S. Fire
Ins. Co. v. Bunge North America, Inc., 247 F.R.D. 656, 659 (D.Kan.2007).
Based on arguments and representations of the parties (see e.g., Doc. 129, at
18-19), and considering the burden is on Defendant to establish the existence of the
privilege, the Court finds that the date Defendant would have reasonably
anticipated litigation was when Defendant made the decision to send the December
28, 2012, letter regarding the settlement check from the RT litigation wherein
Defendant
repeated that the payment was subject to a reservation of
its right to file a declaratory relief action against AKH to
seek reimbursement of the settlement contribution, as
well as a reservation of its right to seek reimbursement
and defense fees and costs it paid for claims never
potentially covered and pre-judgment interest.
(Doc. 75, sealed, at 7.) Any information withheld on the basis of attorney-client
privilege or the work product doctrine after this time must be produced.
2.

Electronically Stored Information (“ESI”).

Prior to Defendant responding to Plaintiff’s second set of discovery requests,
Plaintiff realized that “the number of documents in this case would be extensive,
that electronic copies would be the most economically efficient, that native format
would allow [Plaintiff] to properly search for and organize documents, and that of
all of [Defendant’s documents were stored electronically.” (Doc. 118, at 25.)
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Plaintiff thus asked for the documents to be produced in native electronic format.
Even so, according to Plaintiff, Defendant “refused to produce documents in any
form but paper and proceeded to deliver thousands of pages of paper contrary to
[Plaintiff’s] request for electronic versions of the documents.” (Id.) Although
Defendant ultimately produced documents in “a few very large PDF files,”
Plaintiff contends that the documents “were not produced in the form maintained
by [Defendant] or in any reasonably usable form.” (Id., at 26.) Specifically,
Plaintiff contends that “it cannot search across multiple PDF’s [sic] at once and
organize individual documents into relevant categories or into relevant witness
files.” (Id.)
Requests for Production of Documents relating to electronically stored
information are governed by Fed.R.Civ.P. 34(b)(2)(D) and (E), which state:
(D)

Responding to a Request for Production of
Electronically Stored Information. The response
may state an objection to a requested form for
producing electronically stored information. If the
responding party objects to a requested form – or if
no form was specified in the request – the party
must state the form or forms it intends to use.

(E)

Producing the Documents or Electronically Stored
Information. Unless otherwise stipulated or
ordered by the court, these procedures apply to
producing documents or electronically stored
information:
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(I)

A party must produce documents as they
are kept in the usual course of business or
must organize and label them to
correspond to the categories in the
request;

(ii)

If a request does not specify a form for
producing electronically stored information,
a party must produce it in a form or
forms in which it is ordinarily maintained
or in a reasonably usable form or forms;
and

(iii)

A party need not produce the same
electronically stored information in more
than one form.

(Emphasis added.)
The Court acknowledges the statement in the Report of Parties’ Planning
Conference. For purposes of this motion, the Court also acknowledges that
Plaintiff may have accepted or previously requested documents in a certain format.
Even so, “Rule 34(b) allows, but does not require, the requesting party to specify
the form in which it is requesting electronic data.” STEVEN BAICKER-MCKEE ET
AL., FEDERAL CIVIL RULES HANDBOOK

887 (2013 ed.). There is nothing in the

rule that prohibits a party from changing the requested format from one set of
discovery request to the next.
The rule does, however, allow the responding party to object to the

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requested form. The Court finds that Defendant has adequately explained why the
documents were not produced in their native form. The Court considers the
proprietary nature of certain software used by Defendant, Defendant’s right to
withhold privileged information, the need to limit the production of information
regarding unrelated policyholders that is irrelevant to this case, and the added costs
of re-producing information already submitted to Plaintiff in converted PDF format
to be valid reasons not to require Defendant to re-produce the information at issue.
(See Doc. 129, at 37-39.) Defendant expended the time, effort, and expense to
produce documents in PDF form as initially requested by Plaintiff. Absent a need
for metadata that potentially would be attached to the native format of this
information – a need which Plaintiff has not established – the Court will not
require Defendant to re-produce the information. This portion of Plaintiff’s motion
is DENIED.
3.

“Similar” Claims Files.

Requests Nos. 41-45 and 47-79 of Plaintiff’s third set of document requests
seek information regarding various complaints against Defendant, including those
regarding delayed payments, the duty to defend, the refusal to provide independent
counsel, and reimbursement for defense costs. (See Doc. 119-5.) Plaintiff
contends that the “factual scenarios” posed by these more than 30 requests all
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“involv[e] issues in the RT case.” (Doc. 118, at 30.)
Defendant describes the subject matter of these requests as “broad and farreaching . . . .” (Doc. 129, at 26.) Defendant states that Plaintiff has asserted three
causes of action (the breach of the duty to defend, the breach of the duty to settle,
and the breach of the covenant of good faith and fair dealing). (Id.) As such,
Defendant argues that the discovery requests at issue do “not seek discovery of
‘similar claims files,’ [and] they do not even seek discovery of other matters
[Defendant] has handled for other policyholders containing like allegations.” (Id.)
Defendant argues that the requests have been propounded “for an improper
purpose, such as to harass or cause [Defendant] to incur unnecessary costs and
burdens, which is forbidden under Federal Rule of Civil Procedure 26(c).” Id.
The Court will not surmise as to the underlying motivation for Plaintiff
propounding document requests on these extensive topics. The Court will,
however, opine that the effect of requiring Defendant to respond would be to
subject it to undue burden in light of topics which, at best, have limited evidentiary
value in this case given the broadly worded nature of the information requested.
Further, Plaintiff mischaracterizes the substance of Count III of its
Complaint. The cause of action has been plead as one seeking declaratory relief
for the “breach of the covenant of good faith and fair dealing.” (Doc. 1, at 23.)
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Plaintiff’s motion, however, continually refers to this as a claim for “bad faith,” as
if the two are interchangeable. That is not the case.
The duty of good faith and fair dealing is not a recognized, independent tort
cause of action. Rather, the duty “is implied in a contract, and conduct departing
from that duty is a breach of a contractual obligation.” Pizza Management, Inc. v.
Pizza Hut, Inc., 737 F.Supp. 1154, 1167 (D. Kan. 1990) (citing Bonanza, Inc. v.
McLean, 242 Kan. 209, 222, 747 P.2d 792 (1987).) See also Ritchie Enterprises
v. Honeywell Bull, Inc., 730 F.Supp. 1041, 1052 (D.Kan.1990); Wayman v.
Amoco Oil Co., 923 F.Supp. 1322, 1359 (D. Kan. 1996). In the context of a breach
of contract claim, the good (or bad) faith of a party may be irrelevant. Waste
Connections of Kansas, Inc. v. Ritchie Corp., 296 Kan. 943, 974, 298 P.2d 250
(2013). “A breach is a breach is a breach, even if it occurs with the best of
intentions.” In other words, the issue is whether or not the contract was breached –
regardless of the motivation of the party allegedly in breach. If the factfinder
determines that a breach occurred, the underlying motives of the breaching party
“will not matter.” Id. As such, the general information sought in Requests Nos.
41-45 and 47-79, regarding whether Defendant has breached its duties under other
contracts (or has been the subject of such complaints), is irrelevant as to whether or
not Defendant breached the specific contract at issue.
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Finally, even if such information were to be considered relevant, the
requests, as written, are facially over broad. Requests Nos. 41-44 generally seek
information regarding complaints that Defendant “breached the implied covenant
of good faith and fair dealing, acted negligently, committed fraud, misrepresented
its duties, breached its fiduciary duties, committed bad faith, breached any
statutory duties or violated any statutes or regulations.” (Doc. 119-5, at 8-9.) The
requests make no effort to limit such complaints to situations factually similar as
those alleged in the present case.
The same lack of specificity is true for Request No. 45 (complaints that
Defendant “breached any statutory duties” of any kind), No. 47-52 (complaints
about Defendant’s claims handling3 and investigation of any unspecified types of
claims), Nos. 53-54 (complaints about delays in payment generally regarding
unspecified types of claim), Nos. 55-56 (complaints about the determination of
whether Defendant owed a duty to defend on any type of unspecified claim), Nos.
57-58 (complaints about how long it took Defendant to pay defense costs after a
court determined a party was owed a defense on any type of unspecified claim),
3

The discovery requests define “claims handling” as “everything done by
UNIVERSAL in response to UNIVERSAL’s receipt of a claim by an insured seeking a
defense or any coverage in a third party lawsuit, including but not limited to, processing,
handling, investigating, reviewing, approving, defending, paying, settling or denying
claims or requests for defense.” (Doc. 119-5, at 3.) The definition – and corresponding
discovery requests – provide no limitation as to the type of substance of cases involved.
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Nos. 59-60, 71-72, 75-78 (complaints about Defendant’s refusal to pay,
apportionment of, or request/threat for reimbursement of, defenses costs on any
unspecified type of claim), Nos. 61-64 (complaints about the assignment or
qualifications of counsel in any unspecified type of case), Nos. 65-66 (Defendant’s
refusal to provide independent counsel in any unspecified type of case), Nos. 67-68
(Defendant’s refusal to pay defense costs on any unspecified types of claims that
were potentially not covered by any unspecified policy), Nos. 69-70 (the refusal to
pay costs relating to any unspecified claims asserted by an insured against a third
party), and Nos. 73-74 (complaints that Defendant misrepresented its duties under
any unspecified type of policy). Request No. 79 seeks Defendant’s “logs, list, or
computer record of complaints” regarding all of the aforementioned litany of issues
relating in general to any unspecified type of claim.
The Court finds these generalized discovery requests, for which Plaintiff has
failed to provide a sufficient, substantive limitation, to be facially over broad as
well as irrelevant. Plaintiff’s motion is DENIED in regard to these requests.
4.

Personnel files.

Plaintiff also seeks “the complete personnel files for Jena Palmer, Stephanie
Cole, and any other claims handling or claims handling supervising personnel
involved in the AKH claim.” (Doc. 118, at 32.) Defendant objects that these
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requests seek “personal, confidential, private information . . . .” (Doc. 129, at 29.)
As this Court has held repeatedly, “confidential” does not equate to “nondiscoverable” or privileged. Williams v. Evogen, Inc., No. 12-2620-JWL-KGG,
2013 WL 3773840, *3 (July 17, 2013). See also Kendall State Bank v. West Point
Underwriters, LLC, No. 10–2319–JTM–KGG, 2013 WL 593957, at *2 (D.Kan.
Feb.15, 2013); McCloud v. Board of Geary County Comm'rs, No.2008 WL
1743444, at *4 (D. Kan. April 11, 2008) (holding that even assuming certain
records are “ ‘private’ or confidential, this does not mean the records are privileged
and/ or nondiscoverable”).
Plaintiff is correct that courts have found personnel files of claims handlers
to be discoverable in cases alleging the bad faith handling of an insurance claim.
Waters v. Continental General Ins. Co., No. 07-282-TCK-FHM, 2008 WL
2510039, *1 (N. D. Okla. June 18, 2008). The Court will limit this to “information
from the personnel files which pertains to the adjusters' background, qualifications,
training and job performance” and exclude “sensitive personal or medical
information” regarding these individuals. Id. The production will be limited to
“only . . . those adjusters who actually handled some aspect of Plaintiff's claim.
Therefore, Defendant need not produce the foregoing information for the
supervisors identified unless those supervisors participated in adjusting the claim
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in some manner.” Id.
These parameters shall also apply to Request No. 36, which seeks
documents regarding “any disciplinary action, reprimands, positive reports, praise,
or commendation of any of Defendant’s] personnel or OUTSIDE VENDORS who
performed work on the CLAIM.” (Doc. 119-5, at 7 (capitalization in original).)
Further, such information, whether it be disciplinary or commendatory in nature,
shall be limited to issues relating to claims handling and only by such individuals
who actually participated in adjusting the claim at issue. This portion of Plaintiff’s
motion is, therefore, GRANTED in part and DENIED in part.

IT IS THEREFORE ORDERED that Plaintiff’s Motion to Compel
Production of Documents (Doc. 117) is GRANTED in part and DENIED in part
as more fully set forth herein.
IT IS SO ORDERED.
Dated at Wichita, Kansas, on this 18th day of June, 2014.
S/ KENNETH G. GALE

KENNETH G. GALE
United States Magistrate Judge

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