Lexington Insurance Company v. Appalachian Enterprises Security Services, LLC
MEMORANDUM OPINION AND ORDER: Dfts' Motion to Compel, 68 , is GRANTED IN PART AND DENIED IN PART: 1. Dft's Motion to Compel is GRANTED in so far as Dft seeks production of Pla's policies and procedures as described in Reque st Number 6 of Dft's Requests for Production of Documents, 68 -8 at 3, but Dft's Motion to Compel is DENIED in so far as such policies would not have applied to claim at issue. 2. Dft's Motion to Compel is GRANTED in so far as Dft s eeks Pla's Personnel Records; Pla shall REDACT the portions containing personal information of employees; and the information is limited to job performance and disciplinary information recorded within the 5 years prior to filing of this action. Signed by Magistrate Judge Edward B. Atkins on 12/5/2017. (RCB)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CIVIL ACTION NO. 7:16-CV-199-KKC-EBA
LEXINGTON INSURANCE CO.
as Subrogee of ESSAR Minerals,
MEMORANDUM OPINION AND ORDER
APPALACHIAN ENTERPRISES SECURITY
SERVICES, LLC, d/b/a TMK Security,
THIRD PARTY PLAINTIFF,
ESSAR MINERALS, INC., et al.,
THIRD PARTY DEFENDANTS.
In seeking to ward against vandalism or theft at one of its various mineral and natural
resource operations, Essar Minerals, Inc. contracted with Defendant, Appalachian Enterprises
Security, for purposes of providing protection for Essar’s assets and mine sites. Essar similarly
contracted with Plaintiff, Lexington Insurance Company, to provide insurance to Essar in case a
theft or vandalism in fact occurred. Then, on September 16, 2014, despite this security contract
with Defendant, Essar experienced a theft loss of $980,800.00 at a site Defendant was contracted
to protect. Because of this incident, Plaintiff, as insurer of Essar, was contractually liable to Essar
for the full amount of that loss. Now, as subrogee of Essar, Plaintiff seeks to recoup the value of
those insurance proceeds from Defendant. [R. 1]. In order to do so, Plaintiff filed this action,
proceeding against Defendant on two counts: negligence and breach of contract. [R. 1 at 3 (“Count
I: Negligence”); id. at 4 (“Count II: Breach of Contract”)].
FACTUAL & PROCEDURAL BACKGROUND
Plaintiff alleges Defendant negligently executed its duty to use “reasonable care in the
security and/or protection” of Essar’s property, and that Defendant’s negligence was the direct and
proximate cause of the theft incident that occurred on September 16, 2014. [Id. at 3]. Further,
Plaintiff alleges that Defendant “breached its contractual duties when it failed to properly monitor
and protect” Essar’s property, and that this breach of contract was the direct and proximate cause
of the theft. [Id. at 4]. Defendant, however, denies all liability for the loss. [See generally R. 21].
As a defense, Defendant claims that “the damages alleged by the Plaintiff . . . were caused and
brought about by its own negligence and/or failure to investigate and/or the negligence of its
insured/subrogor.” [Id. at 5 (“Tenth Defense”)]. Defendant also claims the general assertions of
“invalid contract, fraud, deceit or misrepresentation.” [Id. at 7 (“Twentieth Defense”)].
During discovery, Defendant sought “Plaintiff to produce Lexington Insurance Company’s
policies and procedures regarding claims investigation and personnel files for adjusters handling
claims submitted by Essar.” [R. 68]. Plaintiff, however, refuses to produce those documents,
arguing said documents are irrelevant. [R. 71]. Arguing said documents are in fact quite relevant,
Defendant has petitioned this Court to compel Plaintiff to so produce. [R. 68].
Defendant relies on circumstantial evidence and the nature of its own defenses as grounds
for the relevancy of the requested documents. First, Defendant notes inconsistencies in the
depositions of David Buettner and William Bokel, an insurance adjuster for Plaintiff and a Special
Investigation Unit (“SIU”) examiner assigned to investigate the theft loss at issue, respectively.
[Id. at 2–3]. The contradictions in those depositions1 have led Defendant to believe that the
“[A]djuster Buettner testified that once the claim was referred to SIU, his investigation into the claim essentially
stopped and SIU was to handle the investigation. To the contrary, SIU investigator Bokel, testified that his
investigation into the claim is driven by adjuster Buettner’s directive.” [R. 68 at 9]. Defendant alleges this
“documents contained within the personnel files will show whether Lexington failed to properly
train its adjusters, had knowledge that the adjusters had poorly evaluated or investigated claims,
or had overpaid claims and, therefore, should be apportioned liability for failing to properly adjust
the subject claim.” [Id. at 8]. Second, Defendant asserts that the Plaintiff’s own negligence in the
handling and adjustment of the subject claim resulted in the damages incurred, and contends that
the Defendant is entitled to discover the policies and procedures that were to be followed by the
handling adjusters. [Id. at 9].
Plaintiff responds that “Lexington claim handling and investigation policies and
procedures are not relevant to the issues in the matter at hand,” [R. 71 at 2]; and that Plaintiff’s
personnel files are both not relevant and that there is no compelling need for the production of said
files, [Id. at 5–7]. Instead of refuting the specific discoverability of certain documents through
precedent or producing a privilege log, however, Plaintiff largely relies on refutations of
Defendant’s defenses in an attempt to show the irrelevancy of Plaintiff’s policies and procedures.
[See, e.g., id. at 3 (“If Defendant seeks to argue that but for Plaintiff Lexington’s negligence, the
theft would not have occurred, we await facts or a legal theory in which an insurer has a duty to
prevent theft of its insured’s property.”)]. Similarly, Plaintiff seeks to show the irrelevancy of
Plaintiff’s personnel files through accusations against Defendant’s counsel. [See, e.g., id. at 5
(“Defendant still seeks information regarding reprimands by way of [Mr. Buettner’s] personnel
file. Such requests border on the line of harassment.”)]. Defendant replies that all of the requested
information is relevant and discoverable, citing useful precedent, as discussed below. [See
generally R. 72]. The matter, now fully briefed, is ripe for review.
inconsistency “makes the Plaintiff’s policies and procedures regarding the adjustment and investigation of claims”
relevant and discoverable. [Id.].
STANDARD OF REVIEW
Fed. R. Civ. P. 26(b)(1) provides that—unless otherwise limited—“[p]arties may obtain
discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and
proportional to the needs of the case.” This language is broadly construed to include “any matter
that bears on, or that reasonably could lead to other matters that could bear on, any issue that is or
may be in the case.” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978). The scope of
discovery, however, is not without limitation. It is “well established that the scope of discovery is
within the sound discretion of the trial court.” Chrysler Corp. v. Fedders Corp., 643 F.2d 1229,
1240 (6th Cir. 1981) (citing H. K. Porter Co., Inc. v. Goodyear Tire and Rubber Co., 536 F.2d
1115 (6th Cir. 1976)). As such, “[a] ruling by the trial court limiting or denying discovery will not
be cause for reversal unless an abuse of discretion is shown.” Id. (citing Fed. R. Civ. P. 26(b); H.
L. Moore Drug Exch., Inc. v. Smith, Kline and French Laboratories, 384 F.2d 97 (2d Cir. 1967)).
Where a party refuses to provide information requested by any other party, which is thought
by the requesting party to be within the scope of Fed. R. Civ. P. 26(b)(1), the requesting party may
move the court in which the action is pending to compel disclosure of the requested information.
Fed. R. Civ. P. 37(a)(3)(B). Such a motion to compel generally may be filed where a party has
failed to provide mandatory disclosure; failed to answer or admit an interrogatory or request for
admission; or failed to produce discoverable information, materials, or documents—electronic or
otherwise. See generally Fed. R. Civ. P. 37. A failure to disclose, answer or admit, or produce
includes disclosures, answers or admissions, or productions that are “evasive or incomplete.” Fed.
R. Civ. P. 37(a)(4). Prior to so moving, however, a party seeking to compel disclosure or discovery
must in good faith confer or attempt to confer with the opposing party “failing to make disclosure
or discovery in an effort to obtain it without court action.” Fed. R. Civ. P. 37(a)(1). Should the
court determine the matters sought to be compelled fall within the scope of Fed. R. Civ. P. 26, the
motion shall be granted.
I. WHETHER CLAIM INVESTIGATION POLICIES
AND PROCEDURES SHALL BE COMPELLED
Defendant, through Request Number 6 of Defendant’s Requests for Production of
Documents, [R. 68-8 at 3], sought “[a]ny and all of AIG’s policies, procedures, and/or handbooks
related to handling, evaluating, or investigating claims as testified to by David Buettner and
William Bokel.” Plaintiff refused to produce the requested documents. Id. “Plaintiff objects to this
request and states that this information is irrelevant to this case and not likely to lead to
discoverable information. Plaintiff further states this information is proprietary.” Id. As discussed,
in Plaintiff’s Response to Defendant’s Motion to Compel, [R. 71], Plaintiff neither alleges
privilege nor cites a privilege log. Rather, Plaintiff relies solely on the assertion that the documents
Defendant requests and the claims Defendant makes are irrelevant. [R. 71 at 2–4]. Unfortunately
for Plaintiff, as Defendant demonstrates, the substantive law is contrary to Plaintiff’s assertions.
[Id.; contra Grange Mut. Ins. Co. v. Trude et al., 151 S.W.3d 803 (Ky. 2004); see also Jones v.
Liberty Mutual Fire Ins. Co., 2008 WL 49058 (W.D. Ky. Feb. 20, 2008)]. “[T]he policies and
procedures given to adjusters and SIU investigators regarding the handling and investigation and
adjustment of a claim is relevant and discoverable in this matter.” [R. 68 at 9].
Plaintiff’s policies and procedures are neither irrelevant to this cause of action nor
prohibited due to some proprietary nature under Fed. R. Civ. P. 26, and Plaintiff fails to cite to any
law or precedent to the contrary. Defendant has asserted as a defense to Plaintiff’s claims against
Defendant that Plaintiff was negligent with regard to the insurance payout made by Plaintiff at the
time relevant to this case. [See generally R. 68]. Information tending to show that Plaintiff may
have been negligent with regard to the payment of the subject claim is thus discoverable. Similar
discovery has previously been ordered on the basis of bad faith claims by the Supreme Court of
Kentucky. Grange Mut. Ins. Co., 151 S.W.3d at 813 (“Grange’s training and policy manuals are
relevant to Wilder’s bad faith claim, and absent some sort of privilege or other showing of
irreparable harm, they are discoverable.”). Defendant also might seek to show that Plaintiff’s
claims adjusters negligently failed to adhere to Plaintiff’s internal policies and procedures, or that
Plaintiff failed to properly train its claims adjusters and/or SIU Investigators. [See generally R.
72]. In any event, Fed. R. Civ. P. 26 provides discovery may be had as to any matters relevant to
any “claim or defense.” For that reason, Plaintiff’s “policies, procedures, and/or handbooks related
to handling, evaluating, or investigating claims” are relevant to this matter and subject to
discovery, “absent some sort of privilege or other showing of irreparable harm.” [R. 68-8 at 3;
Grange Mut. Ins. Co., 151 S.W.3d at 813].
Plaintiff has also failed, however, to show the requested documents are protected from
disclosure under some form of privilege. Plaintiff’s sole claim of privilege with regard to its
policies, procedures, and handbooks arises through Plaintiff’s objection that Plaintiff’s policies,
procedures, and handbooks are proprietary. [R. 68-8 at 3]. Plaintiff fails, however, to elucidate this
claim, and Plaintiff also fails to provide or cite to any privilege log. Such vague claims of privilege
are insufficient to except documents from discovery. “[A] blanket, vague claim of privilege is not
enough.” Grange Mut. Ins. Co., 151 S.W.3d at 817; see also id. at 818 (“A thorough description
of the records, perhaps in the form of a privilege log, would have been enough to show irreparable
harm.”). For that reason, Plaintiff shall be required to produce the documents sought by Defendant
through Request Number 6 of Defendant’s Request for Production of Documents, [R. 68-8 at 3],
but only in so far as those documents were in force and applicable at the relevant times of this
II. WHETHER PERSONNEL FILES SHALL BE COMPELLED
Defendant, through Request Numbers 2, 3, 4, and 5 of Defendant’s Requests for Production
of Documents, [R. 68-8 at 2–3], sought the “personnel and employment files” of David Buettner,
William Bokel, Steve Bruno, and George Howe, “including but not limited to any performance
evaluations.” Plaintiff refused to produce the requested documents. Id. To each of these, Plaintiff
Plaintiff objects to this request as irrelevant, not related to any claim/affirmative
defense asserted in this matter, not likely to lead to discoverable information nor
derivative of any testimony already provided . . . . Plaintiff further objects and states
that this file contains protected information which cannot be released without
production of the proper HIPAA and IRS releases relevant to same.
Id. Here again, Grange Mut. Ins. Co. provides guidance. It is true that many of the items likely to
be found in personnel records—including “original job application, marital information, tax and
dependent data, medical information, health insurance data, worker’s compensation claims, and
retirement account data”—are likely irrelevant or overly broad. Grange Mut. Ins. Co., S.W.3d at
815. “Other information to be found in personnel files (e.g., related to job performance, bonuses,
wage and salary data, disciplinary matters) is relevant.” Id. Job performance and disciplinary
information could help to show that any of the aforementioned individuals had engaged negligent
practices at other times. Likewise, this information could show or tend to show Plaintiff’s approval
(or disapproval) of such practices. “This makes those portions of the personnel records related to
job performance and disciplinary matters discoverable.” Id.; see also id. (“[I]nsofar as the
requested personnel records relate to compensation of the employees involved and the other
records relate to how Grange’s overall compensation system works, they are discoverable.”).
Seeking to overcome Grange, Plaintiff cites several cases in its favor. But all of these cases
are distinguishable. Plaintiff first cites to Fritz v. Charter Twp. Of Comstock, 2010 WL 1856481
(W.D. Mich. May 10, 2010), an opinion granting a protective order to Farm Bureau Life Insurance
Company of Michigan (“Farm Bureau”), which involved First Amendment and tortious
interference with contract claims asserted against the Township of Comstock. Id.; see also Fritz v.
Charter Twp. Of Comstock, 463 F. App’x. 493 (6th Cir. February 15, 2012). The opinion cited by
Plaintiff notes that the plaintiff in Fritz filed her discovery requests against Farm Bureau nearly
two years after the close of discovery, that Farm Bureau was a non-party to the action, and that the
plaintiff’s discovery requests against Farm Bureau struck “the Court as little more than a fishing
expedition.” Fritz, 2010 WL 1856481, 1–2. Here, unlike Fritz, Defendant’s requests are timely,
[R. 57]; Plaintiff is a party to this action, and, in fact, instituted this action, [R. 1]; and the
substantive law of Kentucky dictates that Defendant’s discovery requests are relevant. Grange
Mut. Ins. Co. v. Trude et al., 151 S.W.3d 803 (Ky. 2004).
Plaintiff’s string-cite to other cases likewise involves precedent unhelpful to Plaintiff’s
position. Compuware Corp. v. Moody’s Investors Serv., Inc., 222 F.D.R. 124 (E.D. Mich. 2004)
(applying New York and Michigan, not Kentucky, law and nonetheless holding personnel files are
discoverable where they are clearly relevant and a compelling need exists); Miller v. Fed. Express
Corp., 186 F.D.R. 376, 384–85 (W.D. Tenn. 1999) (holding personnel files are discoverable “upon
a compelling showing of relevance,” and in fact ordering the production of personnel files);
Raddatz v. The Standard Register Co., 177 F.R.D. 466 (4th Div. Minn. 1997) (holding relevant
personnel files are discoverable, and in fact ordering the production of personnel files). The only
case Plaintiff cites that is truly in favor of its position is New York Stock Exch., Inc. v. Sloan, 1976
WL 837 (S.D.N.Y. 1976), which cites public policy concerns in finding certain personnel files to
be irrelevant and holding “[e]ven if the employee evaluations were sufficiently relevent (sic) to
meet the Rule 26(b) requirement, the court would exercise its judicial discretion to prevent
disclosure.” This precedent, however, is over forty (40) years old, appears to be applicable
financial audits in the securities context (not insurance), and applies New York—not Kentucky—
law. Kentucky substantive law clearly places personnel files within the scope of items discoverable
under Fed. R. Civ. P. 26. Grange Mut. Ins. Co. v. Trude et al., 151 S.W.3d 803 (Ky. 2004).
Thus, for all of the aforementioned reasons, Plaintiff shall be required to produce the
documents Defendant has requested through Request Numbers 2, 3, 4, and 5 of Defendant’s
Requests for Production of Documents, [R. 68-8 at 2–3]. Plaintiff, however, shall be required to
redact any portions of said documents, disclosure of which would violate HIPPA or IRS privacy
directives. The documents to be disclosed by Plaintiff shall also be limited to job performance and
disciplinary matters recorded within the five (5) years prior to this Order.
IT IS HEREBY ORDERED that Defendants’ Motion to Compel, [R. 68], is GRANTED
IN PART AND DENIED IN PART, according to the following:
1. Defendant’s Motion to Compel is GRANTED in so far as Defendant seeks the production
of Plaintiff’s policies and procedures as described in Request Number 6 of Defendant’s
Requests for Production of Documents, [R. 68-8 at 3], including “any and all of AIG’s
policies, procedures, and/or handbooks related to handling, evaluating, or investigating
claims as testified to by David Buettner and William Bokel;” but Defendant’s Motion to
Compel is DENIED in so far as such policies would not have applied to the claim at issue.
2. Defendant’s Motion to Compel is GRANTED in so far as Defendant seeks Plaintiff’s
Personnel Records, subject to the condition that Plaintiff shall only be required at this time
to produce information pertaining to job performance and disciplinary information related
to the individuals named in Request Numbers 2, 3, 4, and 5 of Defendant’s Requests for
Production of Documents, [R. 68-8 at 2–3]; Plaintiff shall REDACT the portions therein
containing personal information of employees; and the information required to be produced
is limited to the job performance and disciplinary information recorded within the five (5)
years prior to the filing of this action.
This the 5th day of December 2017.
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