CX Reinsurance Company Limited v. B&R Management, Inc.

Filing 192

ORDER granting 136 Motion for Leave to File Supplement to Plaintiff's Opposition to Motion to Compel, Instanter by CX Reinsurance Company Limited ; granting 141 Motion to Seal Opposition to Motion for Leave by Jessica-Carl, Inc.; granting in part and denying in part 87 Motion to Compel by Jessica-Carl, Inc. Signed by Magistrate Judge Stephanie A. Gallagher on 6/22/2017. (jnls, Deputy Clerk) Modified on 6/23/2017 (jnls, Deputy Clerk).

UNITED STATES DISTRICT COURT
DISTRICT OF MARYLAND
CHAMBERS OF
STEPHANIE A. GALLAGHER
UNITED STATES MAGISTRATE JUDGE

101 WEST LOMBARD STREET
BALTIMORE, MARYLAND 21201
[phone]
Fax [phone]

June 22, 2017

LETTER TO COUNSEL
RE:

CX Reinsurance Company Limited, f/k/a CNA Reinsurance Company Limited v.
B&R Management, Inc., et al.; Civil Case No. ELH-15-3364

Dear Counsel:
Pursuant to an order referring this case to me for discovery, [ECF No. 78], I have
reviewed Defendant Jessica-Carl, Inc.’s (“Jessica-Carl’s”) Motion to Compel and Plaintiff CX
Reinsurance Company Limited’s (“CX Re’s”) Opposition. [ECF Nos. 87-3, 87-7]. I have also
reviewed CX Re’s Motion for Leave to Supplement its Opposition to Jessica-Carl’s Motion to
Compel (“Motion to Supplement”), [ECF No. 136], the corresponding Supplement, [ECF No.
138], as well as Jessica-Carl’s Opposition to the Motion to Supplement, [ECF No. 140], and a
related Motion to Seal, [ECF No. 141]. No hearing is deemed necessary. See Loc. R. 105.6 (D.
Md. 2016). For the reasons set forth below, CX Re’s Motion to Supplement will be GRANTED;
Jessica-Carl’s Motion to Seal will be GRANTED; and Jessica-Carl’s Motion to Compel will be
GRANTED IN PART and DENIED IN PART.
I. Background
In this action, CX Re seeks to rescind two general liability insurance policies (“Policies”)
issued to Jessica-Carl, B&R Management, Inc. (“B&R Management”), and other named insureds
(collectively “Defendants”) in 1997 and 1998, alleging that Defendants made misrepresentations
of material fact in the underlying insurance application (“Application”). See Pl.’s First Am.
Compl., [ECF No. 25 at ¶¶ 1 & 11].
The Policies provide insurance coverage for certain risks, including lead exposure,
relating to specified residential rental properties in Baltimore, Maryland (“Properties”). Id. at ¶
13. Policies, [ECF Nos. 1-2 & 1-3]. Specifically, CX Re avers that Defendants falsely denied the
existence of past lead paint violations in connection with the Properties in response to a question
on the Application. Id. at ¶¶ 25-26. If Defendants had answered this question truthfully, CX Re
argues it would not have issued the Policies or that it would have issued the Policies subject to
substantially higher premiums or substantially different terms. Id. at ¶ 41. CX Re contends that
it “has incurred and paid costs of at least $853,328 in connection with the adjustment, defense,
settlement and satisfaction of judgments in these and other claims and lawsuits under the
Policies[,]” including lawsuits alleging bodily injury due to exposure to lead paint in the
Properties. Id. at ¶¶ 34-37. Consequently, CX Re also demands an award of damages resulting

from fraud in connection with the aforementioned conduct. Id. at ¶¶ 1-2. CX Re asserts that it
first learned of the misrepresentation on the Application while conducting “a broad underwriting
review of many insureds[]” in August 2015, and filed this action shortly thereafter in November,
2015. Id. at ¶¶ 27-28.
Discovery in this matter is underway, and the instant dispute involves Jessica-Carl’s First
Requests for Production. See Def.’s Mot., [ECF No. 87-3]. In its Response, CX Re objected to
Request Nos. 7, 8, and 10 on relevance and privilege grounds. Id. at 5 & 10-12. Jessica-Carl
served CX Re with its Motion to Compel on January 31, 2017, Pl.’s Opp., [ECF No. 87-7, 1],
seeking production of documents pursuant to the above requests, as well as a privilege log,
Def.’s Mot., [ECF No. 87-3, 5-6]. In its Opposition, CX Re declined to respond, arguing instead
that CX Re’s March 10, 2017 “settlement in principle” with B&R Management, once finalized,
would render the Requests irrelevant and the Motion moot. [ECF No. 87-7, 1-2]. However, the
settlement-in-principle never finalized. Pl.’s Mot. to Suppl., [ECF No. 136 at ¶ 10].1 Following
the parties’ failed attempts to resolve the dispute, Jessica-Carl filed its Motion to Compel and
related memoranda on March 30, 2017. [ECF No. 87]. See Loc. R. 104.8 (D. Md. 2016).2 On
May 9, 2017, CX Re filed a Motion to Supplement, seeking to address the substantive arguments
raised in the Motion to Compel. Pl.’s Mot. to Suppl., [ECF No. 136]. Jessica-Carl opposes CX
Re’s Motion to Supplement. Def.’s Opp., [ECF No. 140].3 I will address each of these motions
in turn.
II. Discussion
A. CX Re’s Motion to Supplement
As noted above, CX Re timely opposed Jessica-Carl’s Motion to Compel, but failed to
address the substance of the issues raised therein. Pl.’s Mot. to Suppl., [ECF No. 136 at ¶8]. CX
Re’s settlement-in-principle with B&R Management fell through on or about April 4, 2017, and
CX Re now seeks leave to supplement its Opposition. Id. at ¶¶ 8 & 10. Jessica-Carl opposes CX
Re’s Motion to Supplement on the basis of tardiness, and suggests that CX Re must suffer the
consequences of the “risk” it took by foregoing a substantive response in the first instance.
Def.’s Opp., [ECF No. 140, 3]. I note that CX Re offers no explanation why it waited over a
month to file its Motion to Supplement, after realizing there would be no imminent settlement
with B&R Management. See id. at 3, n. 2. Nevertheless, since the Supplement narrows the
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On April 6, 2017, Judge Hollander also prohibited CX Re from entering into a settlement agreement with B&R
Management until the Court rules on Jessica-Carl’s Motion for Temporary Restraining Order and Preliminary
Injunction. See [ECF No. 94]. This Order remains in effect. See [ECF No. 183].
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Both parties claim that their opponents failed to abide by the requirements of Local Rule 104.8. See Pl.’s Mot. to
Suppl., [ECF No. 138, 10-12]; Def.’s Mot. to Compel, [ECF No. 87]. Based on the record before me, I am
convinced that both CX Re and Jessica-Carl engaged in reasonable efforts to resolve this discovery dispute without
court intervention. Although these efforts ultimately failed, there is no lapse under Local Rule 104.8 so great that
the matter should not be adjudicated presently.

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Jessica-Carl also moved to seal its Opposition to CX Re’s Motion to Supplement due to references therein to
exhibits previously filed under seal. [ECF No. 141, 1]. Judge Hollander recently granted several motions to seal,
including the exhibits to Jessica-Carl’s Motion for a Temporary Restraining Order and Preliminary Injunction, [ECF
No. 88], which were cited in Jessica-Carl’s Opposition. See [ECF No. 150]. Accordingly, consistent with Judge
Hollander’s ruling, I will grant Jessica-Carl’s Motion to Seal, [ECF No. 141].

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grounds of CX Re’s objections and presents relevant information that will aid the court in
resolving this dispute, I will treat CX Re’s Motion to Supplement as a Motion for Leave to File a
Surreply and will grant the motion in accordance with Local Rule 105.2(a).
B. Jessica-Carl’s Motion to Compel
i.

Legal Standard

Federal Rule of Civil Procedure 26(b)(1) permits discovery of “any nonprivileged matter
that is relevant to any party’s claim or defense and proportional to the needs of the case.” In
determining proportionality, the Court must consider “the importance of the issues at stake in the
action, the amount in controversy, the parties’ relative access to relevant information, the parties’
resources, the importance of the discovery in resolving the issues, and whether the burden or
expense of the proposed discovery outweighs its likely benefit.” Fed. R. Civ. P. 26(b)(1).
ii.

Request for Document Production No. 10

Jessica-Carl’s Request for Document Production No. 10 asks CX Re for “[a]ll documents
pertaining to the ‘broad underwriting review’ conducted by [CX Re’s] London-based business
manager … including but not limited to any written review, all communications related to such
review, and any documents reviewed during the course of the underwriting review.” Def.’s Mot.
to Compel, [ECF No. 87-3, 5]. Jessica-Carl seeks full compliance with Request No. 10, arguing
that the documents at issue are “crucial” to Jessica-Carl’s ability to effectively challenge CX
Re’s claims regarding the timeliness of this rescission action, as well as presenting affirmative
defenses. Def.’s Mot., [ECF No. 87-3, 4]. CX Re correctly notes that “[t]his Request seeks all
documents pertaining to CX Re’s broad underwriting review of many insureds.” Pl.’s Supp.,
[ECF No. 138, 2]. In its Supplement, CX Re abandons its earlier privilege objections and instead
argues that documents relating to CX Re’s underwriting review of any landlord other than B&R
Management are irrelevant to the instant case. Pl.’s Supp., [ECF No. 138, 7-8]. CX Re also
aims to limit the relevant time period for this Request to “those documents indicating, as a
factual matter, when CX Re began to investigate the veracity of B&R’s answer to Application
Question 16 and when CX Re first acquired facts establishing that B&R’s answer to Question 16
was false.” Id.
CX Re is correct that documents relating to the underwriting review of insureds other
than B&R Management are not relevant to this case. The determinative inquiries regarding the
accrual of notice sufficient to trigger the running of the statute of limitations and to justify
rescission, and whether rescission was promptly sought, are fact-specific to each insured. See
Charter Oak Fire Co. v. American Capital Ltd., 2016 WL 827380, at *12 (D. Md. 2016)
(quoting Monumental Life Ins. Co. v. U.S. Fid. & Guar. Co., 94 Md. App. 505, 541 (1993));
William Rounds v. Md.-Nat’l Capital Park & Planning Comm’n, 109 A.3d 639, 658 (Md. 2015).
Indeed, when Judge Bredar declined to consolidate this case with CX Re’s five other rescission
actions, he commented that “[w]hether Defendants in [one case] made a material
misrepresentation on their application that resulted in damage to CX Re is a distinct factual
question from whether any other defendants in any [other] case made a material
misrepresentation on other policy applications pertaining to other properties[,]” such that
“resolution of [one factual question] in one case [will not] drive[] the resolution in the rest of the
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cases.” [ECF No. 61, 4]. Limiting Request No. 10 is consistent with Judge Breder’s
Memorandum and Order regarding consolidation.
At the same time, Jessica-Carl is right that Defendants are “not required to accept CX
Re[’s] assertion that it was unaware of the alleged misrepresentations until conducting the ‘broad
underwriting review.’” Def.’s Mot. to Compel, [ECF No. 87-3, 10]. Consequently, Jessica-Carl
is entitled to discovery of relevant documents that may aid it in refuting CX Re’s version of
events or offering a factual alternative. See Fed. R. Civ. P. 26(b)(1). Since CX Re placed the
August 2015 underwriting review squarely at issue in its allegations, Jessica-Carl is entitled to all
documents pertaining to the underwriting review involving B&R Management. Accordingly,
CX Re must provide the information sought through Request No. 10 pertaining to B&R
Management, within fourteen (14) days from the date of this Order.
iii.

Request for Document Production Nos. 7 and 8

Jessica-Carl’s Request for Document Production No. 7 asks:
[i]n connection with any policy providing liability insurance for lead paint
coverage written by CX Re during the period January 1, 1997 through August 31,
1999, [for] all documents reflecting payment under such policy for expenses or to
resolve claims when CX Reinsurance was provided with evidence of lead paint
violation notice(s) for the applicable property before making such payment,
including but not limited to any notes, memoranda, and/or internal or external
communications.
Def.’s Mot. to Compel, [ECF No. 87-3, 10]. Jessica-Carl’s Request for Document Production
No. 8 asks:
[i]n connection with any policy providing liability insurance for lead paint
coverage written by CX Re during the period January 1, 1997 through August 31,
1999, [for] all documents reflecting CX Reinsurance’s refusal to make payment
under such policy for expenses or to resolve claims when CX Reinsurance was
provided with evidence of lead paint violation notice(s) for the applicable
property, including but not limited to any notes, memoranda, and/or internal or
external communications.
Id. at 11. Jessica-Carl seeks the above documents as to all insureds. Id. at 13. Jessica-Carl
argues that the documents sought through these Requests are relevant to establishing whether
B&R Management’s purportedly false answer to Question 16 of the Application was material to
CX Re’s underwriting decision. Id. Jessica-Carl further contends that the Requests are
proportional to the needs of the case because there are millions of dollars at issue in this case, as
well as five other similar rescission cases. Id. at 14. In its Supplement, CX Re argues that these
Requests are irrelevant. Pl.’s Suppl., [ECF No. 138, 9]. Specifically, CX Re contends that “[a]
misrepresentation on an insurance application is material only if it would have reasonably
influenced the underwriter’s decision whether, and on what terms, to issue a policy. …
[Consequently,] CX Re’s claims handling after the policies were issued can have no bearing on
how B&R [Management]’s misrepresentations on the Application may have influenced CX Re’s
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underwriting decision.” Pl.’s Suppl., [ECF No. 138, 9].
CX Re is correct. Whether CX Re, once contractually-bound to provide insurance
coverage, would choose to pay or not pay claims after receiving lead paint violation notices does
not shed light on whether CX Re would choose to enter such a contractual relationship in the
first place. Any inference regarding “materiality” in pre-coverage decisions that may be drawn
from post-coverage behavior calls for impermissible speculation. Jessica-Carl’s reasoning as to
the relevance of Request Nos. 7 and 8 is not persuasive and, therefore, the motion to compel
responses thereto will be denied.
IV. Conclusion
For the reasons discussed above, CX Re’s Motion to Supplement, [ECF No. 136], will be
GRANTED; Jessica-Carl’s Motion to Seal, [ECF No. 141], will be GRANTED; and JessicaCarl’s Motion to Compel, [ECF No. 87], will be GRANTED IN PART and DENIED IN PART.
CX Re is hereby ORDERED to provide Jessica-Carl with the information discussed herein,
within the deadlines set forth herein. Pursuant to Federal Rule of Civil Procedure 37(a)(5)(C),
no fees or expenses will be awarded to either party because relief is being granted in part and
denied in part.
Despite the informal nature of this letter, it will be flagged as an Opinion and docketed as
an Order.
Sincerely yours,
/s/
Stephanie A. Gallagher
United States Magistrate Judge

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