National Union Fire Insurance Company of Pittsburgh, PA et al v. Donaldson Company, Inc.

Filing 196

MEMORANDUM OPINION AND ORDER Reversing 160 District Court Decision; sustaining plaintiffs' 173 Objection of Magistrate Judge's Decision to District Judge; DENYING defendant Donaldson's 142 motion to compel production of documents by plaintiff (Written Opinion). Signed by Judge John R. Tunheim on May 6, 2013. (DML)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA and
AMERICAN HOME ASSURANCE
COMPANY,
Plaintiffs,
v.

Civil No. 10-4948 (JRT/AJB)

MEMORANDUM
OPINION AND ORDER
REVERSING ORDER OF
THE MAGISTRATE JUDGE

DONALDSON COMPANY, INC. and
FEDERAL INSURANCE COMPANY,
Defendants.

Kelly L. Stoltz, BATES CAREY NICOLAIDES LLP, 191 North Wacker
Drive, Suite 2400, Chicago, IL 60606, for plaintiffs.
Margaret S. Brownell, MASLON EDELMAN BORMAN & BRAND,
LLP, 90 South Seventh Street, Suite 3300, Minneapolis, MN 55402, and
Rikke A. Dierssen-Morice, FAEGRE BAKER DANIELS LLP, 90 South
Seventh Street, Suite 2200, Minneapolis MN 55402, for defendant
Donaldson Company, Inc.
Plaintiffs National Union Fire Insurance Company of Pittsburgh, PA (“National
Union”) and American Home Assurance Company (“American Home”) bring this action
against their insured, Defendant Donaldson Company, Inc. (“Donaldson”), and
Donaldson’s excess insurer, Defendant Federal Insurance Company (“Federal”).
Plaintiffs seek to recover from Defendants amounts that they contributed to a settlement
on behalf of Donaldson. On February 7, 2013, Magistrate Judge Arthur J. Boylan issued
an order granting Donaldson’s motion to compel the production of documents by

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Plaintiffs. (Docket No. 160.)1 Plaintiffs objected to this order. (Docket No. 173.)
Because Donaldson has failed to make a threshold showing of relevance for the
documents it seeks, the Court will reverse the Magistrate Judge’s order.

BACKGROUND
The background for this action is described in detail in the Court’s order dated
March 30, 2012. See Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Donaldson Co.,
No. 10-4948, 2012 WL 1072329, at *1-6 (D. Minn. Mar. 30, 2012). The Court will not
repeat that history here. In essence, this case is a dispute regarding the scope of coverage
that Plaintiffs must provide to Donaldson for property damage.
The Magistrate Judge ordered the production of underwriting files related to three
insurance policies held by Donaldson: the National Union umbrella policy for the 20012002 policy period and the American Home primary liability policy for the 2000-2001
and 2001-2002 policy periods. It appears that the National Union umbrella policy for the
2001-2002 policy period lacks a “Batch Clause Endorsement,” an endorsement which
Donaldson claims it expected to be included in the umbrella policy. This discovery
dispute revolves around whether Donaldson can obtain Plaintiffs’ underwriting files to
show that the parties – or at least Donaldson – intended a Batch Clause Endorsement to
be included in the National Union umbrella policy for the 2001-2002 policy period.

1

The order did not outline the Magistrate Judge’s reasons for his decision, other than
stating that the “files at issue in this motion are relevant to the subject matter involved in the
action and the discovery further appears reasonably calculated to lead to discovery of admissible
evidence.” (See Docket No. 160.)

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ANALYSIS
I.

STANDARD OF REVIEW
The standard of review applicable to an appeal of a Magistrate Judge’s order on

nondispositive pretrial matters is extremely deferential. Roble v. Celestica Corp., 627
F. Supp. 2d 1008, 1014 (D. Minn. 2007). This Court will reverse such an order only if it
is clearly erroneous or contrary to law. See 28 U.S.C. § 636(b)(1)(A); Fed. R. Civ. P.
72(a); D. Minn. LR 72.2(a).

II.

DISCOVERABILITY OF UNDERWRITING FILES
The Federal Rules of Civil Procedure allow for discovery of “any nonprivileged

matter that is relevant to any party’s claim or defense.”

Fed. R. Civ. P. 26(b)(1).

Information sought in discovery need not be admissible at trial, so long as it “appears
reasonably calculated to lead to the discovery of admissible evidence.” Id. Courts must
interpret rules governing discovery broadly and liberally. See Credit Lyonnais, S.A. v.
SGC Int’l, Inc., 160 F.3d 428, 430 (8th Cir. 1998). Information is generally discoverable
“unless it is clear that the information sought has no bearing upon the subject matter of
the action.” See Sinco, Inc. v. B & O Mfg., Inc., Civ. No. 03-5277, 2005 WL 1432202, at
*1 (D. Minn. May 23, 2005). “The proponent of discovery must make a threshold
showing of relevance before production of information, which does not reasonably bear
on the issues in the case, is required.”

Met-Pro Corp. v. Indus. Air Tech., Corp.,

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No. 8:07CV262, 2009 WL 553017, at *3 (D. Neb. Mar. 4, 2009) (citing Hofer v. Mack
Trucks, Inc., 981 F.2d 377, 380 (8th Cir. 1992)).2
The parties dispute the relevance of the underwriting files to this action. Plaintiffs
argue that the files are not relevant because the terms of the National Union umbrella
policy for the 2001-2002 policy period are unambiguous. When interpreting insurance
contracts, the Court’s objective is to “ascertain and give effect to the intentions of the
parties as reflected in the terms of the insuring contract.” Jenoff, Inc. v. N.H. Ins. Co.,
558 N.W.2d 260, 262 (Minn. 1997). “The plain and ordinary meaning of the contract
language controls, unless the language is ambiguous.” Bus. Bank v. Hanson, 769 N.W.2d
285, 288 (Minn. 2009). A contract is ambiguous if its language “is susceptible to two or
more reasonable interpretations.” Carlson v. Allstate Ins. Co., 749 N.W.2d 41, 45 (Minn.
2008). “Extrinsic evidence of the parties’ subjective intent cannot be used to create
contractual ambiguity where none exists on the face of the policy.” In re SRC Holding
Corp., 545 F.3d 661, 666 (8th Cir. 2008) (citing In re Hennepin Cnty. 1986 Recycling
Bond Litig., 540 N.W.2d 494, 498 (Minn. 1995)).
Donaldson does not argue that the National Union umbrella policy for the 20012002 policy period is ambiguous and that the parties’ intent is therefore relevant.3

2

See also Carter v. The Advisory Grp., Inc., No. 8:06CV603, 2007 WL 3112453, at *2-3
(D. Neb. Oct. 22, 2007) (“If the relevancy of the discovery request is not readily apparent, the
party seeking the discovery has the burden to show the relevancy of the request.”); Giebink v.
Giebink, Civ. No. 08-4184, 2009 WL 1350805, at *4 (D.S.D. May 12, 2009).
3

Donaldson states that there are questions about “ambiguity in the umbrella policy,
including whether the coverage provided was, under the circumstances, illusory[.]” (Mem. in
(Footnote continued on next page.)

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Instead, Donaldson argues that the underwriting files could be relevant to determining
whether the National Union umbrella policy for the 2001-2002 policy period provided
illusory coverage.

Specifically, Donaldson argues that the policy might be illusory

because it does not include a Batch Clause Endorsement.
“The doctrine of illusory coverage qualifies the general rule that insurance
contracts will be enforced in accordance with their plain language.” Id. at 671. “The
doctrine is best applied where part of the premium is specifically allocated to a particular
type or period of coverage and that coverage turns out to be functionally nonexistent.”
Id. (internal quotation marks and alterations omitted).

“The fact that an insured’s

circumstance is outside a policy’s realm of coverage does not, without more, render the
policy illusory.” BancInsure, Inc. v. Marshall Bank, N.A., 453 F.3d 1073, 1076 (8th Cir.
2006); see also Johnson v. Cummiskey, 765 N.W.2d 652, 662 (Minn. Ct. App. 2009).
Because Donaldson has not articulated any reason why the lack of a Batch Clause
Endorsement might render the policy illusory, the Court finds illusory coverage to be an
inadequate basis upon which to order disclosure of the underwriting files. For example,
Donaldson has not identified any premium arguably paid for a Batch Clause
Endorsement4 or argued that the umbrella policy failed to provide any coverage, nor has
____________________________________
(Footnote continued.)

Support at 5, Jan. 18, 2013, Docket No. 146.) Donaldson has identified no potential ambiguity in
the umbrella policy, however, beyond its argument about illusory coverage, which the Court will
address below.
4

Donaldson has also not argued that the underwriting documents are relevant to
determining the premiums that it paid for particular types of coverage.

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Donaldson explained how the underwriting files would be relevant to a claim of illusory
coverage. The Court thus finds that Donaldson has not shown at this stage that the
underwriting files are relevant to determining whether the National Union umbrella
policy for the 2001-2002 policy period might provide illusory coverage.5
Donaldson also argues:
[B]ecause the 2001-2002 American Home primary layer of coverage was
exhausted on March 19, 2010 with the payment of a $150,000 initial
payment to Burroughs, a payment that entered into the National Union
2001-2002 umbrella policy layer by $12,590, the . . . Plaintiffs cannot
reasonably assert that although payments were triggered under the prima
and umbrella policies, the corresponding underwriting files have no
bearing on the coverage dispute.
(Mem. in Support at 10, Jan. 18, 2013, Docket No. 146; see also Resp. to Objections at 4,
Mar. 7, 3013, Docket No. 190.) Donaldson has not explained, however, why the fact that
“a payment [was] entered into the National Union 2001-2002 umbrella policy layer”
alters the relevant insurance contracts or would affect the Court’s interpretation of any
contractual provisions. Because Donaldson has failed to point to any ambiguities in the
insurance policies relevant to the Court’s decision on this motion, the Court finds no
justification for ordering discovery of the underwriting files.
Donaldson further argues, without explanation, that the underwriting files are
relevant to its counterclaim for the breach of the covenant of good faith and fair dealing.
5

Donaldson has not argued that there was unequal bargaining power among the parties or
that the umbrella policy violated the doctrine of reasonable expectations. See St. Paul Fire &
Marine Ins. Co. v. Fed. Deposit Ins. Corp., 968 F.2d 695, 702-03 (8th Cir. 1992). Donaldson has
also pointed to no case law in this jurisdiction suggesting that an excess insurer is always under
the obligation to specifically alert an insured that an umbrella policy offers a narrower scope of
coverage than a primary policy.

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(Countercl. ¶¶ 163-70, Aug. 30, 2011, Docket No. 84.) This counterclaim alleges that
Plaintiffs breached the covenant of good faith and fair dealing by promising in a
March 11, 2002, letter to provide coverage to Donaldson for certain types of property
damage and then failing to provide this coverage. (Id. ¶¶ 164-68.) This counterclaim
also generally alleges that Plaintiffs breached the duty of good faith and fair dealing by
its failure to properly separate claims handling responsibilities from individuals also
involved in asserting Plaintiffs’ coverage positions. (Id. ¶ 169.) Donaldson has not
identified how the underwriting files for the policies at issue are relevant to this
counterclaim, which focuses on a 2002 claims handling letter and Plaintiffs’ subsequent
conduct. Because Donaldson has not shown the relevance of the underwriting files to
this counterclaim, the counterclaim cannot serve as grounds for ordering discovery of the
underwriting files.
This Court’s order should not be interpreted to hold that the National Union
umbrella policy for the 2001-2002 policy period is unambiguous or that Donaldson is
unable to challenge the plain terms of the policy as illusory or otherwise unenforceable.
However, Donaldson has failed at this stage to make the threshold showing of relevance
necessary for the production of the underwriting files. See Met-Pro Corp., 2009 WL
553017, at *3. Accordingly, the Court will reverse the order of the Magistrate Judge.

ORDER
Based on the foregoing, and all the files, records, and proceedings herein, the
Court SUSTAINS Plaintiffs’ objections [Docket No. 173] and REVERSES the Order of

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the Magistrate Judge dated February 7, 2013 [Docket No. 160].

IT IS HEREBY

ORDERED that Defendant Donaldson’s Motion to Compel Production of Documents by
Plaintiffs [Docket No. 142] is DENIED.
DATED: May 6, 2013
at Minneapolis, Minnesota.

____s/
____
JOHN R. TUNHEIM
United States District Judge

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