Liberty Mutual Fire Insurance Company v. KB Home, Inc. et al

Filing 157

ORDER granting 134 Motion to Stay and denying 142 Motion to Compel. Signed by Magistrate Judge Kimberly A. Swank on 5/3/2016. Counsel should read order in its entirety for critical deadlines and information. (Marsh, K)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
NO. 5:13-CV-831-BR(2)
LIBERTY MUTUAL FIRE INSURANCE
COMPANY
Plaintiff,
v.
KB HOME and KB HOME RALEIGHDURHAM, INC., and STOCK BUILDING
SUPPLY, LLC,
Defendants.

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ORDER

This matter is before the court on the following motions, which were referred
to the undersigned by Senior United States District Judge W. Earl Britt pursuant to
28 U.S.C. § 636(b)(1)(A):
1.

Motion to Stay Proceedings filed by Defendants KB Home

and KB Home Raleigh-Durham, Inc. (collectively “the KB Home
Defendants”) [DE #134]; and
2.

Motion to Compel Further Responses to Requests for

Production of Documents filed by the KB Home Defendants [DE #142].
The issues raised have been fully briefed by the parties, and the motions are ripe for
adjudication.

For the reasons set forth below, the court grants the KB Home

Defendants’ motion to stay and denies without prejudice their motion to compel
further discovery.

BACKGROUND
At issue in this action are Liberty Mutual Fire Insurance Company’s
obligations to the KB Home Defendants as an additional insured under two
commercial general liability insurance policies issued by Liberty to Stock Building
Supply, LLC (“Stock”) in 2005 and 2006. In December 2008, a group of homeowners
filed a lawsuit in Wake County Superior Court alleging that the KB Home
Defendants and their subcontractor, Stock, installed HardiePlank Siding without
proper moisture or weather resistant barriers, causing damage to their homes. See

Mark Elliott et al. v. KB Home North Carolina and KB Home Raleigh-Durham, Inc.,
No. 08-CVS-21190 (Wake Cnty. Sup. Ct.).
On June 14, 2013, Liberty filed this action seeking a declaration of its rights
under the policies, and the KB Home Defendants subsequently asserted
counterclaims against Liberty for (1) breach of insurance contract; (2) breach of
contract; (3) breach of the implied covenant of good faith and fair dealing; (4) unfair
and deceptive trade practices; and (5) declaratory judgment. On October 28, 2014,
judgment on the pleadings was granted in favor of the KB Home Defendants on the
issue of Liberty’s duty to defend the KB Home Defendants in the underlying statecourt litigation. (Order dated Oct. 28, 2014 [DE #56]; see also Order dated Jan. 28,
2015 [DE#76] (amending in part Oct. 28, 2014, order).) Remaining before the court
are the KB Home Defendants’ counterclaims one through four.

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DISCUSSION
The KB Home Defendants move to stay this action pending final disposition of
the state-court litigation, which now involves a class of approximately 277
homeowners. They assert that Liberty continues to ignore its duty to defend the KB
Home Defendants as previously ordered by the court. As a consequence, the KB
Home Defendants claim their damages continue to mount and will not be fully
ascertainable until resolution of the underlying Elliott action. Additionally, the KB
Home Defendants argue that a stay is necessary in light of Liberty’s refusal to
provide, on grounds of privilege, discovery concerning settlement communications
concerning the Elliott action while that action is pending.
Liberty opposes the KB Home Defendants’ motion to stay. Liberty asserts
that the limits of its policies were exhausted in March 2013 and that it therefore has
no remaining duty to defend or indemnify the KB Home Defendants. Liberty argues
there is nothing that can or will be adjudicated in the Elliott action that will
determine whether the policies were exhausted and a stay is therefore unwarranted.
Liberty further argues that there are “[n]o facts or claims that will be determined in
the [Elliott action that] will be determinative of anything related to [the KB Home
Defendants’] counterclaims for bad faith and unfair and deceptive trade practices.”
(Mem. Opp. Mot. Stay [DE #140] at 7.)

Liberty claims it will be prejudiced if

adjudication of the KB Home Defendants’ counterclaims is delayed and, finally, that
the privilege issues that exist will not be resolved by adjudication of the Elliott action.

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Federal district courts have the power to stay their proceedings. “This power
to stay is ‘incidental to the power inherent in every court to control the disposition of
the causes on its docket with economy of time and effort for itself, for counsel, and for
litigants.’” Matherly v. Gonzales, No. 5:11-CT-3020-BR, 2013 WL 393335, at *2
(E.D.N.C. Jan. 31, 2013) (quoting Landis v. N. Am. Co., 299 U.S. 248, 254 (1936)).
Whether to grant or deny a motion to stay proceedings calls for an exercise of
judgment in weighing the various, competing interests of the parties to an expeditious
and comprehensive disposition of all claims. Id. Delay alone is an insufficient basis
for denying a stay because “delay is an inherent part of any stay.” Id.
Having carefully weighed the parties’ respective interests in this case, the
undersigned determines that this action should be stayed pending resolution of the

Elliott action. At the heart of the parties’ dispute in this case is whether Liberty
acted in bad faith in settling Chinese drywall claims made against Stock to the
detriment of the KB Home Defendants’ status as an additional insured under the
policies issued by Liberty. The parties have become embroiled in disputes over the
KB Home Defendants’ right to discovery of information related to Liberty’s claims
handling and adjustment. Notwithstanding the fact that Stock was named as a
defendant and failed to answer or otherwise appear in this action for more than a
year and a half (presumably due to a collaborative relationship with Liberty), Stock
was allowed to intervene in this action for the purpose of protecting its interests in
privileged and confidential information that had been sought from Liberty by the KB
Home Defendants.

Both Stock and Liberty continue to fight demands for
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information contained in the Stock claim file maintained by Liberty and settlement
communications concerning the Elliot action, asserting that such information is
protected by the attorney-client privilege or work-product doctrine. The KB Home
Defendants argue that such information is critical to their claims and that any
protections will disappear once the Elliott case is resolved. Stock does not concede
that all information sought by the KB Home Defendants will be discoverable upon
resolution of the Elliott action.

However, Stock does not object to a stay,

acknowledging that some of its concerns over the production of documents in its claim
file may be mitigated upon resolution of the Elliott action. (Stock’s Resp. Mot. Stay
[DE #139] at 1-2.)
As it stands now, the KB Home Defendants will be forced to try their claims
against Liberty prior to resolution of the 277 claims raised in the Elliott action. Due
to the pendency of the Elliott action, Liberty and Stock have refused to disclose much
of the information sought by the KB Home Defendants concerning Liberty’s handling
and adjustment of claims made against the KB Home Defendants.

While

adjudication of the state-court litigation may not resolve all of the parties’ discovery
disputes, it seems likely that the interests held by Liberty and Stock in preventing
disclosure of settlement discussions and other information contained in Stock’s claim
file will be significantly diminished upon resolution of the Elliott action. The delay
caused by a stay of this action is not so prejudicial to Liberty as to outweigh the
parties’ interests in full and complete disclosure of information relevant to their

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claims and to a fair determination of any damages to which they may be entitled.
Accordingly, the KB Home Defendants’ motion to stay will be granted.
Because the court has decided to grant the motion to stay, the KB Home
Defendants’ motion to compel further discovery will be denied without prejudice to
refile, if appropriate, after the stay is lifted.
CONCLUSION
For the foregoing reasons, it is ORDERED as follows:
1.

The KB Home Defendants’ motion to stay [DE #134] is GRANTED, and

this action is stayed pending disposition of Mark Elliott et al. v. KB Home North

Carolina and KB Home Raleigh-Durham, Inc., No. 08-CVS-21190 (Wake Cnty. Sup.
Ct.);
2.

The KB Home Defendants’ motion to compel [DE #142] is DENIED

without prejudice to refile, if appropriate, after the stay is lifted; and
3.

The parties shall promptly inform the court of any resolution of the

Elliot action, whether upon motion, settlement, or trial and shall further file a joint
notice informing the court of the status of the Elliott action on or about November 1,
2016, and every six months thereafter until such time as the stay is lifted in this
action.
This 3rd day of May 2016.
__________________________________________
KIMBERLY A. SWANK
United States Magistrate Judge

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