PCS Phosphate Company, Inc. v. American Home Assurance Company
Filing
81
ORDER denying 69 Motion for Discovery for Protection From Certain Discovery Requests of PCS. Signed by US Magistrate Judge Robert B. Jones, Jr on 12/10/2015. (Jenkins, C.)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
NO. 5:14-CV-99-D
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Plaintiff,
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v.
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AMERICAN HOME ASSURANCE
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COMPANY,
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Defendant/Third-Party Plaintiff,
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v.
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ZURICH AMERICAN INSURANCE COMPANY )
and FEDERAL INSURANCE COMPANY,
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Third-Party Defendants.
PCS PHOSPHATE COMPANY, INC.,
ORDER
This matter comes before the court on the motion of Defendant/Third-Party Plaintiff
American Home Assurance Company ("American Home") seeking protection from certain
discovery requests ofPlaintiffPCS Phosphate Company, Inc. ("PCS"). [DE-69]. All briefing is
complete and the matter is ripe for adjudication. For the reasons set forth below American
Home's motion is denied.
I. BACKGROUND
From 1965 to 2006, Ward Transformer Company, Inc. and Ward Transformer Sales and
Service, Inc. (collectively "Ward"), built, repaired, reconditioned, and sold transformers in
Raleigh, North Carolina. Compl. [DE-l]. During these activities, polychlorinated biphenyls
("PCBs") were released into the environment on and around the Ward facility ("Ward Site"). Id.
~
2. Between 1978 and 2002, PCS and its local predecessor, Texasgulf, Inc. ("Texasgulf"), sent
transformers to Ward for repair and refurbishment. !d.
PCBs were released into the environment.
!d.~
~
3. During the transformer repairs,
4. In April2003, the Environmental Protection
Agency ("EPA") began a remedial investigation of the Ward Site.
!d.~
5. In September 2005,
the EPA entered into a settlement agreement with Consolidation Coal Company ("Consol") and
Carolina Power & Light Company ("CP&L") to provide for the removal of contamination at the
Ward Site and to reimburse the EPA for its costs.
!d.~
6. On April 18, 2008, PCS notified
American Home that PCS had been identified as a potentially responsible party for the Ward Site
contamination, and demanded that American Home defend and indemnify PCS in connection
with any resulting lawsuits.
!d.~
7. On April30, 2009, Consol and CP&L each filed an action
against PCS seeking contribution for past and future costs associated with the settlement
agreement (the "underlying actions").
!d.~~
8, 10. On July 15, 2009, PCS notified American
Home of the two lawsuits and reiterated its demand for defense and indemnification.
!d.~
13.
Subject to a reservation of rights, American Home accepted the defense of PCS in the Consol
and CP&L actions. Am. Third-Party Compl. [DE-66]
~
13.
On February 20, 2014, PCS filed the instant action American Home. [DE-l]. PCS seeks
a declaratory judgment that American Home owes PCS a duty to defend and a duty to indemnify
in the underlying actions concerning alleged environmental contamination. Compl. [DE-l]
~~
26-32. On November 14, 2014, American Home filed an amended third-party complaint against
Zurich American Insurance Company ("Zurich") and Federal Insurance Company ("Federal").
[DE-66]. Federal and Zurich issued Commercial General Liability policies to Texasgulfunder
which PCS is an insured. !d.
~~
15-28. In its third-party complaint, American Home seeks a
declaratory judgment that Zurich and Federal owe a duty to defend and a duty to indemnify PCS
2
in the underlying actions, indemnification from Zurich and Federal for American Home's costs in
defending PCS, or, alternatively, contribution from Zurich and Federal to the costs of defending
and indemnifying PCS. /d. [DE-66] ~~ 29-46. On August 14,2015, American Home moved for
a protective order from having to respond to certain document requests propounded by PCS.
[DE-69].
II. ANALYSIS
A.
Applicable Standard
The Federal Rules of Civil Procedure enable parties to obtain information by serving
requests for discovery on each other, including interrogatories and requests for production of
documents. See generally Fed. R. Civ. P. 26-37. Rule 26 provides for a broad scope of
discovery:
Parties 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, considering
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. Information within this scope of
discovery need not be admissible in evidence to be discoverable.
Fed. R. Civ. P. 26(b)(l). The rules of discovery, including Rule 26, are to be given broad and
liberal construction. Herbert v. Lando, 441 U.S. 153, 177 (1979); Nemecek v. Bd. ofGovernors,
No. 2:98-CV-62-BO, 2000 WL 33672978, at *4 (E.D.N.C. Sept. 27, 2000)(unpublished); Spell
v. McDaniel, 591 F. Supp. 1090, 1114 (E.D.N.C. 1984) ("Rules 26 through 37 ofthe Federal
Rules have been interpreted liberally to allow maximum discovery.").
While Rule 26 does not define what is deemed relevant for purposes of the rule, relevance
has been "broadly construed to encompass 'any possibility' that the information sought may be
3
relevant to the claim or defense of any party."' Equal Emp 't Opportunity Comm 'n v. Sheffield
Fin. LLC, No. 1:06-CV-889, 2007 WL 1726560, at *3 (M.D.N.C. June 13, 2007) (unpublished)
(quoting Merrill v. Wajjle House, Inc., 227 F.R.D. 467, 473 (N.D. Tex. 2005)); see also
Mainstreet Collection, Inc. v. Kirkland's, Inc., 270 F.R.D. 238, 240 (E.D.N.C. 2010) ("During
discovery, relevance is broadly construed 'to encompass any matter that bears on, or that
reasonably could lead to other matter that could bear on, any issue that is or may be in the
case."') (quoting Oppenheimer Fund., Inc. v. Sanders, 437 U.S. 340, 351 (1978)); Carr v.
DoubleT Diner, 272 F.R.D. 431,433 (D. Md. 2010) ("The scope ofrelevancy under discovery
rules is broad, such that relevancy encompasses any matter that bears or may bear on any issue
that is or may be in the case").
The district court has broad discretion in determining relevance for discovery purposes.
Watson v. Lowcountry Red Cross, 974 F.2d 482,489 (4th Cir. 1992). However, "[e]ven
assuming that [the requested] information is relevant (in the broadest sense), the simple fact that
requested information is discoverable ... does not mean that discovery must be had. On its own
initiative or in response to a motion for protective order under Rule 26(c), a district court may
limit ... 'discovery methods otherwise permitted' ... if it concludes that '(i) the discovery sought
is unreasonably cumulative or duplicative, or can be obtainable from some other source that is
more convenient, less burdensome, or less expensive ... "' Nicholas v. Wyndham Int 'l, Inc., 373
F.3d 537, 543 (4th Cir. 2004) (quoting Fed. R. Civ. P. 26(b)(2)(C)); Schaafv. SmithKline
Beecham Corp., 233 F.R.D. 451, 453 (E.D.N.C. 2005). Additionally, "[t]he court may, for good
cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or
undue burden or expense, including ... (A) forbidding the disclosure or discovery; ... or (D)
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forbidding inquiry into certain matters, or limiting the scope of disclosure or discovery to certain
matters .... " Fed. R. Civ. P. 26(c)(l). The party seeking protection from the court from
responding to discovery must make a particularized showing of why discovery should be denied,
and conclusory or generalized statements fail to satisfy this burden as a matter of law. See
Carejirst ofMd, Inc. v. Carefirst Pregnancy Ctrs., Inc., 334 F.3d 390, 402-03 (4th Cir. 2003);
see also Jones v. Circle K Stores, Inc., 185 F.R.D. 223,224 (M.D.N.C. 1999) (regarding issuance
of a protective order); Smithfield Bus. Park, LLC v. SLR Int'l Corp., No. 5:12-CV-282-F, 2014
WL 3919679, at *2 (E.D.N.C. Aug. 11, 2014) (unpublished).
B.
Plaintiffs Discovery Requests Subject to Defendant's Motion for a Protective
Order. 1
1. Documents Related to Reinsurance
Request for Production No.3 seeks "[a]ll communications with any reinsurer or
regulatory agency regarding the Underlying Claim." Pl.'s Mem., Ex. B [DE-74-2] at 11. In its
discovery response, American Home objects to providing responsive documents asserting
objections of vagueness and ambiguity as to the term "Underlying Claim," relevance,
overbreadth, overly burdensome and attorney-client privilege. !d. at 11-12. In its motion,
American Home argues that the documents sought by PCS are neither relevant nor reasonably
calculated to lead to the discovery of admissible evidence because PCS has not alleged American
Home is or could become insolvent or that American Home may be unable to satisfy a judgment
or settlement in this action under any of its policies. [DE-69] at 8. 2 Referring to the nature of
1
The discovery requests that are the focus of the pending motion are included as an exhibit to Plaintiffs
response to Defendant's motion. See Def. Am. Home Assurance Co.'s First Suppl. Objs. and Resp. to Pl. PCS
Phosphate Co., Inc.'s First Set ofReqs. for Prod. [DE-74-2].
2
The cited page numbers refer to those assigned by CMIECF.
5
reinsurance, American Home argues such documents, including communications with reinsurers,
are not relevant to determining whether there is coverage under any of American Home's
policies. !d. at 8-9. Finally, American Home asserts that any discovery of reinsurance
information should be limited and subject to the attorney-client privilege and work product
doctrine. !d. at 9.
This court finds that American Home's interpretation of the scope of discovery is too
limited. PCS clarifies in its response that the request is directed to discovering communications
with reinsurers rather than the policies themselves. [DE-74] at 8. PCS has alleged in its
complaint that it provided American Home with timely notice of its claim arising from the
underlying actions, and demanded that American Home provide it with a defense and indemnity,
as required by the terms of American Home's policies. Compl.
[DE-l]~~
7, 13, 28. Among its
asserted causes of action, PCS alleges American Home has acted in bad faith in breaching its
insurance contracts with PCS. !d. ~~ 41-52. In particular, PCS asserts American Home failed to
defend and indemnify it without reasonable basis despite acknowledging that PCS has presented
valid claims. !d.~~ 47-48. For its part, American Home asserts defenses of condition precedent,
timely and adequate notice, and time bar as a limitation of liability in whole or in part. Answer
[DE-9] at 13, 21.
"Whether communications between cedents and their reinsurers are discoverable appears
to depend on the nature of the issues to which they are alleged to be relevant. See United States
Fire Ins. Co. v. Bunge N Am., Inc., 244 F.R.D. 638,643 (D. Kan. 2007) (quoting Medmarc Cas.
Inc. Co. v. Arrow Int'l, 2002 WL 1870452, at *3-4 (E.D. Pa. July 29, 2002)(unpublished)).
While courts "appear reluctant to allow the discovery of communications between cedents and
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their reinsurers for the purpose of establishing the proper interpretation of an unambiguous
insurance policy," courts have been more willing to allow such discovery for other purposes such
as defending against and insurer's effort to deny claims for late notice. !d. The claims at issue
here go beyond those of policy interpretation. Rather, the timing and content ofthe
communications sought could lead to the discovery of admissible evidence regarding American
Home's handling and investigation ofPCS's claims and its notice to American Home, bearing on
PCS's claim of bad faith. See id. at 642 (finding no clear error in ruling of magistrate judge that
"such communications could lead to the discovery of admissible evidence relating to the
Insurers' affirmative defense oflate notice; Bunge's bad faith claims, which relate to the
Insurers' handling and investigation of Bunge's insurance claims; the Insurers' assessments of
their potential liability or exposure; admissions by the Insurers regarding coverage; and the
existence and terms oflost policies."). Accordingly, American Home's motion as to this request
is denied.
American Home's discovery response contains only boilerplate assertion of privilege and
its motion argument likewise only briefly mentions that production of the requested documents
should be limited by the attorney-client and work product privileges. [DE-74-2] at 12; [DE-69]
at 9. Furthermore there is no evidence before the court that American Home has served a
privilege log as required by Rule 26(b)(5) with respect to this request. However, this court will
not deem American Home to have waived privilege with respect to responsive documents at this
point. To the extent American Home objects to producing responsive documents on the grounds
of the attorney-client privilege or the work product doctrine, it should do so in accordance with
the Federal Rules of Civil Procedure. See Lovett v. Cracker Barrel Old Country Store, Inc., No.
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2:14-CV-CV-34-BO, 2015 WL 4092801, at *3 (E.D.N.C. July 6, 2015) (unpublished) ("Failure
to timely serve a privilege log meeting the requirements of Rule 26(b)(5)(A) may be deemed a
waiver of the privilege otherwise claimed.") (citing Mezu v. Morgan State Univ., 269 F.R.D. 565,
577 (D. Md. 2010). 3
2.
Documents Related to Reserves
Request for Production No.4 seeks "[a]ll documents relating to Your evaluation,
valuation, or analysis of claims concerning the Underlying Claim, including but not limited to all
documents relating to Your reserve for claims concerning the Underlying Claim, the amount of
the reserve, the date on which it was set, and the date(s) on which it was changed." [DE-74-2] at
12. American Home objected to this request on the grounds that it is unduly burdensome, vague
as to the term "Underlying Claim," and seeks material that is irrelevant, confidentiaVproprietary
and protected by the attorney-client privilege and/or the work product doctrine. [DE-74-2] at 1213. According to its discovery response, American Home states it will produce responsive
relevant, non-privileged, non-proprietary claim documents for the Consol Action, the PEC
Action and the USEPA Claim, and that it has in fact produced responsive documents. !d. at 13.
American Home states that documents that have been withheld on the basis of attorney-client
privilege, work product or any proprietary or confidentiality claim have been identified in a log.
/d. However, American Home persists in its objection to providing any documents related to
reserves. !d. In its motion, American Home objects to providing responsive documents on the
grounds that reserve information may be misinterpreted as an admission of coverage. [DE-69] at
3
PCS and American Home entered into a protective order which contemplates the discovery of materials
that may be subject to a privilege or are otherwise confidential or proprietary. [DE-20].
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10-11. American Home argues the discovery request is not reasonably calculated to lead to the
discovery of admissible evidence because setting reserves does not constitute an admission of
liability. !d. at 11.
This court finds that the request falls within the scope of permissible discovery based
upon the claims asserted in this matter. For example, "[t]he time the reserve was established may
well reveal information relevant to the claims made by [the policyholder] against [the insurer],
including the nature and scope of [the insurer's] investigation, review, consideration and
rejection of [the policyholder's] claim." Savoy v. Richard A. Carrier Trucking, 176 F.R.D. 10,
12 (D. Mass. 1997). Moreover, this "information ... will to some degree demonstrate the
thoroughness with which [the insurer] investigated and considered [the policyholder's] claim and
thus is relevant to the question of the good or bad faith of [the insurer] in denying the claim." !d.
(quoting At/. Coca-Co/a Bottling Co. v. Transamerican Ins. Co., 61 F.R.D. 115, 117 (N.D. Ga.
1972)). Finally, "the date and amount ofthe reserve, as well as any modification ofthat amount,
may well relate to [the insurer's] determination of its potential risk in this matter and, hence,
reveal its view on liability." !d. The timing and any changes in reserve amounts is relevant here
because it is probative of whether American Home engaged in unreasonable delay in making a
coverage determination. Because PCS asserted bad faith and breach of contract claims and
American Home has asserted a late notice defense, reserve information is relevant and
discoverable. See, e.g., Bunge, Inc., 244 F.R.D. 644-45 (holding reserve information subject to
production because the measure of reserves and the timing of their establishment could be
relevant to the insurers' positions on liability, their investigations and coverage determinations);
Nicholas v. Bituminous Cas. Corp., 235 F.R.D. 325,331 (N.D. W.Va. 2006) (holding loss
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reserve information was relevant to bad faith claim); Imperial Textiles Supplies, Inc. v. Hartford
Fire Ins. Co., No. 6:09-CV-03103-JMC, 2011 WL 1743751, at *4 (D.S.C. May 5, 2011)
(unpublished) (same). Accordingly, American Home's motion as it relates to this request is
denied.
3. Underwriting Documents
Request for Production No. 6 seeks "[y]our complete underwriting file concerning the
American Home Policies." [DE-74-2] at 15. American Home objected to this request on the
grounds of relevance and attorney-client privilege and work product doctrine. /d. In its motion,
American Home seeks protection from having to respond to this request on the grounds that PCS
has not alleged any part of the relevant policies to be ambiguous nor has American Home
asserted any defense of ambiguity. [DE-69] at 12. American Home contends further that PCS
seeks underwriting documents in an effort to assess policy premium calculation and for the
business purposes of negotiating future policies, neither of which is a legitimate purpose for
discovery. /d.
PCS has alleged controversy over whether American Home must provide a defense and
indemnity pursuant to the terms of the polices at issue, provisions of which American Home has
asserted as a defense. Compl. [DE-l]; Answer [DE-9]. PCS has alleged not simply a breach of
contract action and claims of bad faith, but that American Home misrepresented facts or policy
provisions related to coverage. [DE-l]. The court finds the requested documents fall within the
broad scope of discovery. See, e.g., Renfrow v. Redwood Fire & Cas. Ins. Co., 288 F.R.D. 514,
517, 521 (D. Nev. 2013) (claims file and underwriting files were relevant to plaintiffs breach of
contract and bad faith claims against insurer); Brown Bear v. Cuna Mut. Grp., 266 F.R.D. 310,
10
319 (D. S.D. 2009) (claims file, notes, memos, and documents concerning plaintiffs disability
claim relevant to whether insurer acted in bad faith in denying claim). Accordingly, as to this
request American Home's motion is denied.
4.
Documents Related to Claims Handling Manual and Guidelines
Request for Production No. 9 seeks in relevant part "[a]ll claims manuals, educational
materials, and other documents concerning the American Home Policies and claims thereunder,
including but not limited to processing, reviewing, investigating, and settling such claims." [DE74-2] at 17. Request for Production No. 15 seeks in relevant part "[a]ll documents concerning
the defense coverage provided by the American Home Policies, including but not limited to, any .
. . claims manuals .... " !d. at 23. American Home objected to these requests on the grounds
that they are vague, overly broad, unduly burdensome, and seek irrelevant information as well as
information protected by the attorney-client privilege and/or the work product doctrine. !d. at 1718, 23-24. American Home supplemented its response indicating it has no documents
constituting educational materials. !d. at 18. American Home seeks protection from having to
respond to this request on the grounds that PCS has not alleged any part of the relevant policies
to be ambiguous nor has American Home asserted any defense of ambiguity. [DE-69] at 13.
North Carolina courts have concluded that a claims manual is discoverable and relevant
in cases involving allegations of bad faith or unfair trade practices. Ohio Cas. Ins. Co. v.
Fireman's Ins. Co. ofWashington, No. 5:07-CV-149-D, 2008 WL 413849, at *1 (E.D.N.C. Feb.
13, 2008) (unpublished) (citing Evans v. United Servs. Automobile Ass 'n, 541 S.E.2d 782, 792
(N.C. App. 2001) (noting that an insurance carrier's procedure manual was relevant to determine
whether the carrier complied with its own procedures in denying an insurance claim) & Vazquez
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v. Allstate Ins. Co., 529 S.E.2d 480 (2000) (affirming a judgment for unfair trade practices
against an insurance carrier based, in part, on the carrier's failure to follow its own standards)).
Because PCS has alleged a claim of bad faith, which involves reviewing a carrier's own
procedures for claims investigations, the court concludes that the claims manual is discoverable
and relevant to the current action. Accordingly, American Home's motion as it relates to this
request is denied.
5. Documents Related to Record Retention Policies
Request for Production No. 12 seeks "[a]ll document retention or destruction policies
applicable to the American Home Policies." [DE-74-2] at 21. American Home objected to the
request on the grounds that the request is overly broad and seeks irrelevant information. !d. In
its motion, American Home argues that the requested documents are irrelevant because PCS has
not alleged that any of its policies are ambiguous and American Home has not asserted ambiguity
as a defense. [DE-69] at 14-15. American Home contends that PCS has not alleged that any
policies in the possession custody or control of American Home have been lost or destroyed,
thereby making the request irrelevant. !d. at 15.
PCS seeks the requested documents to assist in the narrowing and specifying future
discovery requests and in avoiding or resolving disputes over what information is in American
Home's possession, custody or control. [DE-74] at 10. Document retention polices are generally
discoverable. See Burdv. Ford Motor Co., No. 3:13-CV-20976, 2015 WL 4137915, at *9 (S.D.
W.Va. July 8, 2015) (unpublished) ("Contrary to Ford's contentions, discovery of document
retention and disposition policies is not contingent upon a claim of spoliation or proof of
discovery abuses, and may be accomplished through a Rule 30(b)(6) witness."); Doe v. District
12
ofColumbia, 230 F.R.D. 47, 55-56 (D.D.C. 2005) (finding that Rule 26(b)(l) may be construed
to allow discovery into document retention and destruction policies by permitting "[p]arties [to]
obtain discovery regarding any matter, ... including the existence, description, nature, custody,
condition, and location of any ... documents."); Newman v. Borders, 257 F.R.D. 1, 3 (D.D.C.
2009) ("That a party's document retention policies, including its policies as to electronically
stored information, may be a fit subject of discovery cannot be gainsaid. It is equally clear that a
party must produce as its 30(b)(6) designee a person who can speak knowingly as to the topic
and, if necessary, educate that designee so that she can do so.")(internal citation omitted);
Heartland Surgical Specialty Hosp., LLC v. Midwest Div., Inc., 2007 WL 1054279, at *4 (D.
Kan. Apr. 9, 2007) (unpublished) (stating that the topics of document retention policies and
destruction, alteration, or loss of records are relevant and discoverable). "Moreover, broader
'discovery on discovery' may be appropriate and relevant under Rule 26(b) when it aids a party
in the presentation of its case." Burd, 2015 WL 4137915, at *9 (quoting Ruiz-Bueno v. Scott,
No. 2:12-CV-0809, 2013 WL 6055402, at *1-2 (S.D. Ohio Nov. 15, 2013) (collecting cases)).
Accordingly, American Home's motion as it relates to this request is denied.
6.
Documents Related to Promotional Materials
Request for Production No. 15 seeks in relevant part "[a]ll documents concerning the
defense coverage provided by the American Home Policies, including but not limited to, any
promotional materials .... " [DE-74-2] at 23. American Home objected to this request on the
grounds that it is overly broad, unduly burdensome, seeks information that is irrelevant, protected
by the attorney-client privilege and/or work product doctrine, or relates to confidential or
proprietary information. /d. at 23-24. In its motion, American Home argues the requested
13
documents are irrelevant because PCS has not alleged that any of its policies are ambiguous and
American Home has not asserted ambiguity as a defense. [DE-69] at 14. PCS focuses its
response to American Home's objection to providing promotional materials related to the
defense coverage provided by American Home's policies. 4 [DE-74] at 6-7.
PCS argues that to the extent American Home advertised the policies as containing a
defense obligation, despite its subsequent denial of such obligation and delay in acknowledging
the same, the promotional materials are probative of bad faith. /d. at 6. PCS contends that
American Home asserted for six years that the policies at issue in this case did not contain a duty
•
to defend, notwithstanding policy language to the contrary. /d.; Compl.
[DE-l]~~
13-18. The
court finds under the circumstances the promotional materials related to the polices at issue in
this case have marginal relevance but are nonetheless within the scope of discovery. See
Cunningham v. Standard Fire Ins. Co., No. 07-CV-02538-REB-KLM, 2008 WL 2668301, at *3-
4 (D. Colo. July 1, 2008) (unpublished) (finding promotional materials having some marginal
relevance to issues of whether Defendants acted unreasonably in adjusting plaintiffs claim
despite the absence of any allegations relating to advertising, recognizing that Defendants may
have made representations regarding their handling of claims in their advertising, and that such
representations may be relevant to Plaintiffs bad faith claim). Accordingly, as it relates to this
request American Home's motion is denied.
III. CONCLUSION
For the reason set forth above, the motion for a protective order [DE-69] is DENIED.
4
Those polices are the comprehensive general liability insurance policies identified in the complaint. See
Compl. [DE-l] ~ 24.
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So ordered, the lOth day of December 2015.
Rt~
United States Magistrate Judge
15
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