Westfield Insurance Company v. Icon Legacy Custom Modular Homes et al

Filing 87

MEMORANDUM (Order to follow as separate docket entry) re 64 MOTION for Sanctions filed by Icon Legacy Custom Modular Homes and 60 MOTION to Compel Discovery filed by Icon Legacy Custom Modular Homes and Icon Legacy. Signed by Honorable Matthew W. Brann on 5/12/2017. (jn)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
WESTFIELD INSURANCE
COMPANY,
Plaintiff,
v.
ICON LEGACY CUSTOM
MODULAR HOMES AND ICON
LEGACY,
Defendants.

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No. 4:15-cv-00539
(Judge Brann)

MEMORANDUM
May 12, 2017
The instant motion to compel requires me to determine whether, and to what
extent, extrinsic evidence is discoverable in a declaratory insurance coverage
action where bad faith is no longer at issue. At first blush, any learned practitioner
would expect the proper resolution to flow naturally from rote application of
settled contract principles. However, intrepid research and argumentation by
counsel have plainly refuted that misconception.
The underlying concepts that animate my decision are, of course, decadesold. Yet, precisely how courts should apply them to discovery disputes like this
one are far from decided. Moreover, because amended Federal Rule of Civil

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Procedure 26(b)(1) prioritizes proportionality, whatever guidance the prevailing ad
hoc approach once offered likely commands diminished weight today.
I now seek to synthesize existing case law with this renewed focus on
proportionality in discovery: I hold that litigants who wish to discover extrinsic
evidence in a contract interpretation case must (1) point to specific language in the
agreement itself that is genuinely ambiguous or that extrinsic evidence is likely to
render genuinely ambiguous; and (2) show that the requested extrinsic evidence is
also likely to resolve the ambiguity without imposing unreasonable expense.
Because the insured here falls well short of meeting either of these twin aims, the
instant motion to compel is denied, and the case must proceed to dispositive
motions.
I.

BACKGROUND
Plaintiff Westfield Insurance Company seeks a declaratory judgment that it

need not compensate Defendant Icon Legacy Custom Modular Homes, a
homebuilder from Selinsgrove, Snyder County, Pennsylvania to whom it sold a
commercial general liability policy. Specifically, Plaintiff contends that it need not
compensate the insured for three claims by modular home purchasers that allegedly
arose from Defendant’s faulty workmanship, because it argues that such conduct
does not constitute an insurable “occurrence” under Pennsylvania law.

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Initially, Defendant was sued in two separate state court proceedings in New
York and Massachusetts, and Plaintiff agreed to defend it as to those actions
subject to a reservation of rights. Plaintiff then initiated this action in federal court,
seeking a declaration that it owes Defendant no defense or indemnity under the
subject policy as to those actions.
When Defendant was sued for a third time, then in Vermont state court,
Plaintiff amended its complaint and sought a similar declaration as to the newly
filed action. In response, Defendant filed a counterclaim alleging that Plaintiff’s
decision to deny coverage in that third case was made in bad faith. Plaintiff
thereafter filed a motion to dismiss, arguing that Defendant had failed to plausibly
plead sufficient facts supporting its bad faith claim.
This Court granted that motion on August 29, 2016, on the basis that
Defendant had proffered little in the way of a showing of bad faith. The Court’s
key observation was as follows:
Most apparently, even taking for granted the similarity between any
set of claims, coverage of some claims and denial of others is not per
se evidence of bad faith insurance practices. For example, consider a
hypothetical set of five claims, all of which are “similar” but none of
which the insurer believes in good faith it is legally bound to offer
coverage. The insurer could, if it wanted, offer coverage in none or all
or two or three of those cases. Denial would not be made
in bad faith under the law. Rather, it would be made based upon a
calculated business judgment, risk avoidance, litigation forecasts, etc.
The point is that “similarity” among claims is a poor predictor of bad
faith denials in cases where either the claims’ alleged similarity or the

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claims’ coverage under the policy is not clearly established. I perceive
both of those elements to be lacking here.
Just as importantly, the Court expedited that motion based upon representations by
both counsel that its quick disposition would help to resolve this action or at least
move it forward.
Shortly thereafter, however, the parties found themselves back on this
Court’s doorsteps, detailing again that they had reached several discovery
impasses. As a result, the Court held a telephonic status conference on
November 1, 2016, just two months after it issued its motion to dismiss
Memorandum. I issued the following Order after the call that same day:
1.

The discovery deadline is extended for a final time to
December 30, 2016. No further extensions will be granted.

...
4.

The Court strongly encourages the parties to independently and
efficiently resolve any additional discovery disputes, keeping in
mind the discussion that took place on the October 31, 2016
conference call, the Court’s August 29, 2016 motion to dismiss
memorandum, and Federal Rule of Civil Procedure 26(b)’s
proportionality mandate.

Despite the Court’s admonitions, counsel, led by a December 28, 2016 letter
by defense counsel, returned to the Court yet again, purportedly tangled in a
discovery quagmire once more. Following that exchange, this Court granted
Defendant leave to file any appropriate motions. I also held a comprehensive oral
argument on March 9, 2017, at which time the parties addressed the two motions

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that Defendant filed: a motion to compel of dubious timing that largely seeks
extrinsic evidence tangential to the declaratory claim; and a motion for sanctions
over what might best be described as trivial (and perhaps justified) dust-ups by two
otherwise sterling sets of advocates.
Having delved deeply into the underbelly of the beast, I nevertheless remain
of the view that “[f]or all of its procedural machinations,” this case is “rather
straightforward.” Westfield Ins. Co. v. Icon Legacy Custom Modular Homes, 2016
WL 4502456, at *1 (M.D. Pa. Aug. 29, 2016). As detailed more fully below,
Defendant’s motion to compel and motion for sanctions are both denied, and the
case will now proceed to dispositive motions.
II.

LAW
“It is well established that the scope and conduct of discovery are within the

sound discretion of the trial court . . . and that after final judgment of the district
court . . . our review is confined to determining if that discretion has been abused.”
Marroquin-Manriquez v. I.N.S., 699 F.2d 129, 134 (3d Cir. 1983) (Aldisert, J.).
“To find such abuse it is usually necessary to conclude that there has been an
interference with a substantial right . . . or that the discovery ruling is seen to be a
gross abuse of discretion resulting in fundamental unfairness in the trial of the
case.” Id. Thus, the United States Court of Appeals for the Third Circuit has
forewarned litigants that it “will not interfere with a trial court’s control of its

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docket except upon the clearest showing that the procedures have resulted in actual
and substantial prejudice to the complaining litigant.” In re Fine Paper Antitrust
Litig., 685 F.2d 810, 817–18 (3d Cir. 1982) (Aldisert, J.).
“Discovery need not be perfect, but discovery must be fair.” Boeynaems v.
LA Fitness Int’l, LLC, 285 F.R.D. 331, 333 (E.D. Pa. 2012) (Baylson, J.). “The
responses sought must comport with the traditional notions of relevancy and must
not impose an undue burden on the responding party.” Hicks v. Arthur, 159 F.R.D.
468, 470 (E.D. Pa. 1995). “[T]he scope of [ ] discovery is not without limits.”
Kresefky v. Panasonic Commc’ns & Sys. Co., 169 F.R.D. 54, 64 (D.N.J. 1996). As
such, “[d]iscovery should be tailored to the issues involved in the particular case.”
Id. As amended Federal Rule of Civil Procedure 26(b)(1) states:
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.
“To determine the scope of discoverable information under Rule 26(b)(1),
the Court looks initially to the pleadings.” Trask v. Olin Corp., 298 F.R.D. 244,
263 (W.D. Pa. 2014) (Fischer, J.). In ascertaining which materials are discoverable
and which are not, a district court must further distinguish between requests that

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“appear[ ] reasonably calculated to lead to the discovery of admissible evidence,”
Bell v. Lockheed Martin Corp., 270 F.R.D. 186, 191 (D.N.J. 2010), and demands
that are “overly broad and unduly burdensome.” Miller v. Hygrade Food Products
Corp., 89 F. Supp. 2d 643, 657 (E.D. Pa. 2000).
“[T]he discovery rules are meant to be construed quite liberally so as to
permit the discovery of any information which is relevant and is reasonably
calculated to lead to the discovery of admissible evidence.” Fid. Fed. Sav. & Loan
Ass’n v. Felicetti, 148 F.R.D. 532, 534 (E.D. Pa. 1993). “As an initial matter,
therefore, all relevant material is discoverable unless an applicable evidentiary
privilege is asserted. The presumption that such matter is discoverable, however, is
defeasible.” Pearson v. Miller, 211 F.3d 57, 65 (3d Cir. 2000).
Federal Rule of Civil Procedure 37(a)(3)(B) states that “[a] party seeking
discovery may move for an order compelling an answer, designation, production,
or inspection.” “In order to succeed on a motion to compel discovery, a party must
first prove that it sought discovery from its opponent.” Petrucelli v. Bohringer &
Ratzinger, 46 F.3d 1298, 1310 (3d Cir. 1995) (Cowen, J.) (citing Fed. R. Civ. P.
37(a)(1)). In addition, “[t]he party seeking the discovery has the burden of clearly
showing the relevancy of the information sought.” Caver v. City of Trenton, 192
F.R.D. 154, 159 (D.N.J. 2000).

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III.

ANALYSIS
Consistent with the following analysis, both motions presently under

consideration will be denied.
A.

Defendant’s Motion to Compel is denied.

Generic statements about ambiguity, extrinsic evidence, and four corners
litter the applicable case law. However, instructions for mobilizing these concepts
are unfortunately far less prevalent. A leading decision by the United States Court
of Appeals for the Third Circuit that endeavored to harmonize this area of
Pennsylvania contract law is Bohler-Uddeholm America, Inc. v. Ellwood Group,
Inc., 247 F.3d 79 (3d Cir. 2001). Chief Judge Edward R. Becker, writing for a
unanimous panel in Bohler-Uddeholm, graciously described that body of law as
“somewhat complicated”: “while the broad principles are clear, it is not a seamless
web.” Id. at 92.
The Court of Appeals in Bohler-Uddeholm traced the following landscape of
the law: the keystone principle of interpretation is that “the intent of the parties to a
written contract is contained in the writing itself.” Id. (quoting Krizovensky v.
Krizovensky, 624 A.2d 638, 642 (Pa. Super. Ct. 1993)). Thus, “where language is
clear and unambiguous, the focus of interpretation is upon the terms of the
agreement as manifestly expressed, rather than as, perhaps, silently intended.”

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Bohler-Uddeholm, 247 F.3d at 92–93 (quoting Steuart v. McChesney, 444 A.2d
659, 661 (Pa. 1982)).
However, “where the contract terms are ambiguous and susceptible of more
than one reasonable interpretation, however, the court is free to receive extrinsic
evidence, i.e., parol evidence, to resolve the ambiguity.” Bohler-Uddeholm, 247
F.3d at 93 (quoting Krizovensky, 624 A.2d at 642). That being said, “because
Pennsylvania presumes that the writing conveys the parties’ intent,” BohlerUddeholm, 247 F.3d at 93, a contract is ambiguous “if, and only if, it is reasonably
or fairly susceptible of different constructions and is capable of being understood
in more senses than one and is obscure in meaning through indefiniteness of
expression or has a double meaning.” Id. (quoting Duquesne Light Co. v.
Westinghouse Elec. Corp., 66 F.3d 604, 614 (3d Cir.1995)). See also Samuel
Rappaport Family P’ship v. Meridian Bank, 657 A.2d 17, 21 (Pa. Super. Ct. 1995).
Pennsylvania law also recognizes two types of ambiguity: “patent” and
“latent.” Bohler-Uddeholm, 247 F.3d at 93. “While a patent ambiguity appears on
the face of the instrument, ‘a latent ambiguity arises from extraneous or collateral
facts which make the meaning of a written agreement uncertain although the
language thereof, on its face, appears clear and unambiguous.’” Id. (quoting
Duquesne Light, 66 F.3d at 614).

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Importantly, “[a] party may use extrinsic evidence to support its claim of
latent ambiguity, but this evidence must show that some specific term or terms in
the contract are ambiguous; it cannot simply show that the parties intended
something different that was not incorporated into the contract.” Bohler-Uddeholm,
247 F.3d at 93. “Lest the ambiguity inquiry degenerate into an impermissible
analysis of the parties’ subjective intent, such an inquiry appropriately is confined
to the parties linguistic reference. . . . The parties’ expectations, standing alone, are
irrelevant without any contractual hook on which to pin them.” Bohler-Uddeholm,
247 F.3d at 93 (quoting Duquesne Light, 66 F.3d at 614 n.9) (internal quotation
marks omitted).
“Of course, any use of extrinsic evidence to support an alternative
interpretation of facially unambiguous language must be careful not to cross the
‘point at which interpretation becomes alteration of the written contract.’” BohlerUddeholm, 247 F.3d at 94 (quoting at Mellon Bank, N.A. v. Aetna Business Credit,
Inc., 619 F.2d 1001, 1011 (3d Cir. 1980)). That sentiment reiterated by BohlerUddeholm is nothing new. In fact, I have previously noted, albeit in the analogous
context of natural gas leases, that “[i]nterpretation is not concerned with the
parties’ post hoc judgments . . . as to what should have been.” Camp Ne’er Too
Late, LP v. Swepi, LP, 185 F. Supp. 3d 517, 544 (M.D. Pa. 2016). Rather, the
interpreting court “seeks to be faithful to the meaning that the parties—given their

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positions at the time of contracting—would have given their words ex ante.” Id.
The Bohler-Uddeholm court thus noted that “a court should determine
whether the type of extrinsic evidence offered could be used to support a
reasonable alternative interpretation under the precepts of Pennsylvania law on
contract interpretation.” 247 F.3d at 94. Accordingly, “the key inquiry in this
context will likely be whether the proffered extrinsic evidence is about the parties’
objectively manifested ‘linguistic reference’ regarding the terms of the contract, or
is instead merely about their expectations.” Id. n.3. “The former is the right type of
extrinsic evidence for establishing latent ambiguity under Pennsylvania law, while
the latter is not.” Id. Consequently, “[e]vidence regarding a party’s beliefs about
the general ramifications of the contract would not be the right type to establish
latent ambiguity.” Id. Thus, to truly exist, contractual ambiguity must be capable of
being divined by a reasonable reader from the plain text of the document itself—
courts should prioritize syntax over circumstance.
Critically, I also note that extrinsic evidence may “support an alternative
interpretation of a term that sharpens its meaning” but not “an interpretation that
completely changes the meaning.” Mericle v. Jackson National Life Insurance Co.,
193 F. Supp. 3d 435, 449 (M.D. Pa. 2016) (Caputo, J.). For instance, such evidence
“may be used to show that ‘Ten Dollars paid on January 5, 1980,’ meant ten

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Canadian dollars, but it would not be allowed to show the parties meant twenty
dollars.’” Id.
This somewhat drawn-out exegesis leads to the seminal question presented
by Defendant’s motion to compel: When and to what extent is extrinsic evidence
discoverable in a straightforward contract interpretation action? Or, approached
from a different angle, what must a litigant show to justify the burden of requiring
such production?
It cannot be that such evidence always may be discovered, with no questions
asked. After all, it would be wholly futile for a court to order the production of
sweeping discovery that could potentially exert zero impact whatsoever on the
ultimate legal issue. That could easily be the case for extrinsic evidence requested
in a case where the underlying agreement turns out to be completely unambiguous.
On the other hand, it would likely be judicial overreach to conclude that
extrinsic evidence is never discoverable. Some contracts will have legitimately
ambiguous lingo, and in those cases, extrinsic evidence may be relevant to the
ultimate determination. See Insurance Adjustment Bureau, Inc. v. Allstate
Insurance Co., 905 A.2d 462, 468 (Pa. 2006). And in fact, it is well accepted that
extrinsic evidence may, in narrow circumstances, even be used to demonstrate the
existence of an ambiguity in the first place. See, e.g., Mericle, 193 F.Supp.3d at
449 (“Courts may also consider extrinsic evidence of a term’s recognized trade

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usage, whether or not that term is ambiguous, where the term is used in a
commercial contract.”) (internal quotation marks omitted).
Thus, one variable upon which my determination would seem to turn is
whether a threshold showing of ambiguity has been made. Perhaps more
specifically, this means that a movant should be able to point to specific language
in the contract that is facially ambiguous or that extrinsic evidence is likely to
render genuinely ambiguous. A genuine ambiguity is an ambiguity about which
reasonable minds could differ. See Desabato v. Assurance Co. of America, 213 F.
Supp. 3d 735 (W.D. Pa. 2016) (“A provision is ambiguous if, after considering it in
the context of the entire policy, reasonable minds could differ as to its meaning.”).
Such a showing is not satisfied by bald assertions of ambiguity. As the
Plaintiff here properly notes, that low of a threshold would be “untenable,” because
“any coverage dispute could explode into unlimited discovery solely on an
insured’s ipse dixit assertions of ambiguity.” ECF No. 70 at 19. I agree and hold
that a movant must make some affirmative showing that the mutual intent of the
parties is contrary to the agreement’s facial meaning and had previously been
objectively expressed through, for example, “evidence of prior agreements and
communications of the parties as well as trade usage or course of dealing.”
Aleynikov v. Goldman Sachs Group, Inc., 765 F.3d 350, 362 (3d Cir. 2014) (Fisher,
J.).

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Another factor bearing upon the discoverability of extrinsic evidence like
underwriting files and training manuals is whether a bad faith claim is still being
litigated at the time of the request. The existence of such a claim makes
discoverability more likely, yet it by no means guarantees it. See, e.g., Stephens v.
State Farm Fire & Casualty Co., 2015 WL 1638516, at *4 (M.D. Pa. Apr. 13,
2015) (Carlson, Mag. J.) (claims manuals, guidelines, instructions, and incentives
“may be relevant to a bad faith claim” if “the conduct of the adjuster . . . is
squarely at issue”). This follows because “[t]he issue in a bad faith case is whether
the insurer acted recklessly or with ill will towards the plaintiff in a particular case,
not whether the defendants’ business practices were generally reasonable.” Mann
v. UNUM Life Insurance Co. of America, 2003 WL 22917545, at *10 (E.D. Pa.
Nov. 25, 2003).
The same level of access to extrinsic evidence is not so obvious for actions
that solely seek a declaration regarding the insurer’s obligation to defend. In
declaratory actions like this one, the language of the agreement controls, as it often
will suffice to dictate the proper outcome without reference to any external
sources. That is the purpose of a wholly integrated contract after all.
Courts have often relied upon this critical difference between declaratory
and bad faith claims (and the distinct types of evidence each requires) when
making case management determinations. Indeed, in Federal Insurance Co. v.

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Continental Casualty Co., the Honorable Terrence F. McVerry, writing for the
United States District Court for the Western District of Pennsylvania granted a
motion to bifurcate and stay a bad faith claim brought in declaratory action. 2006
WL 1344811, at *1 (W.D. Pa. May 16, 2006). According to Judge McVerry,
bifurcation was appropriate because the declaratory claims “are the only claims . . .
susceptible to judicial resolution as a matter of law and with little or no discovery
necessary.” Id. In granting the motion, Judge McVerry endorsed the insurer’s
argument that “the evidence needed to resolve the bad faith counterclaim is
markedly different from and largely irrelevant to the resolution of the parties’
coverage claims.” Id. (internal quotation marks omitted).
Again, in AstenJohnson v. Columbia Casualty Co., the Honorable Lawrence
F. Stengel, writing for the United States District Court for the Eastern District of
Pennsylvania, also granted a motion to bifurcate that “would separate the trial
for declaratory relief from the trial on the bad faith claim.” 2006 WL 1791260, at
*1 n.4 (E.D. Pa. June 22, 2006). According to Judge Stengel, bifurcation was
warranted, as “any evidence of bad faith at trial for the declaratory judgment has
the potential to be highly prejudicial to [co-defendant] American Insurance, who is
not facing a bad faith claim.” Id. at *3.
Once more, the United States District Court for the District of New Jersey
granted an insurer’s motion to sever and stay a bad faith claim in Riverview Towers

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Apartment Corp. v. QBE Insurance Corp., 2015 WL 1886007, at *2 (D.N.J. Apr.
17, 2015). The court reasoned that “plaintiff’s contract and bad faith claims require
the testimony of different witnesses and different documentary proof.” Id. at *2
(emphasis added). See also Daggett v. Am. Sec. Ins. Co., 2008 WL 1776576, at *3
(M.D. Fla. Apr. 17, 2008) (“It is certainly true that a claim for a declaratory
judgment as to insurance coverage and a claim for bad faith are different.”); Silk,
LLC v. Mount Vernon Fire Insurance Co., 2011 WL 1886566, at *2 (Conn. Super.
Ct. Apr. 20, 2011) (“Clearly, the issues raised in the complaints in the declaratory
judgment action and the bad faith actions, while related, are markedly different.”).
Other courts have honed in on the practical and legal reasons why extrinsic
evidence holds comparably little weight in the declaratory context. See, e.g.,
Anderson v. Government Employees Insurance Co., 2014 WL 12616960, at *3
(M.D. Fla. May 8, 2014) (“[A]n insurer’s claims file is relevant in bad-faithinsurance cases because it presents virtually the only source of direct evidence with
regard to the essential issue of the insurance company’s handling of the insured’s
claim.”) (internal quotation marks omitted); American Home Assurance Co. v.
Arrow Terminals, Inc., 2013 WL 12157428, at *2 (M.D. Fla. Jan. 17, 2013)
(“Specifically, in insurance actions where the only claim is one for declaratory
relief, discovery of extrinsic evidence is considered irrelevant for the purposes of
the action.”).

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Not to put the summary-judgment cart before the motion-to-compel horse,
but the Defendant, in my view, has offered little persuasive argument about
ambiguous language in the instant contract. That much was clear during targeted
questioning at oral argument:
THE COURT:

Suppose we have a contract that reads as follows:
“Damage is covered only if it is caused by an
accident.” And let’s also assume that the word
accident could have several meanings. It might
mean a mistake. It might mean events that flow
from intentional conduct. It might mean even a
traffic accident or a construction accident.
The second facet of this example is just as
important. And I want you to assume that a body
of state law that applies to the interpretation of this
agreement has never spoken to or defined the
meaning of the term accident. So that would be an
ambiguous contract term, right? Well, it
reasonably has more than one meaning. A mistake,
traffic accident, et cetera, and we have no
supporting state law interpretation.
...
So what I mean to ask is doesn’t the underlying
state law make clear that only one version of
accident—“accident”—is reasonably applicable
here; namely, the version that meets negligent
conduct at most?

MR. RUDD:

If the policy has not redefined that term, yes.

THE COURT:

Next example, same contract. “Damages covered
only if it is caused by an accident.” The state
courts here have also unequivocally spoken as to
the meaning of the term accident in contracts that

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apply that state’s law. Here is how the state
supreme court has defined the term accident,
though: “Accident is an amorphous term whose
occurrence depends upon a number of factors.”
Then, if the court listed ten different factors that
lower courts or federal courts sitting in diversity
must apply to determine whether an accident has
occurred, is accident ambiguous in that example?
MR. RUDD:

No, I don’t think the term accident itself is
necessarily ambiguous. How it’s applied, it can be
implied as you just indicated.

...
THE COURT:

All right. Last hypothetical. Again, same language.
“Damage is recovered only if it is caused by an
accident.” This time a state supreme court has held
as follows: “Whether an accident has occurred is a
determination that rests solely within the discretion
of the trial judge.” Is the term accident in that
contract ambiguous or isn’t it?

MR. RUDD:

No, I don’t think just because it’s the discretion of
the judge to decide whether an accident occurs that
it means that the term accident itself is ambiguous.
It’s how it’s applied.

Tr. of March 9, 2017 Oral Argument, ECF No. 84, at 92:02–98:09.
To provide some context, the pertinent provisions of the policy at issue are
as follows:
This insurance applies to “bodily injury” and “property damage” only
if: (1) The “bodily injury” or “property damage” is caused by an
“occurrence” that takes place in the “coverage territory;”
An endorsement also added the following language:

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Damages because of “property damage” include damages to the
insured becomes legally obligated to pay because of “property
damage” to “your work” and shall be deemed to be caused by an
“occurrence”, but only if:
(1)

The “property damage” is entirely the result of work performed
on your behalf by a subcontractor(s) that is not a Named
Insured;

(2)

The work performed by the subcontractor(s) is within the
“products-completed operations hazard”; and

(3)

The “property damage” is unexpected and unintended from the
standpoint of the insured.

By definition, “[w]ork that has not yet been completed or abandoned” is not
included within the definition of “products-completed hazard.”
Rather than attempt to identify linguistic ambiguities in the above
provisions, the Defendant’s prime argument here appears to be a legal one centered
upon the breadth of the rule set forth in Kvaerner Metals Division of Kvaerner
U.S., Inc. v. Commercial Union Insurance Co., 908 A.2d 888, 898 (Pa. 2006). The
Supreme Court of Pennsylvania in Kvaerner held that the key component in the
customary definition of the term “accident” was “unexpected,” which “implies a
degree of fortuity that is not present in a claim for faulty workmanship.” Id. at 333.
In essence, the Defendant here leads with the argument that Kvaerner “does
not apply to every claim arising out of faulty workmanship, since if that was the
case, there would be no coverage for bodily injury and death claims arising out of
faulty workmanship.” ECF No. 62 at 2. Arguments like these going to the ultimate
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coverage decision are of tangential relevance to this motion, yet nevertheless
comprise the first eight pages of Defendant’s opening fifteen-page brief.
As it gets more specific, Defendant somewhat murkily observes that it “is
not seeking any extrinsic evidence to try and counter the allegations asserted in the
underlying State Court Actions.” Id. at 8. To the contrary, it writes, “the ‘extrinsic’
evidence at issue all goes to the interpretation of the Policy language so that [the
Defendant] can better present its position on the many unique coverage issues
involved in this case and explain the reasons the allegations in the underlying
complaints support coverage.” Id. Nothing about that explanation alters the legal
requirement that the moving party show some sort of linguistically-based
ambiguity before such evidence may even carry marginal relevance in cases such
as this one. As Plaintiff rightly comments:
With the Policy and Complaints indisputably available, the Court has
everything it needs to render its decision as to whether Westfield owes
Icon coverage. While Icon spills much ink conveying its views of the
case law governing coverage, and proffers its own version of the facts
germane to this case, the Motion misses the analytical mark.
ECF No. 70 at 14.
Viewed graciously, Defendant hinges its argument on a spattering of district
court cases, the main citation appearing to be a decision from 1990 by then United
States Magistrate Judge (later District Judge) Freda L. Wolfson of the United
States District Court for the District of New Jersey. In Nestle Foods Corp. v. Aetna

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Casualty and Surety Co., then Magistrate Judge Wolfson identified three
potentially ambiguous terms whose definitions had apparently not been supplied
by the agreement or by state law. 135 F.R.D. 101, 104. Those definitional terms
were: “pollution exclusion”; “sudden occurrence”; and “property damage.” Id.
Further, the operative state law in Nestle had not yet been decided, though the
court looked primarily to New Jersey law. Id. at 105. No party in Nestle suggested
that Pennsylvania law should apply. Id.at 111 (“[Co-defendant] contends that New
York law governs.”). Thus, Nestle—what otherwise would merely be marginally
persuasive—is facially distinguishable on two important grounds: (1) the movant
in Nestle properly identified likely linguistic sources of ambiguity; and
(2) Pennsylvania state law was not guiding the discovery determination.
There is, however, a third, lurking procedural reason why Nestle is wholly
inapplicable here. The discovery dispute in Nestle had been assigned to a
magistrate judge for the sole purpose of its resolution, meaning that the ultimate
determinations as to choice of law, ambiguity, and coverage had been divorced
from those relating to that particular discovery dispute. In my view, that is not the
most advisable way to proceed in cases like these. Nevertheless, it is undoubtedly
different from the manner in which we have proceeded in this case. Here, no
discovery disputes have been referred out, and I have maintained a close
familiarity with the applicable law and the contours of the policy. In fact,

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application of Pennsylvania law to this action was essentially determined at the
parties’ request in an earlier Memorandum, and the parties have briefed and argued
the present issue as if Pennsylvania law applies. See ECF No. 46 at 9
(“Considering the facts available to the Court, I now hold that the law of the
Commonwealth of Pennsylvania applies to this dispute.”).
I am not ignorant of the apparent chicken-or-egg problem that coverage
cases present: extrinsic evidence may be used to demystify facially ambiguous
language, but in the first place, a determination of ambiguity may depend upon or
permit consideration of that very same extrinsic evidence. This puts two sentiments
at war: How can an insured be deprived of potentially relevant evidence before it
has a chance to prove such evidence’s relevance? And, how can insurer be forced
to produce a bulk of evidence whose relevance, if any, awaits subsequent
determinations?
This may suggest that the most efficient procedural approach is that taken by
some of my colleagues cited above, in which the district court severs and stays all
claims besides the core declaratory one and essentially expedites a coverage
determination. This approach has several advantages. It disposes of the coverage
determination first, it may justify termination of coverage previously issued
pursuant to a reservation of rights, it eliminates the most straightforward claim for
which the least discovery and witnesses (if any at all) are required, and it may also

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entirely moot the bad faith claim and any other attendant claims of which wrongful
denial is an element.
A different path was followed here, and I must now make an equitable
determination somewhere between the poles of insureds never obtaining any
discovery of extrinsic evidence when it otherwise may be warranted, and insurers
always having to turn over reams of extrinsic evidence that bear unproven
relevance. I believe that requiring insureds to (1) point to specific language in the
agreement itself that is genuinely ambiguous or that extrinsic evidence is likely to
render genuinely ambiguous; and (2) show that the requested extrinsic evidence is
also likely to resolve the ambiguity without imposing unreasonable expense, is a
reasonable solution to this somewhat perplexing procedural dilemma.
Moreover, it accords with prior determinations that have applied
Pennsylvania law to similar requests. A leading decision is Rhone-Poulenc Rorer
Inc. v. Home Indemnity Co., 139 F.R.D. 609 (E.D. Pa. 1991). The Rhone-Poulenc
court denied a request for extrinsic evidence in an insurance coverage dispute,
reasoning that “the appropriateness of such discovery should not even be an issue
unless and until there has been a finding by the District Court that one or more of
the provisions of the policies at issue is ambiguous.” Id. at 612. To hold otherwise,
the court reasoned, would permit “a fishing expedition” for evidence that “lacked
sufficient indicia of relevance.” Id. at 613.

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Further, in Medmarc Casualty Insurance Co. v. Arrow Int’l, Inc., the United
States District Court for the Eastern District of Pennsylvania rejected another
request for extrinsic evidence in a coverage determination case. 2002 WL 1870452
(E.D. Pa. July 29, 2002). Also prioritizing a clear rule, the Medmarc court
explained that such evidence was not discoverable where the insured “does not
allege that the insurance policy at issue is ambiguous” and does not “explain” how
the requested discovery “would shed light on the public policy of Pennsylvania as
to coverage . . . and how that determination affects the interpretation of the
punitive damages provision in question.” Id. at *5. Any other approach would flout
the parties’ intent “as it is reasonably manifested by the language of the written
contract.” Id. at *6.
Lastly, I point to the decision of the Honorable Yvette Kane, of this Court, in
Federal Insurance Co. v. Sandusky—a case involving a coverage dispute
stemming from the sexual abuse of children by a former Pennsylvania State
University assistant football coach. 2013 WL 785269 (M.D. Pa. Mar. 1, 2013). In
Sandusky, Judge Kane started with the foundational principle that “[i]n a
declaratory judgment action brought to determine an insurer's duty to defend and
indemnify, ‘the allegations raised in the underlying complaint alone fix the
insurer's duty to defend.’” Id. at *4 (quoting Erie Insurance Exchange v.
Claypoole, 673 A.2d 348, 355 (Pa. Super. Ct. 1996)).

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Judge Kane went on to deny a discovery request by the defendant, which
evidence would purportedly have “show[ed] that Plaintiff intended for the policy to
provide defense coverage for litigation including sexual misconduct.” Id. at *8.
According to Judge Kane, such evidence was not discoverable because the
underlying policy “clearly and unambiguously limits coverage.” Id. Because the
defendant could “not offer any support” for the ambiguity that he claimed existed,
resort to extrinsic evidence was inappropriate. Id. at *5 & n.2.
In addition to the above-cited case law, I believe this approach accords with
the renewed importance that “proportionality” plays in amended Federal Rule of
Civil Procedure 26(b)(1). As amended Rule 26(b)(1)’s proportionality mandate
provides:
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.
Thus, it has been said that the amended rule “restores the proportionality factors to
their original place in defining the scope of discovery.” Wertz v. GEA Heat
Exchangers Inc., 2015 WL 8959408, at *2 (M.D. Pa. Dec. 16, 2015) (Mehalchick,
Mag. J.). See also Summy-Long v. Pennsylvania State Univ., 2016 WL 74767, at
*8 (M.D. Pa. Jan. 7, 2016) (Brann, J.) (quoting Fed. R. Civ. P. 1) (“[I]t is now

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unmistakable that the Court and the parties in any federal civil action must
constantly strive to resolve unsettled disputes with the ultimate end of a ‘just,
speedy, and inexpensive determination of every action and proceeding.’”);
For instance, applying the proportionality mandate of amended Rule
26(b)(1), I have noted in an analogous context that the Rule contemplates “a
sliding scale analysis”: demonstrably relevant material “should be discoverable in
the greatest quantities and for the most varied purposes”; however, less relevant
material “should be incrementally less discoverable—and for more limited
purposes,” as the relevancy diminishes. Fassett v. Sears Holdings Corp., --- F.R.D.
---, 2017 WL 386646, at *1 (M.D. Pa. Jan. 27, 2017). This approach prevents
district courts from “imposing an inordinate and expensive burden” only to obtain
discovery materials that are likely to be “marginally relevant at most.” Independent
Petrochemical Corp. v. Aetna Casualty & Surety Co., 117 F.R.D. 283, 286 (D.D.C.
1986).
In my view, the present motion is also tainted by timeliness concerns, as
certain of the requested evidence stems from responses made nearly one year prior
to the filing of the motion to compel. Further, the letter by defense counsel that
kindled this motion was entered on December 28, just two days before the
December 30 discovery deadline. I have previously rejected similar “eleventhhour” requests to enlarge the scope and timeframe of discovery where prior

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extensions have been granted. See Summy-Long, 2016 WL 74767, at *1 (denying
“a stale discovery request and produce a host of documents that would enlarge the
temporal scope of this already-prolonged litigation”).
Defendant here requests production of a number of documents that are
wholly irrelevant to a straightforward coverage determination, that might only bear
marginal relevance even in a bad faith action, or that are unduly burdensome and
entirely beyond the scope of this litigation. As such, the following document
requests are denied:
No.

Request

3

underwriting file

6

communications regarding claims investigations

16

communications regarding defense decision in Swaldi action

17

communications regarding “each and every legal action that you are
currently defending on behalf of a Pennsylvania insured that
manufactures a product or performs construction related work”

18

comparable to #17

19

comparable to #17

29

“a complete copy of your underwriting file”

30

Swaldi internal claims file

31

documents setting forth your coverage decisions “in all claims where
you have accepted coverage with or without a reservation of rights on
behalf of a Pennsylvania insured that manufactures a product or
performs construction related work”

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32

“any and all advertising or marketing documents related to the
endorsement covering a subcontractor’s work”

33

“any and all claims manuals, bulletins, guidelines, training materials
or other similar documents explaining the coverage provided by or the
manner in which to handle a claim that involves issues related to the
endorsement covering a subcontractor’s work”
Plaintiff indicates that it has complied with Docket Request Nos. 7

(documents relating to the subject matter of this litigation) and 8 (documents
relating to the subject matter of the underlying state court actions). It also suggests
that it has complied with Interrogatory No. 2 (identification of all persons with
knowledge of facts relevant to the issues in this litigation and the underlying state
court litigations). I agree that, subject to appropriate reservations based upon valid
claims of confidentiality, work product, or other privilege, such information is
discoverable and should be produced or appropriately responded to.
On the other hand, given that a declaratory coverage claim is the only
remaining claim at issue, the following interrogatories are also irrelevant,
overbroad, and need not be answered:
No.

Interrogatory

4

“Identify all persons who were assigned by Westfield to manage any
policy of insurance existing between Westfield and Icon from January
1, 2010 to the present.”

6

“Identify the business procedure undertaken by Westfield when a
policy of insurance is purchased from initial negotiation of policy
terms through delivery of the policy to the insured.”

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7

comparable to #6

14

“State each and every factual basis for your decision to provide a
defense in the action captioned Swaldi.”

15

“Identify by caption each and every legal action that you are currently
defending on behalf of a Pennsylvania insured that manufactures a
product or performs construction related work.”

16

comparable to #15

17

comparable to #15
B.

Defendant’s Motion for Sanctions is denied.

Defendant also filed a motion for sanctions for Plaintiff’s purported failure
to produce certain witnesses on several noticed deposition topics. Rule 37(a),
which outlines the requisite procedures for seeking and enforcing a motion to
compel, provides, in pertinent part, as follows:
(a)

Motion for an Order Compelling Disclosure or Discovery.
(1)

In General. On notice to other parties and all affected
persons, a party may move for an order compelling
disclosure or discovery. The motion must include a
certification that the movant has in good faith conferred
or attempted to confer with the person or party failing to
make disclosure or discovery in an effort to obtain it
without court action.

Its counterpart, Rule 37(b), provides for penalties in the event of noncompliance
with an order compelling discovery. In pertinent part, it reads:
(b)

Failure to Comply with a Court Order.

...

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(2)

Sanctions Sought in the District Where the Action Is
Pending.
(A)

For Not Obeying a Discovery Order. If a party or a
party’s officer, director, or managing agent—or a
witness designated under Rule 30(b)(6) or
31(a)(4)—fails to obey an order to provide or
permit discovery, including an order under Rule
26(f), 35, or 37(a), the court where the action is
pending may issue further just orders. They may
include the following:
(i)

directing that the matters embraced in the
order or other designated facts be taken as
established for purposes of the action, as the
prevailing party claims;

(ii)

prohibiting the disobedient party from
supporting or opposing designated claims or
defenses, or from introducing designated
matters in evidence;

(iii)

striking pleadings in whole or in part;

(iv)

staying further proceedings until the order is
obeyed;

(v)

dismissing the action or proceeding in whole
or in part;

(vi)

rendering a default judgment against the
disobedient party; or

(vii) treating as contempt of court the failure to
obey any order except an order to submit to
a physical or mental examination.
“If the court enters an order compelling discovery under Rule 37(a) and the order
is disobeyed, the second step of the two-step process may be invoked under Rule

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37(b).” Transportes Aereos de Angola v. Ronair, Inc., 104 F.R.D. 482, 498 (D.
Del. 1985).
This Court has seen its fair share of sanctionable conduct. The instant
disagreements here do not rise to that level. For that reason, and in light of my
denial of Defendant’s motion to compel, the motion for sanctions is also denied.
Moreover, because the underlying motion to compel was premised upon a good
faith dispute as to a debatable legal question, the assessment of fees against either
party is inappropriate.
IV.

CONCLUSION
In accordance with the preceding discussion, Defendant’s motion to compel

and motion for sanctions are both denied.
An appropriate Order commemorating this holding and setting forth a
renewed case management schedule follows.

BY THE COURT:

s/ Matthew W. Brann
Matthew W. Brann
United States District Judge

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