Hill et al v. Auto Owners Insurance Co.
Filing
56
ORDER overruling 53 Objection to Magistrate Judge Order; denying 21 Motion for Summary Judgment; granting 24 Motion for Judgment on the Pleadings; denying as moot 26 Motion to bifurcate and stay discovery. Signed by U.S. District Judge Karen E. Schreier on 5/5/2015. (KC)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
WESTERN DIVISION
CARL HILL and
JANICE HILL,
CIV. 14-5037-KES
Plaintiffs,
vs.
AUTO OWNERS INSURANCE
COMPANY,
Defendant.
ORDER DENYING MOTION FOR
SUMMARY JUDGMENT, GRANTING
MOTION FOR JUDGMENT ON THE
PLEADINGS, DENYING MOTION TO
BIFURCATE AND STAY DISCOVERY,
AND OVERRULING OBJECTIONS
ON MOTION TO COMPEL
Plaintiffs, Carl and Janice Hill, brought this action against defendant,
Auto Owners Insurance Co., for breach of contract, bad faith, and unfair trade
practices stemming from Auto Owners’ denial of plaintiffs’ claim for benefits
due to alleged hail damage to their roof. Auto Owners moves for summary
judgment on plaintiffs’ bad faith and punitive damages claims and moves for
judgment on the pleadings on plaintiffs’ unfair trade practices claim. Auto
Owners has also requested an early trial on the contract claim and a stay on
discovery. Plaintiffs moved to compel certain discovery, which motion was
referred to the United State Magistrate Judge for resolution and subsequently
granted. For the following reasons, the court denies the motion for summary
judgment, grants the motion for judgment on the pleadings, denies as moot the
motion to bifurcate and stay discovery, and overrules Auto Owners’ objections
to the magistrate judge’s order on the motion to compel.
BACKGROUND
The facts, viewed in the light most favorable to the nonmoving party, are
as follows:
Plaintiffs live in Rapid City, South Dakota. In 1992, they bought their
current house, and over the years have worked on repairing and improving
their home. The roof was redone in 1998 as part of a remodeling project on the
second story. Beginning in 2006, plaintiffs purchased an insurance policy for
their home from Auto Owners, and have at all relevant times maintained that
coverage. In May 2013, plaintiffs received a notice from Auto Owners that they
would have to pay an extra premium to keep the replacement-cost coverage on
their roof due to its age; they could also elect to forgo the extra premium and
switch to actual-cash-value coverage.
On July 8, 2013, plaintiffs submitted a claim for hail damage resulting
from a storm on June 24, 2011. Auto Owners previously had paid to replace
the roof of a neighboring house due to damage from the same storm. Because
Auto Owners does not have a claim office in Rapid City, it contacted Dakota
Claims Service of Rapid City to investigate plaintiffs’ claim.
Dakota Claims sent Steve Wolff to inspect plaintiffs’ roof on July 10,
2013. Neither Carl nor Janice was present at the inspection. Wolff found
evidence of hail damage to the front door trim and metal materials on the roof.
Nonetheless, Wolff concluded that the shingles did not show any hail damage
and the damage to the roof was due to weathering and maintenance issues.
Wolff prepared a damage estimate, and because the damage to the metal
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materials on the roof was less than plaintiffs’ deductible, Wolff recommended
closing the file without payment. Based on Wolff’s findings, Dan Highstreet, a
claims representative for Auto Owners, sent plaintiffs a letter denying their
claim.
Plaintiffs requested a re-inspection. On July 19, 2013, Mike Kirkeby from
Dakota Claims inspected plaintiffs’ roof. Plaintiffs were not present and
indicate that Dakota Claims never called to set up this second inspection.
Docket 23-6 at 3. Kirkeby noted that plaintiffs claimed their neighbors all had
new roofs and observed that about half of the homes in the area had new roofs.
Kirkeby reiterated that the roof had exposure damage. He also stated: “It is my
opinion that there is no evidence of hail damage to the shingles as we have not
had damaging hail in this part of Rapid City for over 14 years.” Docket 29-8 at
3. Kirkeby concluded his report by warning that “I do believe the agent and
insured will press the matter until a roof is purchased.” Id.
On July 20, 2013,1 plaintiffs’ house was hit by another hail storm.
Plaintiffs were home during this storm and recorded a video showing the hail.
Following this storm, plaintiffs submitted another claim for hail damage to
their roof on the advice of their insurance agent. Auto Owners again retained
1
In their complaint to the South Dakota Division of Insurance, plaintiffs
indicate the storm was on July 18, 2013, the day before Kirkeby’s
supplemental inspection. Docket 23-6 at 3. Plaintiffs’ brief and other materials
give the date of the storm as July 20, 2013. See, e.g., Docket 28 at 10, n.12, &
n.13. Because plaintiffs use the July 20, 2013, date with only one exception,
the court accepts plaintiffs’ consistent representation that the storm occurred
on July 20, 2013, one day after Kirkeby’s supplemental inspection but two
days before Kirkeby dated the report. See Docket 29-8 at 3 (listing the
inspection date as July 19 and the signature date as July 22).
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Dakota Claims, and adjuster Moya Bieber inspected plaintiffs’ roof on
August 12, 2013. Carl was present for this inspection, and he claimed that
Bieber never went on the roof but instead waited in the street while an
unknown person inspected the roof. See Docket 23-6 at 3. Bieber’s report
noted damage related to weathering and exposure. She also reported hail
damage to the front door trim and the metal materials on the roof, consistent
with the previous findings of Wolff and Kirkeby. Because there was no new
damage, Bieber recommended closing the claim without payment. Based on
Bieber’s report, Highstreet again sent plaintiffs a letter denying their claim and
informing them that damage from weather, deterioration, or faulty
maintenance was not covered under the policy.
Auto Owners also retained Hermanson Egge Engineering, Inc., to inspect
plaintiffs’ roof for hail damage. Larry Hermanson performed an inspection on
September 6, 2013. Hermanson concluded that half to three quarters of the
shingles on plaintiffs’ roof were in poor condition due to a poorly vented attic
space, which had caused blistering, holes, and grain loss. Unlike Wolff,
Kirkeby, or Bieber, Hermanson did not mention weathering as a cause for the
deterioration of the shingles, and he stated that some of the shingles on the
west surface were in good condition. Hermanson observed hail damage to the
metal surfaces on the roof but concluded that the shingles had not suffered
any hail damage.
Plaintiffs also obtained inspections independent of their insurance
company. Sometime between July 19 and July 31, 2013, Kevin Kisner of
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Exceptional Exteriors inspected plaintiffs’ roof, saw hail damage, and advised
plaintiffs to file an insurance claim. On August 28, 2013, Jack Brockman of
Allied Construction inspected the roof and observed random indentations and
areas missing granules indicative of hail damage. On September 29 and 30,
2014, counsel for plaintiffs retained Paul Brenkman to perform an inspection
on the roof. Brenkman observed hail damage to roof-top shingles, vents, flue
caps, gutters, and wood exterior siding and moldings. Brenkman termed the
hail damage “definitive” and opined that it was unreasonable for Auto Owners
to ignore the signs of hail damage on plaintiffs’ roof. Docket 29-3 at 4, 6.
Plaintiffs filed this suit claiming damages for breach of contract,2 bad
faith, and unfair trade practices. Docket 19 at 6 (amended complaint filed
August 15, 2014). Plaintiffs also claim they are entitled to punitive damages
and attorney’s fees. Id. On September 18, 2014, Auto Owners moved for
summary judgment on the bad faith and punitive damages claims. Docket 21.
Separately, Auto Owners moved for judgment on the pleadings on the unfair
trade practices claim. Docket 24. Finally, Auto Owners moved for a separate
early trial on the contract claim and to stay discovery on the remaining claims
until after the contract issue was resolved. Docket 26.
While these motions were pending, Auto Owners retained Haag
Engineering to inspect plaintiffs’ roof. Richard Herzog performed the inspection
on October 23, 2014, to “determine the extent of hail-related damage from
At this time, there is no motion pending with respect to the breach of
contract claim.
2
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specific storms on June 24, 2011, and July 20, 2013.” Docket 40-1 at 2. Over a
year after the second storm, Herzog found “[h]ail-impact spatter marks ranging
from 1⁄8- to 1⁄2-inch across . . . on various surfaces, particularly on horizontal
surfaces or vertical surfaces facing south.” Id. at 4. The south elevation of the
garage and the south side of a flue pipe showed marks up to 3⁄8-inch across.
Id. Significantly, Herzog stated, “[o]ther indications of hail impact were visible
to vertical surfaces on all four elevations of the dwelling.” Id. Consistent with
the other inspections, Herzog noted hail damage to metal parts of the roof and
damage to a large number of shingles from weathering and age.3 Id. at 5.
Herzog estimated that hail had damaged over 100 shingles on the house and
20 shingles on the garage. Id. at 6. Based on the number of hail-damaged
shingles, Herzog concluded that “the cost of individual repair of damaged
shingles likely would approach or exceed the reasonable cost for full shingle
replacement.” Id. at 7. Following Herzog’s inspection, Auto Owners agreed to
pay for replacement of all the shingles pursuant to the policy, without
condition or release. Docket 42 at 1-2.
Subsequently, plaintiffs filed a motion to compel certain discovery,
Docket 43, which this court referred to United States Magistrate Judge
Veronica Duffy. The magistrate judge issued an order granting the motion to
3
Herzog recognized that the extensive deterioration of the shingles made
assessment of hail damage more difficult. Docket 40-1 at 7. Herzog also
observed that the photos taken by Dakota Claims inspectors “were primarily
related to deterioration, mechanically-caused damage, and shingle quality
variations[,]” and that the photos described by Brenkman as examples of
“definitive hail damage” also showed substantial damage not caused by hail. Id.
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compel. Docket 50. Auto Owners filed an objection requesting that this court
set aside the order granting the motion to compel. Docket 53.
DISCUSSION
I.
Motion for Summary Judgment
A.
Legal Standard
Summary judgment is appropriate if the movant “shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). The moving party can meet this
burden by presenting evidence that there is no dispute of material fact or that
the nonmoving party has not presented evidence to support an element of her
case on which she bears the ultimate burden of proof. Celotex Corp. v. Catrett,
477 U.S. 317, 322-23 (1986). To avoid summary judgment, “[t]he nonmoving
party may not ‘rest on mere allegations or denials, but must demonstrate on
the record the existence of specific facts which create a genuine issue for
trial.’ ” Mosley v. City of Northwoods, Mo., 415 F.3d 908, 910 (8th Cir. 2005)
(quoting Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995)).
Summary judgment is precluded if there is a dispute in facts that could
affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986). For purposes of a summary judgment motion, the court views the
facts and the inferences drawn from such facts “in the light most favorable to
the party opposing the motion.” Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 588 (1986).
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B.
Bad Faith Claim
Auto Owners argues summary judgment4 is appropriate on plaintiffs’ bad
faith claims because its decision to deny plaintiffs’ claim was made in good
faith. Plaintiffs, on the other hand, argue that there are questions of material
fact as to whether Auto Owners acted in bad faith when it denied their claim.
The South Dakota Supreme Court5 laid out the test for whether
summary judgment is appropriate in a first-party bad faith claim in Dakota,
Minn. & E. R.R. Corp. v. Acuity, 771 N.W.2d 623 (S.D. 2009).
[T]here must be an absence of a reasonable basis for denial of
policy benefits [or failure to comply with a duty under the
insurance contract] and the knowledge or reckless disregard [of the
lack] of a reasonable basis for denial, implicit in that test is our
conclusion that the knowledge of the lack of a reasonable basis
may be inferred and imputed to an insurance company where
there is a reckless disregard of a lack of reasonable basis for denial
or a reckless indifference to facts or to proofs submitted by the
insured.
Under these tests of the tort of bad faith, an insurance company,
however, may challenge claims which are fairly debatable and will
be found liable only where it has intentionally denied (or failed to
process or pay) a claim without a reasonable basis.
Plaintiffs take issue with the prediscovery timing of Auto Owners’
summary judgment motion. Rule 56 permits a party to bring a summary
judgment motion “at any time until 30 days after the close of all discovery.”
Fed. R. Civ. P. 56(b). Plaintiffs request that, if the court finds they have not
introduced sufficient evidence to survive summary judgment, they be allowed
to conduct at least some discovery to obtain evidence to support their claims.
Docket 28 at 40-41. Because the court is denying the motion for summary
judgment, plaintiffs’ request is moot.
4
Because federal jurisdiction in this action is based on diversity, the
court applies South Dakota substantive law. Hammonds v. Hartford Fire Ins.
Co., 501 F.3d 991, 996 n.6 (8th Cir. 2007) (citing Erie R.R. v. Tompkins, 304
U.S. 64, 78 (1938)). The parties agree that South Dakota law applies to this
action.
5
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Id. at 629 (quoting Walz v. Fireman’s Fund Ins. Co., 556 N.W.2d 68, 70 (S.D.
1996)). First-party bad faith is an intentional tort and occurs when an
insurance company consciously engages in wrongdoing during its processing or
paying of policy benefits. Hein v. Acuity, 731 N.W.2d 231, 235 (S.D. 2007). But
if an insured’s claim is fairly debatable either in fact or law, an insurer cannot
be said to have denied the claim in bad faith. Dakota, Minn. & E. R.R. Corp.,
771 N.W.2d at 630. “The questions of whether the insurer’s actions were
unreasonable or whether the claim was fairly debatable must be viewed at the
time the insurer made the decision to deny or litigate the claim, rather than
pay it.” Id. “The question of whether an insurer has acted in bad faith is
generally a question of fact.” Bertelsen v. Allstate Ins. Co., 833 N.W.2d 545, 554
(S.D. 2013).
Auto Owners argues it had an objectively reasonable basis for its claim
decisions because four inspections found no hail damage to plaintiffs’ roof.
Docket 21 at 5-9. For support, Auto Owners points to Stene v. State Farm
Mutual Automobile Insurance Co., 583 N.W.2d 399 (S.D. 1998).6 In Stene, the
South Dakota Supreme Court held that an insurer was entitled to summary
judgment on a bad faith claim because ample evidence supported the insurer’s
valuation of the claim and the plaintiff “was simply erroneously convinced that
Auto Owners also cites to decisions from Alabama, Arizona, Colorado,
Iowa, Minnesota, Nebraska, New Jersey, Ohio, Rhode Island, and Wisconsin.
Docket 21 at 5-7. The decisions cited are not binding on this court.
Furthermore, they all hinge on the existence of a reasonably debatable basis for
denying the claim, which requirement is already articulated in South Dakota
law. See, e.g., Dakota, Minn. & E. R.R. Corp., 771 N.W.2d at 630.
6
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he was entitled to” full payment. Id. at 403. Stene makes clear that if an
insurance company has a reasonable basis for denying a claim it cannot be
held liable for acting in bad faith. But Stene does not stand for the proposition
that an insurer automatically has a reasonable basis for denying a claim
simply because it hires someone to produce an estimate or a report.
It would be possible for a jury to find that it was unreasonable for Auto
Owners to rely on the reports provided by Wolff, Kirkeby, Bieber, and
Hermanson, and that Auto Owners knew its reliance on those reports was
unreasonable. For example, Kirkeby stated in his report that there had been no
damaging hail in Rapid City in fourteen years, despite the fact that he—and
every other person who inspected plaintiffs’ roof—observed hail damage to the
metal materials on plaintiffs’ roof. Furthermore, Auto Owners paid to replace a
neighbor’s roof due to hail damage from the same 2011 storm. Based on the
reports noting hail damage to the metal materials on plaintiffs’ roof and the fact
that Auto Owners paid a neighbor’s hail damage claim, a jury could find that
Auto Owners should have known that Kirkeby’s statement was false.
Also, all the inspectors agreed that the shingles on plaintiffs’ roof showed
damage from weathering and exposure. Such damage would make the shingles
more vulnerable to hail damage. Yet the photos taken by the adjusters hired by
Auto Owners only showed long-distance photos claiming to depict no hail
damage and only contained close-up photos of damage from weathering or
deterioration. The absence of detailed photographic evidence showing no hail
damage could be interpreted as evidence either that the investigation was
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unreasonably incomplete or that the adjusters hired by Auto Owners selectively
photographed only parts of the roof to minimize the evidence of hail damage
and emphasize other damage. Based on those facts, a jury could conclude that
Auto Owners should have known that it was unreasonable to rely on the
reports finding no damage.7
Both sides took photos of the roof, and both sides have experts
interpreting those photos. Auto Owners claims the photos show only
weathering and deterioration, but plaintiffs and their expert claim that the
photos show evidence of definitive hail damage. If the photos actually do show
hail damage—a genuine question of material fact—the reasonability of Auto
Owners’ investigation would be further called into question. If Auto Owners had
photos showing definitive hail damage, it would be unreasonable to rely on
reports concluding the opposite. See Kirchoff v. Am. Cas. Co. of Reading, Pa.,
997 F.2d 401, 405 (8th Cir. 1993) (internal quotations omitted) (interpreting
South Dakota law and stating “the requisite knowledge (or reckless disregard)
on the part of the insurer may be inferred when the insurer has exhibited a
reckless indifference to facts or to proofs submitted by the insured”).
The fact that the South Dakota Division of Insurance (SDDOI) took no
action because it thought both sides had support does not compel the court to
grant summary judgment on plaintiffs’ bad faith claim. The SDDOI stated it
was not authorized to engage in any fact finding. Docket 23-7. Also, SDDOI
does not appear to have considered whether Auto Owners’ reliance on the
reports was reasonable or whether its claims handling process was fair. The
letter expressly left open the possibility that plaintiffs could resolve their claims
in court. Id. Thus, the fact that the SDDOI did not take any action would not
preclude a jury in this instance from finding that Auto Owners did not have a
reasonable basis for its denial of plaintiffs’ claim.
7
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Plaintiffs have also introduced other evidence that a jury could conclude
implies an incomplete or unreasonable investigation. Auto Owners had four
inspections that revealed no hail damage to the roof, but after litigation
commenced Auto Owners hired Haag Engineering, “the pre-eminent forensic
engineering firm in the country, [which] has established a broadly-accepted
roof inspection and certification program, teaching inspectors among other
things how to recognize hail damage to asphalt shingles.” Docket 39 at 1. The
final inspection found sufficient hail damage to warrant replacing the entire
roof. The dramatic difference between the first four conclusions and the final
inspection by Haag Engineering could support an inference that the first four
inspectors were not properly trained or qualified,8 or otherwise failed to adhere
to the “broadly-accepted” techniques applied by Haag Engineering. The quality
of Auto Owners’ investigation is complicated by the fact that Bieber never
actually went on the roof herself but instead waited at ground level for someone
else to inspect the damage and report to her. The qualifications and expertise—
if any—of the person who actually inspected plaintiffs’ roof remain unknown. A
jury could conclude that such practices amount to a failure to reasonably
investigate plaintiffs’ claim.
The court does not find or imply that Dakota Claims, Hermanson Egge,
or the individual employees of those firms, actually lack qualifications or
training. At this stage of the litigation, the court views all evidence in the light
most favorable to plaintiffs. There is a genuine dispute over the extent of the
hail damage to plaintiffs’ roof that would have been observable. Thus, the court
assumes that there was hail damage to plaintiffs’ roof that the first four
inspections missed or intentionally omitted. Whether observable hail damage
actually existed, and whether the first four inspections were insufficient
because they failed to notice obvious hail damage, is a question for the jury.
8
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Plaintiffs and Auto Owners both have experts in this matter. Weighing
the credibility of those experts is a jury function. If this case, like Stene, is an
instance where people reasonably disagree on the valuation of a claim or the
presence of certain damage, then Auto Owners should not be liable for bad
faith. But that conclusion is not compelled simply because Wolff, Kirkeby,
Bieber, and Hermanson were hired by Auto Owners to write reports that found
no hail damage. If the jury determined that Auto Owners knew the reports were
unsupported or that Auto Owners knew the investigation performed was not
reasonable, Auto Owners would not have fulfilled its obligation to its insureds
when it denied plaintiffs’ claim, despite the presence of the inspection reports.9
See Dakota, Minn. & E. R.R. Corp., 771 N.W.2d at 629-31 (discussing the
requirement that an insurer conduct a reasonable investigation and subject its
claims adjustment process to reasonable evaluation and review).
Moreover, plaintiffs’ bad faith claim is broader than simply challenging
whether Auto Owners had evidence to support its denial. Bad faith is not
limited to claim denials only. Dakota, Minn. & E. R.R. Corp., 771 N.W.2d at 629
(internal citations and quotations omitted) (“In the first-party context, there
exists a contractual relationship, whereby the insurer has accepted a premium
from its insured to provide coverage. Because of the nature of this relationship,
. . . bad faith can extend to situations beyond mere denial of policy benefits.”).
The fact that Auto Owners obtained multiple expert opinions does not
insulate them from a bad faith claim. If all four reports consistently ignored
obvious hail damage, the fact that all four reports contained the same error
could actually be evidence of a policy or expectation that adjusters minimize
damage to avoid paying claims.
9
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The core of plaintiffs’ bad faith claim is that Auto Owners designed its claims
handling process to produce evidence that Auto Owners could use to unfairly
deny valid claims, thereby forcing its insureds to take extra steps to obtain
payment while hoping that enough people would be discouraged from pursuing
benefits to enable Auto Owners to realize a profit at the expense of its insureds.
The South Dakota Supreme Court has recognized that insurance
companies have a responsibility to give equal consideration to the interests of
insureds and may not force insureds to resort to litigation to vindicate
contractual rights:
“Equal consideration” was not given to the interests of these
insureds. Due to LeMars’ conduct, Olsons were forced to endure
the rigors and uncertainties of trial, and Helmbolt faced potential
personal responsibility for an excess judgment—which in fact
occurred. It seems clear LeMars ignored its duty of good faith for
the purpose of protecting its own interest. It also seems readily
apparent to this court that the conduct of LeMars prior to the suit
against Helmbolt was nothing more than gamesmanship. To allow
a company to take the posture LeMars assumed would, at best,
violate the public policy of this state, not to mention the settled law
which requires an insurance company to settle and negotiate in
good faith. Furthermore, LeMars’ conduct in this case was
tantamount to a unilateral revocation or termination of mandatory
coverage. On its face, that is conduct in bad faith.
Helmbolt v. LeMars Mut. Ins. Co., 404 N.W.2d 55, 58 (S.D. 1987). An insurer
must not ignore the interests of its insured because “[t]he relationship of the
insurer to the insured is akin to that of a fiduciary since it must give at least as
much consideration to the insured’s interests as it does to its own.” Trouten v.
Heritage Mut. Ins. Co., 632 N.W.2d 856, 864 (S.D. 2001).
Helmbolt dealt with underinsured motorist coverage, which implicates
different public policy concerns than hail damage coverage, and a refusal to
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settle for policy limits, which is not at issue here. Nonetheless, both Helmbolt
and Trouten make clear that the insurance company must give equal
consideration to the interests of its insured, even when those interests are
adverse to its own. Also, an insurance company may not “game” or manipulate
its investigation or claims handling process to obtain a more favorable result at
the expense of its insured by virtue of the insurance company’s superior
bargaining power and resources. If discovery revealed that Auto Owners hired
adjusters with the understanding that the adjusters were expected to minimize
or ignore evidence supporting a claim, or if Auto Owners instructed its
adjusters to build a case against the insured rather than reasonably and fairly
investigate the claim, or if Auto Owners intentionally adopted a policy of
denying valid claims to discourage its insureds from further pursuing benefits,
Auto Owners could be liable for the tort of bad faith for actions apart from its
denial of benefits. Auto Owners has failed to address this aspect of plaintiffs’
bad faith claim.
Genuine questions of material fact as to plaintiffs’ claim that Auto
Owners acted in bad faith when it denied their claim for hail damage remain,
such as whether there actually was hail damage, how obvious that hail damage
should have been, and whether Auto Owners knew or should have known that
the investigation into the damage was unreasonable. Questions of fact also
remain on whether Auto Owners acted in bad faith when it allegedly designed
its claims handling process to allow its adjusters to build a case for denying
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valid claims. Ultimately, these questions are for a jury to determine, see
Bertelsen, 833 N.W.2d at 554, and summary judgment is inappropriate.
C.
Punitive Damages
Under South Dakota law, punitive damages may not be recovered unless
expressly authorized by statute. SDCL 21-1-4. Relevant South Dakota law
states that:
In any action for the breach of an obligation not arising from
contract, where the defendant has been guilty of oppression, fraud,
or malice, actual or presumed, . . . the jury, in addition to the
actual damage, may give damages for the sake of example, and by
way of punishing the defendant.
SDCL 21-3-2. To survive a summary judgment motion, a plaintiff must prove to
the court by clear and convincing evidence that a reasonable basis exists upon
which a jury could award punitive damages. Dahl v. Sittner, 474 N.W.2d 897,
902 (S.D. 1991); see also Selle v. Tozser, 786 N.W.2d 748, 757 (S.D. 2010)
(reiterating that the clear and convincing evidence of a reasonable basis
standard is a preliminary threshold lower than the standard required at trial).
“Actual malice is a positive state of mind, evidenced by the positive desire
and intention to injure another, actuated by hatred or ill-will towards that
person. . . . Presumed, legal malice, on the other hand, is malice which the law
infers from or imputes to certain acts.” Dahl, 474 N.W.2d at 900 (internal
citations omitted). A showing of either type of malice is sufficient to support
punitive damages. Bertelsen, 833 N.W.2d at 555.
“ ‘A claim for presumed malice can be shown by demonstrating a
disregard for the rights of others.’ ” Selle, 786 N.W.2d at 757-58 (citing Isaac v.
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State Farm Mut. Auto. Ins. Co., 522 N.W.2d 752, 761 (S.D. 1994)). Presumed
malice may be inferred when a party acts willfully or wantonly and injures
another. Bertelsen, 833 N.W.2d at 555 (quoting Selle, 786 N.W.2d at 757). With
respect to willful and wanton misconduct, the South Dakota Supreme Court
has stated that:
There must be facts that would show that defendant intentionally
did something . . . which he should not have done or intentionally
failed to do something which he should have done under the
circumstances that it can be said that he consciously realized that
his conduct would in all probability, as distinguished from
possibility, produce the precise result which it did produce and
would bring harm to the plaintiff.
Berry v. Risdall, 576 N.W.2d 1, 9 (S.D. 1998) (quoting Tranby v. Brodock, 348
N.W.2d 458, 461 (S.D. 1984)). Whether a defendant’s conduct is willful and
wanton is determined by an objective standard, rather than the defendant’s
subjective state of mind. Id.
Auto Owners makes only one argument—that because it had a
reasonable basis for denying plaintiffs’ claim, plaintiffs cannot show
oppression, fraud, or malice. As discussed above, a jury could find that Auto
Owners did not act reasonably in denying plaintiffs’ claim. “An insurer’s clear
breach of contract or denial of a claim that is not fairly debatable may indicate
malice.” Bertelsen v. Allstate Ins. Co., 796 N.W.2d 685, 699 (S.D. 2011).
Plaintiffs have met their burden to show that a reasonable basis exists upon
which a jury could award punitive damages. Auto Owners is not entitled to
summary judgment on plaintiffs’ punitive damages claim.
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II.
Motion for Judgment on the Pleadings
A.
Legal Standard
When reviewing a motion for judgment on the pleadings pursuant to
Federal Rule of Civil Procedure 12(c), the court applies the same standard as
on a motion to dismiss under Rule 12(b)(6). See Westcott v. City of Omaha, 901
F.2d 1486, 1488 (8th Cir. 1990) (noting that courts review a Rule 12(c) motion
under the same standard that governs a Rule 12(b)(6) motion). “Judgment on
the pleadings is appropriate when there are no material facts to resolve and the
moving party is entitled to judgment as a matter of law.” Mills v. City of Grand
Forks, 614 F.3d 495, 497–98 (8th Cir. 2010) (citing Faibisch v. Univ. of Minn.,
304 F.3d 797, 803 (8th Cir. 2002)). “The facts pleaded by the non-moving party
must be accepted as true and all reasonable inferences from the pleadings
should be taken in favor of the non-moving party.” Id. The court may consider
the pleadings themselves, materials embraced by the pleadings, exhibits
attached to the pleadings, and matters of public record. Id. (citing Porous Media
Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999)). In ruling on this
motion, the court is not considering materials, submitted in conjunction with
the summary judgment motion, that are not appropriate for consideration
under Rule 12(c). See 5C Charles Alan Wright, et al., Federal Practice &
Procedure Civil § 1371 (3d ed.) [hereinafter Wright and Miller] (when confronted
with materials outside the pleadings, a court may convert the Rule 12(c) motion
to a summary judgment motion or “refuse to accept materials outside the
pleadings in order to keep the motion under Rule 12(c)”).
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B.
Unfair Trade Practices Claim
Count three of the amended complaint alleges that Auto Owners
“misrepresented the benefits available under a policy of insurance, in violation
of SDCL 58-33-5.” Docket 19 at 6. South Dakota law provides:
No person shall make, issue, circulate, or cause to be made,
issued, or circulated, any estimate, circular, or statement
misrepresenting the terms of any policy issued or to be issued or
the benefits or advantages promised thereby or the dividends or
share of the surplus to be received thereon, or make any false or
misleading statement as to the dividends or share of surplus
previously paid on similar policies, or make any misleading
representation or any misrepresentation as to the financial
condition of any insurer, or as to the legal reserve system upon
which any life insurer operates, or use any name or title of any
policy or class of policies misrepresenting the true nature thereof.
Violation of this section is a Class 2 misdemeanor.
SDCL 58-33-5. Chapter 58-33 provides a private right of action and recovery of
attorney’s fees for claims based on unfair trade practices.10 SDCL 58-33-46.1.
Auto Owners contends that a claim under SDCL 58-33-5 is subject to
Rule 9(b)’s heightened pleading requirements.11 Docket 25 at 2-4. Both the
Federal Rules of Civil Procedure and South Dakota law require that complaints
Because this court has subject matter jurisdiction based on diversity
of citizenship, South Dakota state law supplies the elements that must be
included in the complaint. 5A Wright and Miller § 1297.
10
Plaintiffs argue that failure to state a claim upon which relief can be
granted must be raised before a responsive pleading. Docket 28 at 42. Rule
12(b) lays out a number of defenses, including failure to state a claim upon
which relief can be granted. Fed. R. Civ. P. 12(b)(6). But Rule 12 also allows a
defense of failure to state a claim upon which relief can be granted to be raised
by a motion under Rule 12(c). Fed. R. Civ. P. 12(h)(2)(B). A motion under Rule
12(c) may be made after the pleadings are closed but early enough not to delay
trial. Thus, the Rule 12(c) motion is timely.
11
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alleging fraud or misrepresentation be pleaded with particularity.12 Fed. R. Civ.
P. 9(b); SDCL 15-6-9(b); N. Am. Truck & Trailer, Inc. v. M.C.I. Comm’n Servs.,
Inc., 751 N.W.2d 710, 713 & n.2 (S.D. 2008) (noting that the requirements of
SDCL 15-6-9(b) are identical to those under Federal Rule of Civil Procedure 9(b)
and citing federal law for interpreting the scope of the rule). “Even when a
plaintiff is not making a fraud claim, courts will require particularity in the
pleading if the cause of action is premised on fraudulent conduct.” 5A Wright
and Miller § 1297. Plaintiffs do not dispute that their unfair trade practices
claim is subject to Rule 9(b)’s heightened pleading standard. Instead, they
contend the complaint does plead a violation of SDCL 58-33-5 with sufficient
particularity. Docket 28 at 42-43. Thus, the court assumes without deciding
that plaintiffs’ claim for a misrepresentation of benefits under SDCL 58-33-5
must be pleaded with particularity.
To satisfy the heightened pleading requirements, the complaint must
specify the time, place, and contents of the false representations, the identity of
the person making the misrepresentation, and what was obtained or given up.
See Freitas v. Wells Fargo Home Mortg., Inc., 703 F.3d 436, 439 (8th Cir. 2013).
The amended complaint does not set forth any specific misrepresentation. The
only allegation that could be interpreted as a misrepresentation alleges “[b]ased
on the reports from Dakota Claims, Auto Owners denied that any damage to
If the requirements were not identical, the Federal Rules of Civil
Procedure would apply. 5A Wright and Miller § 1297 (3d ed.) (“Since Rule 9(b)
is a special pleading requirement, it concerns procedure in the federal courts
and should govern in all civil actions, including all suits in which subject
matter jurisdiction is based on diversity of citizenship[.]”).
12
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the shingles had occurred, and refused to pay anything at all for damage to the
shingles.” Docket 19 at 3. That sentence contains no information on who made
the alleged misrepresentation, what specifically was contained in the
statement, when it was made, or what was obtained or given up based on the
misrepresentation.
Plaintiffs argue that the allegation contained in the amended complaint is
sufficient to allow Auto Owners to respond to and prepare a defense to the
complaint. Docket 28 at 42-43 & n.104 (citing Comm. Prop. Invs., Inc. v. Quality
Inns Int’l, Inc., 61 F.3d 639, 646 (8th Cir. 1995)). “The level of particularity
required depends on . . . the nature of the case and the relationship between
the parties.” BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908, 917 (8th Cir.
2007) (citing Payne v. United States, 247 F.2d 481, 486 (8th Cir. 1957)). “Rule
9(b) should be read ‘in harmony with the principles of notice pleading.’ ” Id.
(quoting Schaller Telephone Co. v. Golden Sky Sys., Inc., 298 F.3d 736, 746 (8th
Cir. 2002)). Nonetheless, conclusory allegations are not sufficient to satisfy the
requirements of Rule 9(b). Id.
In Freitas, the Eighth Circuit refused to relax the heightened pleading
standards under Rule 9(b) in a case involving a fraudulent misrepresentation
claim. Although Freitas acknowledged that in some circumstances courts had
allowed plaintiffs to plead fraud allegations with less specificity, the Eighth
Circuit noted that those cases were situations in which the essential
information was possessed by the defendant and not accessible to the plaintiff
without the benefit of discovery. Freitas, 703 F.3d 439-40. This is not a case in
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which plaintiffs do not have access to the facts necessary to meet the
heightened pleading standard. Furthermore, unlike the complaint in this case,
the complaint in Commercial Property Investments included thirteen specific
statements as the basis for the common-law fraud claim. See Comm. Prop.
Invs., 61 F.3d at 645-46.
By not identifying a particular misrepresentation in the complaint,
plaintiffs put Auto Owners in a position from which it was unable to respond
quickly and accurately to the allegation against it. From the briefs on the
motion for judgment on the pleadings, it appears Auto Owners was not able to
identify precisely what misrepresentation plaintiffs alleged, which in turn
forced Auto Owners to wait until its reply brief to argue that the particular
misrepresentation at issue was not actionable under SDCL 58-33-5.13 See
Docket 41 at 2. Also, plaintiffs still have not identified “ ‘what was obtained or
given up [by the misrepresentation].’ ” Freitas, 703 F.3d at 439 (quoting Abels
v. Farmers Commodities Corp., 259 F.3d 910, 920 (8th Cir. 2001)). The
amended complaint therefore does not plead the unfair trade practices claim
with the particularity required by Rule 9(b).
Auto Owners contends that the court should not allow plaintiffs to
amend the complaint because amendment would be futile. But plaintiffs have
Although plaintiffs identified the substance of the alleged
misrepresentation in their response brief, they still have not identified which
statement or statements in particular form the basis of their unfair trade
practices claim.
13
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not moved to amend the amended complaint14 and at this point plaintiffs are
not able to amend their pleading as a matter of course. See Fed. R. Civ. P.
15(a)(1).
III.
Discovery
A.
Motion to Stay Discovery
Auto Owners moved for a separate, early trial on plaintiffs’ contract claim
and to stay discovery related to the other claims until resolution of the contract
claim and these dispositive motions. Docket 26. Because Auto Owners decided
to pay to replace plaintiffs’ roof while these motions were pending, it now
acknowledges that “a separate trial on the contract claim in this case would not
provide any benefit in the present circumstances, and Auto-Owners withdraws
its motion to the extent it requests that relief.” Docket 42 at 2. Auto Owners
also clarified that it “still requests a stay of discovery until the resolution of its
two other pending dispositive motions.” Id. Because the court has now resolved
those dispositive motions, Auto Owners’ motion to stay discovery is denied as
moot. To the extent any discovery remains, it should be completed in
accordance with the court’s current scheduling order.
B.
Motion to Compel
Auto Owners objected to the magistrate judge’s disposition of plaintiffs’
motion to compel. This court’s review of a magistrate judge’s order is governed
by 28 U.S.C. § 636 and Rule 72 of the Federal Rules of Civil Procedure. A
The court does not construe the single sentence in plaintiffs’ response
brief, Docket 28 at 43, to be a motion to amend because it does not comply
with the procedures set out in the local rules for the District of South Dakota.
14
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district court may set aside the magistrate judge’s order on any pretrial matter
if it is shown to be clearly erroneous or contrary to law. 28 U.S.C.
§ 636(b)(1)(A); Fed. R. Civ. P. 72(a); see also Ferguson v. United States, 484 F.3d
1068, 1076 (8th Cir. 2007). This standard affords deference to the magistrate
judge, and the order will not be set aside unless the court is “left with the
definite and firm conviction that a mistake has been committed.” Reko v.
Creative Promotions, Inc., 70 F. Supp. 2d 1005, 1007 (D. Minn. 1999) (citing
Chakales v. Comm’r of Internal Revenue, 79 F.3d 726, 728 (8th Cir. 1996)).
The scope of discovery in a civil case is governed by Federal Rule of Civil
Procedure 26, which provides:
Unless otherwise limited by a court order, the scope of discovery is
as follows: Parties may obtain discovery regarding any
nonprivileged matter that is relevant to any party’s claim or
defense–including the existence, description, nature, custody,
condition, and location of any documents or other tangible things
and the identity and location of persons who know of any
discoverable matter. For good cause, the court may order discovery
of any matter relevant to the subject matter involved in the action.
Relevant information need not be admissible at the trial if the
discovery appears reasonably calculated to lead to the discovery of
admissible evidence. All discovery is subject to the limitations
imposed by Rule 26(b)(2)(C).
Fed. R. Civ. P. 26(b)(1). The court will limit the extent of discovery if it
determines the discovery is unreasonably duplicative, cumulative, can be
obtained from a more convenient source, or if the expense or burden of
discovery outweighs its benefit. Fed. R. Civ. P. 26(b)(2)(C).
The scope of discovery under Rule 26(b) is extremely broad. See 8 Wright
& Miller § 2007. The reason for the broad scope of discovery is that “[m]utual
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knowledge of all the relevant facts gathered by both parties is essential to
proper litigation. To that end, either party may compel the other to disgorge
whatever facts he has in his possession.” Id. (quoting Hickman v. Taylor, 329
U.S. 495, 507-08 (1947)).
“Relevancy is to be broadly construed for discovery issues and is not
limited to the precise issues set out in the pleadings. Relevancy . . .
encompass[es] ‘any matter that could bear on, or that reasonably could lead to
other matter that could bear on, any issue that is or may be in the case.’ ”
E.E.O.C. v. Woodmen of the World Life Ins. Soc’y, Civ. No. 03-165, 2007 WL
1217919, at *1 (D. Neb. Mar. 15, 2007) (quoting Oppenheimer Fund, Inc. v.
Sanders, 437 U.S. 340, 351 (1978)). The party seeking 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.” Id. (citing Hofer v.
Mack Trucks, Inc., 981 F.2d 377, 380 (8th Cir. 1992)). “Mere speculation that
information might be useful will not suffice; litigants seeking to compel
discovery must describe with a reasonable degree of specificity, the information
they hope to obtain and its importance to their case.” Id. (citing Cervantes v.
Time, Inc., 464 F.2d 986, 994 (8th Cir. 1972)).
Once the requesting party has made a threshold showing of relevance,
the burden shifts to the party resisting discovery to show specific facts
demonstrating that the discovery is not relevant, or how it is overly broad,
burdensome, or oppressive. Penford Corp. v. Nat'l Union Fire Ins. Co. of
Pittsburgh, Pa., 265 F.R.D. 430, 433 (N.D. Iowa 2009); St. Paul Reinsurance Co.
- 25 -
v. Commercial Fin. Corp., 198 F.R.D. 508, 511 (N.D. Iowa 2000). The
articulation of mere conclusory objections that something is “overly broad,
burdensome, or oppressive,” is insufficient to carry the resisting party's
burden—that party must make a specific showing of reasons why the relevant
discovery should not be had. Cincinnati Ins. Co. v. Fine Home Managers, Inc.,
Civ. No. 09-234, 2010 WL 2990118, at *1 (E.D. Mo. July 27, 2010); see also
Burns v. Imagine Films Entm't, Inc., 164 F.R.D. 589, 593 (W.D.N.Y. 1996). Also,
the fact that producing discovery is burdensome is not sufficient to preclude
discovery of that information because all discovery entails some inherent cost
and burden to the producing party. See Continental Ill. Nat’l Bank & Trust Co.
of Chicago v. Caton, 136 F.R.D. 682, 684-85 (D. Kan. 1991) (“All discovery
requests are a burden on the party who must respond thereto. Unless the task
of producing or answering is unusual, undue or extraordinary, the general rule
requires the entity answering or producing the documents to bear that
burden.”); Rogers v. Tri-State Materials Corp., 51 F.R.D. 234, 245 (N.D. W. Va.
1970) (stating that “[i]nterrogatories, otherwise relevant, are not objectionable
and oppressive simply on grounds [that] they may cause the answering party
work, research and expense”).
1.
Request for Production Number 2
In Request for Production (RFP) 2, plaintiffs requested certain personnel
files, meaning “any and all documents related to the individual’s employment
relationship with, and job performance for, [Auto Owners].” Docket 43-3 at 7.
RFP 2 included “all personnel involved with Plaintiffs’ claim for hail damage to
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the roof of their home, and all supervisors in the chain of command above
those personnel, up to the head of the claims department.” Id. Plaintiffs
included a general provision allowing Auto Owners to redact or withhold social
security numbers, health and life insurance, condition, or treatment
information, and bank, credit card, or other financial account numbers for
former and current employees. Id. at 3.
In response to the motion to compel, Auto Owners argued that there was
no basis except speculation to warrant production of employment and
compensation documents for employees uninvolved in handling plaintiffs’
claim. Docket 47 at 8. Auto Owners also argues that it has turned over other
documents that would “necessarily” include the information plaintiffs seek if
that information exists. Id. at 9. Auto Owners concludes that the privacy
interests of its employees outweighs plaintiffs’ need for the documents
requested.
The magistrate judge found that plaintiffs met their burden to initially
show the evidence sought in RFP 2 was relevant and was not overbroad.
Docket 50 at 15-17. Next, the magistrate judge concluded that the ability to
redact sensitive information was sufficient to narrow the scope of documents
produced to only relevant documents. Id. at 18. Finally, the magistrate judge
deemed Auto Owners’ time frame objection to be waived because it was not
argued in Auto Owners’ response brief. Id.
Auto Owners now argues that the magistrate judge’s conclusion
regarding possible relevance of personnel files is contrary to law. Docket 53 at
- 27 -
11-17. In support of this argument, Auto Owners cites numerous cases
prohibiting unsupported or speculative discovery. Id. Although speculation is
insufficient to compel discovery, a party need not conclusively demonstrate
that information sought in discovery is relevant or admissible. Instead, a party
must make a threshold showing that requested discovery might contain, or
might lead to, relevant evidence. See Hofer, 981 F.2d at 380 (discussing
discovery standards). “[C]ourts in the District of South Dakota have routinely
found personnel files in insurance bad faith cases to be relevant and
discoverable.” Lillibridge v. Nautilus, No. CIV. 10-4105-KES, 2013 WL 1896825,
at *9 (D.S.D. May 3, 2013). Personnel files can contain information on
applications and resumes demonstrating company hiring preferences,
performance reviews, instructions, incentives, and strategies.15 That
information may be contained in the personnel files of managers or other
employees who did not directly handle the claim at issue. Plaintiffs need not
guarantee, as Auto Owners suggests, that the discovery sought will contain
relevant information. The magistrate judge’s opinion properly identified and
15
In addition to its relevance to a bad faith claim, this information could
also be relevant to the question of punitive damages. See State Farm Mut. Auto.
Ins. Co. v. Campbell, 538 U.S. 408, 419 (2003) (“We have instructed courts to
determine the reprehensibility of a defendant by considering whether: the harm
caused was physical as opposed to economic; the tortious conduct evinced an
indifference to or a reckless disregard of the health or safety of others; the
target of the conduct had financial vulnerability; the conduct involved repeated
actions or was an isolated incident; and the harm was the result of intentional
malice, trickery, or deceit, or mere accident.”); Roth v. Farner-Bocken Co., 667
N.W.2d 651, 666-67 (S.D. 2003) (discussing the same factors and whether
certain conduct “reflected a company policy or practice”).
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applied the standard for discovery to the facts and claims in this case. See
Docket 50 at 9-13 (discovery standards); Docket 50 at 15-17 (discussing
relevance of personnel files to this action).
Part of Auto Owners’ dispute with the magistrate judge’s decision is
attributable to Auto Owners’ refusal to recognize that plaintiffs’ bad faith claim
accuses Auto Owners of implementing a systemic and institutionalized policy of
minimizing claims. See Docket 19 at 3-4 (alleging that Auto Owners took
certain actions to predictably weigh the claims handling process in its favor).
As the magistrate judge found, discovery into the claims handling process and
employee incentives is relevant to those factual disputes. Additionally, the fact
that Auto Owners has provided some discovery regarding Dakota Claims and
Hermanson Egge does not relieve it of its burden to provide all responsive
documents. Also, the magistrate judge correctly declined to use discovery
practice as a tool for effectively deciding the pending dispositive motions.
Auto Owners also contends that the magistrate judge acted contrary to
law by failing to consider proportionality principles under Rule 26(b)(2)(C).
Docket 53 at 17-19. But Auto Owners’ argument here is a restatement of its
beliefs that the discovery requested is speculative and that it is entitled to
judgment in its favor based on its pending dispositive motions. As discussed
with respect to Auto Owners’ first objection, plaintiffs have met their threshold
burden to show with a reasonable degree of specificity the information sought
and why the discovery requested may contain that information. Auto Owners
argues that sensitive information weighs against discovery, but the court has
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entered a protective order in this case to alleviate privacy concerns. See Docket
52 (protective order).
Auto Owners presents no other specific concerns that would alter the
presumptive broad discovery allowed under the Federal Rules. See Fed. R. Civ.
P. 26(b)(2)(C) (enumerating proportionality factors). This discovery request
places a burden on Auto Owners, but that burden is not unreasonable. Even if
this discovery ultimately does not contain information supporting plaintiffs’
positions, as Auto Owners claims, the discovery request is not unreasonably
cumulative or duplicative or available in a more convenient source. Plaintiffs
are not required to accept Auto Owners’ representation that no useful
information is contained in the documents requested. The value of the roof
replacement cost is small, but plaintiffs’ bad faith and punitive damages claims
are important issues and place a much larger amount in controversy. Auto
Owners makes no showing that its resources are limited. Overall, RFP 2
appears to be a proper use of a discovery mechanism. See 8 Wright and Miller
§ 2008.1 (“In general, it seems that the proportionality provisions should not be
treated as separate and discrete grounds to limit discovery so much as indicia
of proper use of discovery mechanisms[.]”).
Auto Owners objects to the magistrate judge’s finding that RFP 2 did not
include irrelevant documents. See Docket 50 at 18 (ruling); Docket 53 at 19
(objection). Auto Owners is correct that RFP 2 itself does not supply the
limiting language on which the magistrate judge relied. Instead, the general
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provisions relating to the requests for production contain the following
statement:
Redactions. For your current and former employees, you may
redact or withhold (i) social security numbers, (ii) health and life
insurance, condition, or treatment information, and (iii) bank,
credit card, or other financial account numbers.
Docket 43-3 at 3. Although that language is not included in RFP 2 itself, it still
limits the production of information and supplies an adequate basis for the
magistrate judge’s decision to overrule Auto Owners’ objection. Although the
magistrate judge’s order indicated the language was part of RFP 2 and not part
of the general conditions, there is no practical difference in this case. Thus, the
court is not left with a definite and firm conviction that the magistrate judge
made a substantive mistake that requires reversal.
Finally, Auto Owners objects to the magistrate judge’s determination that
Auto Owners waived its time frame objection. Docket 53 at 20. Auto Owners
claims that its time frame objection “was implicit in Auto-Owners’ relevance
arguments and was explicitly raised in Auto-Owners’ objections [to the initial
discovery requests].” Id. Implicit arguments, particularly boilerplate arguments,
are insufficient to preserve an issue unless they are specifically argued and
developed. The magistrate judge did not err by deeming that argument waived.
Furthermore, because plaintiffs’ claim alleges a practice or policy of
minimizing claims, evidence supporting that claim may well be found in
documents outside the period when plaintiffs’ specific claim for benefits was
being handled. See 8 Wright and Miller § 2008.5 (citing Oppenheimer Fund, 437
U.S. at 352) (“[O]lder information may often be relevant to the issues presented
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in a case.”). Disputes over the burden imposed by discovery requests covering
extended time periods “must be determined by reference to the general
principles of Rule 26(b)(2)(C).” Id. Auto Owners presents no additional
arguments to this court showing why the compelled discovery is unreasonably
cumulative, duplicative, or inconvenient, why the burden of that discovery is
out of proportion to the importance of plaintiffs’ claims or the amount in
controversy, or why Auto Owners’ resources would be unnecessarily strained.
Even if the court did not deem the time frame argument waived, it is not
persuasive.
The magistrate judge’s conclusions with respect to RFP 2 are not clearly
erroneous or contrary to law. Thus, the court will not set aside the magistrate
judge’s order compelling production of documents responsive to RFP 2.
2.
Request for Production Number 5
RFP 5 requests all document related to compensation for all employees
involved in roof-hail claims and their supervisors, up to the head of the claims
department. Docket 43-3 at 9. The magistrate judge granted the motion to
compel with respect to RFP 5. Auto Owners levels the same objections to the
magistrate judge’s ruling as it made to the order on RFP 2.
As discussed above, evidence of compensation is relevant to plaintiffs’
bad faith claim. See Torres v. Travelers Ins. Co., Civ. 01-5056-KES, 2004 U.S.
Dist. LEXIS 31888, at *42-46 (D.S.D. Sept. 30, 2004) (reasoning that financial
incentive programs were relevant to a bad faith claim and the issue of punitive
damages). Plaintiffs have met their threshold burden, and Auto Owners’
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argument regarding speculation is not persuasive. For the same reasons as
RFP 2, RFP 5 is not overbroad as to the employees included or the time frame
covered in the request. Auto Owners has not shown that RFP 5 is unfairly
burdensome, that it is unnecessarily cumulative or duplicative, that the
information sought is available in a more convenient form, or that the cost is
out of proportion to the value of the discovery. Thus, Auto Owners’ objections
to the magistrate judge’s order on RFP 5 are overruled for the same reasons as
stated with respect to RFP 2, and the court will not set aside the magistrate
judge’s order.
CONCLUSION
Genuine questions of material fact exist on plaintiffs’ bad faith and
punitive damages claims, and summary judgment is inappropriate on those
issues. Because plaintiffs failed to plead their unfair trade practices claim with
specificity, judgment on the pleadings is granted on that claim. Auto Owners’
motion for a separate trial on the contract claim and to stay discovery pending
resolution of the dispositive motions is denied as moot. Plaintiffs have made a
threshold showing of relevance for discovery of the information requested in
RFP 2 and RFP 5, and Auto Owners has not shown that the magistrate judge’s
order was clearly erroneous or contrary to law. Accordingly, it is
ORDERED that defendant Auto Owners Insurance Company’s motion for
summary judgment on the issues of bad faith and punitive damages (Docket
21) is denied.
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IT IS FURTHER ORDERED that defendant Auto Owners Insurance
Company’s motion for judgment on the pleadings on the issue of unfair trade
practices (Docket 24) is granted.
IT IS FURTHER ORDERED that defendant Auto Owners Insurance
Company’s motion to bifurcate and stay discovery (Docket 26) is denied as
moot.
IT IS FURTHER ORDERED that defendant Auto Owners Insurance
Company’s objections to the magistrate judge’s order (Docket 53) are overruled.
Dated May 5, 2015.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
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