American National Property and Casualty Company v. Stutte et al

Filing 43

RESPONSE in Opposition re 41 MOTION for Protective Order MOTION to Stay filed by Carol Ann Stutte, Laura Jean Stutte. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5)(Hardin, Jonathan)

IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE

AMERICAN NATIONAL PROPERTY
AND CASUALTY COMPANY,
Plaintiff, Counter-Defendant
v.
CAROL ANN STUTTE, et al.
Defendants, Counter-Plaintiffs.

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CIVIL ACTION
NO. 3:11-CV-219

THE STUTTES’ MEMORANDUM IN OPPOSITION TO ANPAC’S MOTION FOR
STAY ON DISCOVERY RELATING TO EXTRA-CONTRACTUAL CLAIMS,
OR IN THE ALTERNATIVE, MOTION FOR PROTECTIVE ORDER
Defendants and Counter-Plaintiffs, Carol Ann Stutte and Laura Jean Stutte (collectively,
the “Stuttes”), by and through counsel, submit this Memorandum in Opposition to Plaintiff and
Counter-Defendant American National Property and Casualty Company’s (“ANPAC’s”) Motion
for Stay on Discovery Relating to Extra-Contractual Claims, or in the Alternative, Motion for
Protective Order. For the reasons stated herein, ANPAC’s motion for a stay or protective order
should be DENIED.
BACKGROUND AND PROCEDURAL HISTORY
ANPAC’s Denial of Coverage
On September 4, 2010, the Stuttes’ home in Vonore, Tennessee and its contents were
completely destroyed by fire. The Stuttes’ non-attached garage was vandalized on that same
date, with the word “queers” spray-painted on the side. The Stuttes promptly submitted a claim
for their loss to ANPAC, their homeowners insurer. ANPAC denied the Stuttes’ claim by letter

dated May 12, 2011, and the next day filed the present lawsuit against the Stuttes. Compl. ¶ 5
(May 13, 2011) (Dkt. No. 1); Rule 56(d) Decl. of Scott J. Levitt ¶ 1 (Nov. 15, 2011) (Dkt. No.
31). In its denial letter and complaint, ANPAC accused the Stuttes of setting fire to their home
and committing insurance fraud, but its letter and complaint did not set forth any facts in support
of these grave allegations. Compl. ¶ 6; Levitt Decl. ¶ 1.
The Stuttes filed counterclaims for breach of contract, declaratory judgment, violation of
the Tennessee Consumer Protection Act (“TCPA”), and statutory bad faith. The Stuttes alleged,
among other things, that ANPAC acted in bad faith and violated the TCPA by denying coverage
even though ANPAC knew the Stuttes could not possibly have set fire to their home because
they were physically present in Nashville, Tennessee – approximately 200 miles away – at the
time of the fire. Am. Countercl. ¶¶ 12, 36, 42 (Aug. 10, 2011) (Dkt. No. 20).
ANPAC’s Premature Motion for Summary Judgment
On October 25, 2011, before any discovery had taken place, ANPAC filed a motion for
summary judgment on the Stuttes’ bad faith and TCPA claims. (Dkt. Nos. 27-29.) ANPAC’s
motion and supporting memorandum relied on two affidavits and fourteen exhibits, all of which
fell wholly outside the pleadings. Levitt Decl. ¶ 6. In these materials, ANPAC made numerous
factual allegations that the Stuttes vigorously dispute, and of most of which the Stuttes were
previously unaware. Id.
The Stuttes filed an opposition memorandum and a Rule 56(d) declaration, noting that
under Federal Rule of Civil Procedure 56(d) and well-settled Sixth Circuit precedent, summary
judgment is improper where no discovery on the claims at issue has taken place. Stuttes’ Mem.
in Opp’n 6-12 (Nov. 15, 2011) (Dkt. No. 30) (attached as Ex. 1); Levitt Decl. ¶¶ 7-9 (attached as
Ex. 2). ANPAC’s reply asserted that the Stuttes should not be allowed to conduct any discovery

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on their bad faith and TCPA claims before ANPAC’s summary judgment motion is decided.
ANPAC’s Reply Mem. 1 (Nov. 23, 2011) (Dkt. No. 33).
After ANPAC’s motion was fully briefed, the Stuttes uncovered new evidence that raises
serious doubts about whether ANPAC acted diligently and in good faith when it investigated and
ultimately denied the Stuttes’ claim. This evidence includes: (1) cell phone records containing
location data that place the Stuttes in Nashville at the time of the fire (which contradicts the
conclusions of ANPAC’s purported cellular reconstruction expert), and (2) an affidavit from a
witness interviewed by ANPAC’s primary investigator, Gary Noland, stating that Mr. Noland
refused to consider documents, photos, and other pertinent information offered by the witness
that supported the Stuttes’ assertion that they were in Nashville before, during, and after the fire
that destroyed their home. Stuttes’ Supp’l Mem. 3-4 (Feb. 15, 2012) (Dkt. No. 36) (attached as
Ex. 3). The Stuttes filed a supplemental opposition memorandum, which apprised the Court of
this newly discovered evidence, argued that such evidence raises genuine issues of material fact
that preclude summary judgment, and reiterated that the Stuttes must be given the opportunity
under Rule 56(d) to seek discovery from ANPAC. Id. at 3-5.1 The motions are pending.
ANPAC’s Concealment of Relevant Evidence
On April 11, 2012, the Stuttes served ANPAC with their first set of discovery requests,
which asked for ANPAC’s claims file, as well as all other documents and information relating to
ANPAC’s investigation and evaluation of whether to accept or deny coverage for the Stuttes’
insurance claim. On May 8, 2012, ANPAC produced around 100 documents and dozens of

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On February 15, 2012, the Stuttes moved for leave to file a second amended counterclaim (Dkt.
No. 37) to assert additional claims against ANPAC for negligent and intentional infliction of
emotional distress, and to provide additional support for the Stuttes’ existing counterclaims for
bad faith and violation of the TCPA. That motion is pending.

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photographs; however, ANPAC refused to divulge any documents or information that it contends
“pertain[] to the extra-contractual claims” for bad faith and violation of the TCPA. ANPAC’s
Answers to Interrogs. 2 (May 8, 2012) (attached as Ex. 4); ANPAC’s Resp. to Req. for Produc.
of Docs. 2 (May 8, 2012) (attached as Ex. 5). In its motion for a protective order, ANPAC
argues that it should be protected “from the discovery of information which is not relevant to the
insurance coverage issue, but is instead aimed at fishing for evidence to support the extracontractual claims.” ANPAC’s Mot. 2-3 (May 8, 2012) (Dkt. No. 41). ANPAC frames the
“insurance coverage issue” as “whether or not the Stuttes committed fraud or caused or procured
the burning of their own home.” Id. at 4.
In addition, ANPAC refused to produce “documents or other tangible material generated
by or on behalf of ANPAC after October 8, 2010” – one month after the fire, but seven months
before ANPAC made its coverage determination – “because such information is protected from
disclosure by the work-product doctrine and constitutes trial preparation material.” ANPAC’s
Answers to Interrogs. 1; ANPAC’s Resp. to Req. for Produc. of Docs. 1.2 In its discovery
responses, ANPAC contends that on October 8, 2010, its “cause and origin” expert reported to
ANPAC that the fire and explosion were intentionally caused and that the Stuttes’ neighbor was
suspected. Id. at 1.
On May 8, 2012, ANPAC filed the present motion for a stay of discovery or protective
order to prevent the Stuttes from obtaining evidence relevant to their bad faith and TCPA claims.
See ANPAC’s Mot. 1. ANPAC cited one reason to justify its motion: “If this Honorable Court
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ANPAC raised other objections to the Stuttes’ discovery requests. The Stuttes ask this Court to
address only ANPAC’s motion for a stay or protective order, and do not currently seek a ruling
as to the sufficiency of ANPAC’s discovery responses. Counsel for the Stuttes plan to meet and
confer with ANPAC concerning its discovery responses, and will file a motion to compel if and
when appropriate.

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rules in favor of ANPAC on its pending motion for partial summary judgment, then there is no
reason for the parties to waste resources conducting discovery relating to extra-contractual
claims” for bad faith and violation of the TCPA. Id.
STANDARD OF REVIEW
Federal Rule of Civil Procedure 26(b) governs the scope of discovery and provides that
“[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s
claim or defense.” Rule 26(c) permits the Court, “for good cause” shown, to issue a protective
order for the purpose of “protect[ing] a party . . . from annoyance, embarrassment, oppression, or
undue burden or expense[.]” The movant has the burden of establishing “good cause,” which
“can only be met through a specific demonstration of fact . . . as opposed to stereotyped or
conclusory statements.” D.B. v. Lafon, No. 3:06-CV-75, 2007 WL 896135, at *2 (E.D. Tenn.
Mar. 22, 2007) (citing 8A Charles Alan Wright et al., Fed. Practice & Procedure § 2035). This
“determination must also include a consideration of the relative hardship to the nonmoving party
should the protective order be granted.” Gen. Dynamics Corp. v. Selb Mfg. Co., 481 F.2d 1204,
1212 (8th Cir. 1973). If the protective order is denied, Rule 26(c)(2) authorizes the Court to
issue an affirmative order compelling the discovery that was sought.
ARGUMENT
ANPAC’s motion for a stay or protective order should be denied for several reasons.
First, it seeks to draw an impossible line between evidence relevant to whether (a) the Stuttes
committed arson and insurance fraud and (b) ANPAC committed bad faith or a violation of the
TCPA in denying coverage on the grounds of arson and insurance fraud. Second, ANPAC’s
motion would violate well-established Sixth Circuit precedent that dictates that the Stuttes must
be given an opportunity to conduct discovery before summary judgment may be entered against

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them. Third, ANPAC’s motion otherwise fails to establish “good cause” under Rule 26(c)
because staying discovery as to the Stuttes’ bad faith and TCPA claims will: (a) needlessly
complicate discovery, creating additional disputes that will require court intervention and waste
the parties’ resources; and (b) highly prejudice the Stuttes. Finally, ANPAC’s motion is part of
an improper strategy to cherry-pick only evidence that supports its claims and defenses, conceal
relevant evidence that might undermine its case, and then use a woefully incomplete and onesided record to obtain a premature summary judgment on the merits of the Stuttes’ claims. This
Court should reject ANPAC’s transparent attempt to manipulate the discovery process.
I.

ANPAC Seeks to Withhold Key Evidence on the Question of Insurance Coverage.
ANPAC asserts in its motion that until its summary judgment motion seeking to dismiss

the Stuttes’ bad faith and TCPA claims is decided, discovery should proceed only as to the “real
dispute: did the insureds commit fraud or are the insureds responsible for the fire or are they
not?” ANPAC’s Mot. 4. However, because it is ANPAC’s burden to demonstrate the elements
of arson or fraud as defenses to coverage,3 the issue should properly be framed instead as: When
all relevant evidence has been compiled, can ANPAC meet its legal burden of proving that the
Stuttes burned down their own house or committed insurance fraud?
In its discovery responses, ANPAC asserts that it need only produce materials generated
by or on its behalf before October 8, 2010, or documents in its possession prepared at any time
by third parties. See ANPAC’s Answers to Interrogs. 1; ANPAC’s Resp. to Req. for Produc. of
Docs. 1. In doing so, ANPAC is attempting to keep its post-October 8, 2010 investigation secret,
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McReynolds v. Cherokee Ins. Co., 815 S.W.2d 208, 211 (Tenn. Ct. App. 1991) (“To make out a
defense of arson, a[n] [] insurance company must show by a preponderance of the evidence that
the loss was due to a fire of incendiary origin, that the insured had an opportunity to set the fire,
and that he had a motive to do so.”); Clift v. Fulton Fire Ins. Co., 315 S.W.2d 9, 12 (Tenn. Ct.
App. 1958) (insurer has burden of proving defense that insured fraudulently submitted claim).

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concealing the evidence that led it to believe the Stuttes committed arson and insurance fraud.
(As of that date, ANPAC suspected the Stuttes’ neighbor.) The Stuttes know at least some of
ANPAC’s ultimate conclusions, but not how it reached those conclusions, because in seeking
summary judgment on the Stuttes’ bad faith and TCPA claims, ANPAC selectively disclosed
parts of its post-October 8, 2010 investigation, such as the final reports of its investigator, Gary
Noland (Dkt. No. 27-2), and its cell phone records witness, Kevin Levy (Dkt No. 28-10).
There can be no tenable or logical dividing line between (a) evidence that is relevant to
whether ANPAC can sustain its burden of proof that the Stuttes committed arson and insurance
fraud, and (b) evidence that is relevant to whether ANPAC committed bad faith or a violation of
the TCPA in determining the Stuttes committed such acts. Simply put, regardless of whether the
Stuttes’ bad faith and TCPA claims withstand ANPAC’s summary judgment motion, the Stuttes
are entitled to discovery of all evidence ANPAC considered in concluding that they committed
arson and insurance fraud.
As but one example of how discovery of ANPAC’s arson and fraud defense to coverage
and the Stuttes’ bad faith and TCPA claims are intertwined, ANPAC has refused to provide the
contents of the investigation file of its investigator, Gary Noland, or ANPAC’s communications
with him. As per his affidavit submitted by ANPAC in connection with its summary judgment
motion seeking to dismiss the Stuttes’ bad faith and TCPA claims, Mr. Noland “assisted ANPAC
with gathering information and interviewing witnesses,” and he “regularly updated ANPAC with
the information [he] gathered or learned from witnesses during his investigation work.” Aff. of
Gary Noland ¶¶ 4-5 (Sept. 30, 2011) (Dkt. No. 27-2). Mr. Noland’s investigation is plainly
relevant to the issue of whether ANPAC can sustain its burden of proof as to its claims of arson
and fraud. Indeed, ANPAC specifically relies on Mr. Noland’s affidavit in response to certain of

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the Stuttes’ interrogatories, including one asking ANPAC to “[s]tate all facts that You contend
support Your decision to deny the Policyholder's claim under the Policy concerning the Loss.”
See, e.g., ANPAC’s Answers to Interrog. No. 2.
While Mr. Noland’s affidavit submitted in support of ANPAC’s motion for summary
judgment refers to his interviews of 20 witnesses, he provides only a short description – some
only a single sentence – of what each witnesses purportedly told him, and for some witnesses, he
provides no information of what they told him. Without Mr. Noland’s investigation file, the
Stuttes cannot determine whether his affidavit accurately reflects the interviews he took or
whether his investigation revealed anything that does not fit into ANPAC’s narrative that the
Stuttes committed arson and fraud. Indeed, the Stuttes know that Mr. Noland conducted an
interview with Ms. Lora Lee Black lasting roughly 45 minutes in which she offered Mr. Noland
various information, including documents and photographs establishing that she and the Stuttes
were in Nashville before, during, and after the time of the fire, see Aff. of Lora Lee Black ¶¶ 513 (Feb. 14, 2012) (Dkt. No. 36-2), but Mr. Noland’s affidavit includes only a cursory
description of what Ms. Black purportedly told him, see Noland Aff. ¶¶ 26-28.
In order to defend against ANPAC’s claim that the Stuttes are arsonists and insurance
fraudsters, the Stuttes must have access to all of the evidence that ANPAC considered in its
investigation. ANPAC’s position is essentially: “We think you burned your house down and
lied about it, but we’re only going to disclose selected evidence that we think best supports our
position. And we’re not going to produce any other evidence that we collected in the seven
months of investigation between the date we first suspected your neighbor and the date we
denied your claim and then sued you, even if it undermines our case.”

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II.

ANPAC’s Motion Violates Well-Established Sixth Circuit Precedent that Summary
Judgment Cannot be Granted on Factual Issues Until the Non-Movant is Afforded
Discovery.
Under Rule 56(d) of the Federal Rules of Civil Procedure and Sixth Circuit precedent,

summary judgment is improper where the non-movant has not received a full opportunity to
conduct discovery on the claims at issue. ANPAC’s motion for a stay or protective order asks
the Court to violate well-settled authority by preventing the Stuttes from obtaining any discovery
relevant to their bad faith and TCPA claims before the Court issues a summary judgment ruling
on the merits of those very claims.
Summary judgment is appropriate only if “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). “Only
through discovery can it be determined whether a material factual issue exists which precludes
summary judgment.” Vega v. First Fed. Savings & Loan Ass’n. of Detroit, 622 F.2d 918, 926
(6th Cir. 1980). Therefore, “summary judgment should not [be] awarded until the [non-movant]
[is] allowed some opportunity for discovery.” White’s Landing Fisheries, Inc. v. Buchholzer, 29
F.3d 229, 231 (6th Cir. 1994). Instead, where the non-movant demonstrates “by affidavit or
declaration” that “it cannot present facts essential to justify its opposition, the court may . . .
defer considering the motion or deny it.” Fed. R. Civ. P. 56(d). If the court enters summary
judgment “without permitting [the non-movant] to conduct any discovery at all,” such a decision
“will constitute an abuse of discretion.” Vance v. United States, 90 F.3d 1145, 1149 (6th Cir.
1996); accord CenTra, Inc. v. Estrin, 538 F.3d 402, 420 (6th Cir. 2008).
Contrary to ANPAC’s assertion that this Court can adjudicate the Stuttes’ bad faith and
TCPA claims “as a matter of law” without discovery, these claims present questions of fact that
cannot be resolved on summary judgment unless no genuine dispute of material fact exists. See,
e.g., Morrison v. Allen, 338 S.W.3d 417, 439 (Tenn. 2011) (whether insurer engaged in “unfair
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or deceptive act[s] or practice[s]” in violation of TCPA is question of fact for the jury); Doochin
v. United States Fidel. & Guar. Co., 854 S.W.2d 109, 112 (Tenn. Ct. App. 1993) (whether
insurer’s refusal to pay was in bad faith and warrants statutory penalty is question of fact for the
jury).
In the Stuttes’ pleadings in response to ANPAC’s motion for summary judgment (all of
which are incorporated as if fully set forth herein), the Stuttes established that genuine disputes
of material fact exist in this case, and that they must be given the opportunity to seek discovery.4
In its supporting memoranda, ANPAC failed to cite a single Tennessee case in which the court
held, before the insured was able to conduct discovery, that an insurer was entitled to summary
judgment on claims for bad faith or violation of the TCPA.
The two cases cited in ANPAC’s recent motion for a stay or protective order are also
inapposite. First, ANPAC cites an unpublished case from the Eastern District of Kentucky for
the proposition that discovery should go forward only on coverage issues and not on the Stuttes’
“extra-contractual” bad faith and TCPA claims. See ANPAC’s Mot. 3-4 (discussing Hardy Oil
Co. v. Nationwide Agribusiness Ins. Co., No. 11-cv-75, 2011 WL 6056599 (E.D. Ky. Dec. 6,
2011)). However, in addition to requesting a “stay [of] discovery on [] bad faith,” the insurer in
Hardy Oil also moved “to bifurcate the trial . . . on [] bad faith . . . until after the coverage claim
c[ould] be resolved.” 2011 WL 6056599, at *1. The court in Hardy Oil stayed discovery on bad
faith only because it had already decided to bifurcate the trial. See id. at *2.

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For a more extensive discussion of the relevant case law and facts, see Stuttes’ Mem. in Opp’n
5-12 (Dkt. No. 30) (attached as Ex. 1), Rule 56(d) Decl. of Scott J. Levitt ¶¶ 6-9 (Dkt. No. 31)
(attached as Ex. 2), and Stuttes’ Supplemental Mem. 3-5 (Dkt. No. 36) (attached as Ex. 3).

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The present case could not be more different. ANPAC has not moved to bifurcate the
trial of the Stuttes’ bad faith and TCPA claims until after coverage is resolved. Rather, ANPAC
has asked this Court to decide the bad faith and TCPA claims on summary judgment. At the
same time, ANPAC seeks to prevent any discovery from commencing on the claims it wishes to
be adjudicated first. ANPAC’s contradictory position – no discovery until later for claims that
should be decided on the merits now – finds no support in Hardy Oil and should be rejected.
Second, ANPAC cites a Sixth Circuit case for the proposition that a “party opposing a
motion for summary judgment possesses no absolute right to additional time for discovery.”
ANPAC’s Mot. 4 (emphasis added) (citing Emmons v. McLaughlin, 874 F.2d 351, 356 (6th Cir.
1989)). However, the plaintiff in Emmons had the opportunity to conduct some discovery. 874
F.2d at 353, 357. Moreover, due to the nature of the plaintiff’s allegations, his claims “hinged
not upon information in [defendants’] control, but instead upon facts that, if they existed, should
have been within [the plaintiff’s] personal knowledge. His refusal to divulge his knowledge to
the district court justified the early entry of summary judgment . . . .” Id. at 357.
Once again, the present case could not be more different. The Stuttes have not had the
opportunity to conduct any discovery on their bad faith and TCPA claims, and until recently, had
been provided with no discovery at all. Further, bad faith and TCPA claims – by their nature –
focus primarily on the knowledge and state of mind of insurers, not on facts within the personal
knowledge of insureds. See, e.g., Coppage v. Fireman’s Fund Ins. Co., 379 F.2d 621, 623 (6th
Cir. 1967) (finding bad faith where the insurer’s “handling [of] a claim [] demonstrate[d] an
indifference towards the interests of its insured and subordinate[d] the same to its own
interests”); Rothberg v. Cincinnati Ins. Co., No. 1:06-CV-111, 2008 WL 833201, at *8 (E.D.
Tenn. Mar. 27, 2008) (“[w]hen an insurance company denies a claim based on information it

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knows to be false, that supports a claim under the TCPA”). Because the key evidence relevant to
the Stuttes’ bad faith and TCPA claims is within ANPAC’s exclusive possession and control,
Emmons does not support ANPAC’s request for a stay or protective order, and entry of summary
judgment in the present suit would be premature. See, e.g., Costlow v. United States, 552 F.2d
560, 564 (3d Cir. 1977) (“where the facts are in possession of the moving party[,] a continuance
of a motion for summary judgment for purposes of discovery should be granted almost as a
matter of course”).
III.

ANPAC’s Motion Otherwise Fails to Establish Good Cause.
In addition to violating Sixth Circuit law, ANPAC’s motion otherwise fails to meet its

burden under Rule 26(c) of establishing “good cause” through a “specific demonstration of fact,”
because staying discovery on the Stuttes’ bad faith and TCPA claims will needlessly complicate
discovery and prejudice the Stuttes.
A.

ANPAC’s Motion is Conclusory and Unsupported.

The only reason ANPAC offers to support its motion is the conclusory assumption that
“the parties [will] waste resources conducting discovery relating to extra-contractual claims” if
the Court ends up granting ANPAC’s pending motion for summary judgment. ANPAC’s Mot.
2. This “is the type of conclusory statement which does not manifest good cause for a protective
order.” Lafon, 2007 WL 896135, at *2. ANPAC fails to explain why proceeding with routine
discovery relevant to the Stuttes’ claims constitutes an unnecessary burden. Instead, ANPAC’s
position is premised on the assumption that its motion for summary judgment will be granted.
“The Court cannot accept this premise, however, as it assumes the very thing that [ANPAC]
must prove.” Zurich Ins. Co. v. Health Sys. Integration, Inc., No. Civ. A. 97-4994, 1998 WL
211749, at *3 (E.D. Pa. Apr. 30, 1998). As several courts have held, “in both the summary
judgment and motion to dismiss contexts, [] the existence of a pending case-dispositive motion,
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without more, is usually insufficient to support a stay.” Abercrombie & Fitch Co. v. Fed. Ins.
Co., No. 2:06-cv-831, 2010 WL 3910352, at *3 (S.D. Ohio Oct. 5, 2010); accord Gray v. First
Winthrop Corp., 133 F.R.D. 39, 40 (N.D. Cal. 1990); Health Sys. Integration, 1998 WL 211749,
at *3. Because it is contingent on a future outcome that is uncertain, ANPAC’s purported “good
cause” is illusory and cannot support ANPAC’s request for a stay or protective order.
B.

ANPAC’s Motion Will Needlessly Complicate Discovery.

Not only is ANPAC’s sole justification of preventing waste of resources conclusory and
unsupported, it is also wrong. Contrary to ANPAC’s position, a stay or protective order will
actually complicate discovery, creating additional disputes that will require court intervention
and waste the parties’ resources. ANPAC appears to assume, without explanation, that it will be
easy to distinguish between documents and information that are relevant to the “insurance
coverage issue” and those that are relevant only to “extra-contractual claims.” See ANPAC’s
Mot. 2-3. As noted above, it is impossible to draw a bright line between evidence that is relevant
to the “insurance coverage issue” – i.e., whether ANPAC’s decision to deny coverage was
correct – and evidence that is relevant only to bad faith and TCPA issues – i.e., whether
ANPAC’s decision to deny coverage was made in good faith. ANPAC’s investigation and
decision-making process are relevant to both. The same facts, documents, and witnesses likely
will be relevant to both aspects of this case.
As one court recently noted, “the issues with respect to coverage and bad faith, at least
for discovery purposes, [are] intertwined such that bifurcation at the discovery stage would be
inconvenient and needlessly complicated.” Blue Cross of Idaho Health Service, Inc. v. Atlantic
Mut. Ins. Co., No. 1:09–CV–246, 2011 WL 162283, at *23 (D. Idaho Jan. 19, 2011). Indeed,
“any dispute would require court intervention. The Court does not believe [the] use of its time,
or the litigants’ resources, would be best served by bifurcation at the discovery stage.” Id.; see
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also Williams v. Treasure Chest Casino, Nos. Civ. A. 95–3968, 97–0947, 1998 WL 42586, at
*10 (E.D. La. Feb. 3, 1998) (denying motion to bifurcate discovery on coverage and bad faith
because, if the insurer is unsuccessful on the coverage issues, “the Court will have to endure two
separate, and potentially repetitive discovery processes”). For example, if ANPAC’s motion for
a protective order or stay is granted, the Court and/or the parties will have the impossible task of
deciding what deposition questions regarding ANPAC’s coverage investigation are relevant to
coverage issues, and what questions are relevant only to bad faith and TCPA issues. Even if the
Court and parties were able to draw such bright lines, if ANPAC’s motion for summary
judgment were later denied and the stay on extra-contractual discovery were lifted, then the
parties would have to re-depose witnesses who were initially deposed while the stay was in
effect.
Because ANPAC’s motion will actually complicate discovery, and waste the Court’s time
and the parties’ resources, ANPAC has failed to establish good cause in support of its motion.
C.

ANPAC’s Motion Will Prejudice the Stuttes.

Finally, the prejudice to the Stuttes of delaying (and potentially preventing) discovery on
their bad faith and TCPA claims far outweighs any good cause ANPAC might be able to show.
As noted above, whether ANPAC has grounds to deny coverage on the basis of arson or fraud is
inextricably intertwined with the grounds for the Stuttes’ bad faith and TCPA claims. Further, if
ANPAC’s premature summary judgment motion is granted, the Stuttes’ bad faith and TCPA
claims will be dismissed with prejudice. There could be no greater prejudice than for the Court
to decide the claims at issue in this case without giving the Stuttes an adequate opportunity to
defend themselves against ANPAC’s baseless allegations and to support their affirmative claims
for relief. If ANPAC’s premature summary judgment motion is denied, the Stuttes would still be
prejudiced by a temporary stay of discovery on their bad faith and TCPA claims. A stay would
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prejudice the Stuttes by: (a) further delaying resolution of the Stuttes’ insurance claim, which
they timely noticed over 20 months ago; (b) forcing the Stuttes to prepare their case on coverage
issues without a full record of ANPAC’s coverage investigation; (c) forcing the Stuttes to endure
separate, potentially repetitive discovery processes; and (d) “severely restrict[ing] the parties’
ability to settle their dispute,” Treasure Chest Casino, 1998 WL 42586, at *10.
Because the prejudice to the Stuttes would far outweigh any good cause that ANPAC
might be able to show, this Court should deny ANPAC’s motion for a stay or protective order.
IV.

ANPAC’s Motion is Part of a Strategy to Manipulate the Discovery Process.
ANPAC’s invocation of the work-product doctrine further demonstrates that ANPAC is

attempting to manipulate the discovery process to obtain an unjust result on the merits. As an
additional reason for concealing relevant evidence, ANPAC has refused to release “documents or
other tangible material generated by or on behalf of ANPAC after October 8, 2010 . . . because
such information is protected from disclosure by the work-product doctrine and constitutes trial
preparation material.” ANPAC’s Answers to Interrogs. 1; ANPAC’s Resp. to Req. for Produc.
of Docs. 1. According to ANPAC, its assertion of work-product protection is appropriate
because on “October 8, 2010 [] Gary Young, [a] cause and origin expert, reported to ANPAC
that the fire and explosion were intentionally caused and [the Stuttes’] neighbor was suspected.”
Id. Even if ANPAC reasonably anticipated litigation against the Stuttes’ neighbor on October 8,
2010, its work-product claim is legally invalid and has been inconsistently applied.
Case law in the Sixth Circuit makes clear that ANPAC cannot invoke the work-product
doctrine to shield its coverage investigation and evaluation from discovery. “Making coverage
decisions is part of the ordinary business of insurance and if the ‘driving force’ behind the
preparation of the[] [documents] was to assist [ANPAC] in deciding coverage, then they are not
protected by the work-product doctrine.” In re Prof’ls. Direct Ins. Co., 578 F.3d 432, 439 (6th
15

Cir. 2009); see also King v. CVS Pharmacy, Inc., No. 1:09-cv-209, 2010 WL 1643256, at *2
(E.D. Tenn. Apr. 21, 2010) (“insurance company cannot reasonably argue that the entirety of its
claims files are accumulated in anticipation of litigation when it has a duty to investigate,
evaluate and make a decision with respect to the claims made on it by its insured”) (quotation
and citation omitted).
In Professionals Direct, the Sixth Circuit found that the insurer’s attorneys “had dual
functions. They were advising [] on the business decision of whether to deny coverage, and they
were doing legal work in anticipation of litigation.” 578 F.3d at 439. The district court
examined the disputed documents in camera, and then ordered a number of documents produced,
including “legal memoranda,” “emails between [the insurer] and outside counsel concerning the
coverage decision,” and “correspondence between [the insurer’s] employees . . . or between [the
insurer] and its reinsurers regarding the coverage decision.” Id. In King, this Court observed
that “the burden is on the party claiming protection to show that anticipated litigation was the
driving force behind the preparation of each requested document,” and found that “[d]eciding
whether the work product doctrine applies in the insurance context is a difficult, fact intensive
task which requires an examination of the disputed documents.” 2010 WL 1643256, at **2-3
(quotations omitted). This Court held that most of the documents at issue were not work product
because they “were prepared by an insurance claims adjuster as part of the claims adjuster’s file
in the ordinary course of business, and that “if the driving force behind preparation of these
documents was to assist [the insurer] in deciding coverage, then these documents were not
protected by the work product doctrine, even if prepared by attorneys.” Id. at *3.
In the present case, ANPAC had a duty to investigate, evaluate, and make a decision
whether to pay the Stuttes’ claim. ANPAC began adjusting the Stuttes’ claim shortly after the

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fire in September 2010, but ANPAC did not inform the Stuttes of its coverage determination
until May 12, 2011. Thus, ANPAC continued in the ordinary course of business to investigate,
evaluate, and decide whether to pay the Stuttes’ claim long after October 8, 2010 – the date after
which ANPAC claims work-product protection. The fact that ANPAC’s outside counsel, Mr.
Kinsman, may have played a role in ANPAC’s investigation does not shield his documents from
discovery, nor does it shield the documents of anyone else who assisted ANPAC with its claims
investigation. See Prof’ls. Direct, 578 F.3d at 439; King, 2010 WL 1643256, at *3.
ANPAC’s inconsistent use of the work product doctrine is blatantly self-serving. While
ANPAC now claims that “documents or other tangible material generated by or on behalf of
ANPAC after October 8, 2010” are protected as work product, ANPAC selectively disclosed
with its summary judgment motion several reports generated by or on its behalf after that date,
including a fire investigation report (dated Dec. 10, 2010) (Dkt. No. 28-2), a cell phone analysis
report (dated May 3, 2011) (Dkt. No. 28-10), and a handwriting analysis report (dated June 6,
2011) (Dkt. No. 28-13). ANPAC insists that production of its complete claims file and other
relevant documents is unnecessary because the evidence it has selected is sufficient to show that
it had a good-faith basis to deny the Stuttes’ claim. However, ANPAC’s selective assertion of
the work-product doctrine is yet another manifestation of its strategy to cherry-pick only
evidence that supports its claims and defenses, and to ask this Court to enter a premature
judgment on the merits based on an incomplete and one-sided record. ANPAC’s manipulation
of the discovery process prevents the Stuttes from learning through discovery whether, and to
what extent, ANPAC failed to investigate or consider evidence that undermined or disproved its
suspicion that the Stuttes set fire to their own home. Moreover, ANPAC’s deliberate disclosure
of some documents and reports generated after October 8, 2010 constitutes a waiver of work

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product protection (if any) for those documents, and a waiver as to the entire subject matter, not
simply those particular documents.

See, e.g., In re Columbia/HCA Healthcare Corp. Billing

Practices Litig., 293 F.3d 289, 306-07 (6th Cir. 2002) (declining to permit selective waiver of
work product, noting that “waiver of the protections afforded by the work product doctrine is a
tactical litigation decision” that cannot be “used as a sword rather than a shield”); World
Healthcare Sys., Inc. v. SSI Surgical Servs., Inc., No. 1:10-cv-00060, 2011 WL 3489669, at *4
(E.D. Tenn. Aug. 9, 2011) (holding that voluntary disclosure of work product necessitated the
further disclosure of related protected information “in order to prevent a selective and misleading
presentation of evidence to the disadvantage of the adversary”) (citations omitted).
Only after the Stuttes and this Court are permitted access to the full scope of ANPAC’s
coverage investigation will it be possible to decide whether ANPAC had a reasonable and goodfaith basis to deny the Stuttes’ claim on grounds of arson and insurance fraud. Moreover, with
no work product protection (because they were not prepared solely for litigation against the
Stuttes), or any such protection waived (by the intentional production of similar documents from
the relevant time frame), the documents at issue should be useable in this action by the Stuttes.
That these documents will presumably further help demolish ANPAC’s baseless and defamatory
allegations against the Stuttes does not take them outside the scope of relevant discovery, no
matter how hard ANPAC tries to keep them from coming to light.
Conclusion
For the foregoing reasons, ANPAC’s motion for a stay or a protective order should be
DENIED.

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Dated: May 22, 2012

Respectfully submitted,
/s/ Seth A. Tucker
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Seth A. Tucker (pro hac vice)
Scott J. Levitt (pro hac vice)
Jonathan G. Hardin (pro hac vice)
COVINGTON & BURLING LLP
1201 Pennsylvania Avenue NW
Washington, DC 20004-2401
Tel: [phone]
Fax: [phone]
Email: [e-mail]
[e-mail]
[e-mail]

Peter J. Alliman (BPR No. 5984)
WHITE, CARSON & ALLIMAN, P.C.
135 College Street
Madisonville, TN 37354
Tel: [phone]
Fax: [phone]
Email: [e-mail]

Attorneys for Defendants Carol Ann Stutte and Laura Jean Stutte

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CERTIFICATE OF SERVICE
I certify that on this 22nd day of May, 2012, a copy of the foregoing MEMORANDUM
IN OPPOSITION TO ANPAC’S MOTION FOR STAY ON DISCOVERY RELATING
TO EXTRA-CONTRACTUAL CLAIMS, OR IN THE ALTERNATIVE, MOTION FOR
PROTECTIVE ORDER was filed electronically using the Court’s Electronic Filing System.
Notice of this filing will be served through the Electronic Filing System to parties or counsel
who are Filing Users, and by first-class mail to any party or counsel who is not served through
the Electronic Filing System.

/s/ Jonathan G. Hardin
Jonathan G. Hardin (pro hac vice)
COVINGTON & BURLING LLP

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