Hidden Cove Park and Marina et al v. Lexington Insurance Company et al
MEMORANDUM OPINION AND ORDER - On May 23, 2017, the Court held a telephonic hearing regarding a discovery dispute in this case. Having considered the argument of counsel and letter briefing on the dispute, the Court orders Defendants to produce un redacted claim notes regarding loss reserve information. Defendants agreed to produce the redacted claim notes dated October 1, 2015 through December 8, 2015. Plaintiffs may depose Defendants' 30(b)(6) deponent limited to the information included in the previously redacted claim notes. Signed by Judge Amos L. Mazzant, III on 6/6/2017. (baf, )
United States District Court
EASTERN DISTRICT OF TEXAS
HIDDEN COVE PARK AND MARINA;
MARINE QUEST HIDDEN COVE LP;
LEXINGTON INSURANCE COMPANY;
AIG CLAIMS, INC.; CHAMPION
COMMERCIAL INSURANCE AGENCY
Civil Action No. 4:17-CV-00193
MEMORANDUM OPINION AND ORDER
On May 23, 2017, the Court held a telephonic hearing regarding a discovery dispute in this
case. Having considered the argument of counsel and letter briefing on the dispute, the Court
orders Defendants to produce unredacted claim notes regarding loss reserve information.
Defendants agreed to produce the redacted claim notes dated October 1, 2015 through December
8, 2015. Plaintiffs may depose Defendants’ 30(b)(6) deponent limited to the information included
in the previously redacted claim notes.
In May and June 2015, severe storms caused damage to Plaintiffs’ properties. The
properties are insured under a single insurance policy issued by Defendant Lexington Insurance
Company (“Lexington”). Plaintiffs allege that Lexington and AIG (collectively, “Defendants”)
failed to properly conduct an investigation into the cause of loss, failed to issue timely payments,
and wrongfully delayed or denied claims. Plaintiffs brought claims against Lexington for breach
of contract, violations of the Texas Unfair Claims Practices Act, non-compliance with Texas
Insurance Code Chapter 542, and breach of common law duty of good faith and fair dealing. The
central issue in the case is the parties’ interpretation of the “Flood” exclusion contained in the
policy and its effect on Plaintiffs’ claim.
As part of discovery, Defendants produced a redacted version of the claim notes associated
with Plaintiffs’ claims. Defendants redacted claim notes dated October 1, 2015 through December
8, 2015 based on the work-product privilege. Defendant also redacted claim notes relating to loss
reserves on the basis of relevance. Plaintiffs objected to these redactions, and on May 23, 2017,
the Court held a hearing regarding the issue. The Court ordered Defendants to provide unredacted
copies of the claim notes for in camera inspection and asked the parties to submit letter briefs
addressing production of the unredacted claim notes.
On May 24, 2017, Defendants sent the Court unredacted versions of the claim notes for in
camera inspection. On May 26, 2017, Plaintiffs sent the Court a letter regarding their request for
an unredacted version of Defendants’ insurance claim notes and the opportunity to redepose
Defendants’ 30(b)(6) representative regarding the redacted information. Plaintiffs argued the
notes between October 1, 2015 and December 8, 2015 were not protected by the work–product
doctrine because the decision to pay the claim was not made until December 8, 2015. Plaintiffs
further argued that loss reserve notes were relevant because “the reserve set for the claim would
provide insight into when Defendant reached its conclusion regarding the flood sublimit, and how
long it took Defendant to reach that conclusion, evidence of a potential breach of the Prompt
Payment of Claims Act.” Plaintiffs further argued loss reserve notes were relevant to whether
Defendants denied Plaintiffs claim in bad faith “as it would demonstrate that it believed its own
liability to be higher than what it paid.”
On May 30, 2017, Defendants sent the Court a response letter. Defendants agreed to
produce the redacted claims dated between October 1, 2015 and December 8, 2015. However,
Defendants did not agree to remove redactions regarding loss reserves. Defendants argue that
notes regarding the loss reserves are not relevant because “Defendants’ initial setting of reserves
took place before they had a copy of the policy in hand” and thus “the issue of reserves had
absolutely no relevance to the interpretation of the policy language.” Defendants also objected to
Plaintiffs’ request to redepose the 30(b)(6) deponent, arguing the additional notes to be produced
contain very little, if any, new information.
On May 31, 2017, Plaintiffs sent the Court a reply letter. Plaintiffs argue that the notes
regarding loss reserves are discoverable because “reserve information in a bad faith suit may be
evidence of Defendant’s state of mind in adjusting the claim.” Plaintiffs further reply that even if
Defendants did not have a copy of the insurance policy while adjusting the claim, Lexington could
have easily accessed its own insurance policy. Plaintiffs also argue that the policy at issue was a
renewal of the previous year’s policy, which was in Defendants’ possession.
Under Federal Rule of Civil Procedure 26(b)(1), parties “may obtain discovery regarding
any nonprivileged matter that is relevant to any party’s claim or defense . . . .” Fed. R. Civ.
P. 26(b)(1). Relevance, for the purposes of Rule 26(b)(1), is when the request is reasonably
calculated to lead to the discovery of admissible evidence. Id.; Crosby v. La. Health & Indem. Co.,
647 F.3d 258, 262 (5th Cir. 2011). It is well-established that “control of discovery is committed to
the sound discretion of the trial court.” Freeman v. United States, 556 F.3d 326, 341 (5th Cir.
2009) (quoting Williamson v. U.S. Dep’t of Agric., 815 F.2d 368, 382 (5th Cir. 1987)).
The Court finds the claim notes regarding loss reserve are relevant to Plaintiffs’ claims.
“In cases involving alleged bad faith on the part of the insurer in denying coverage, the amount of
the loss reserve set by the insurer may be relevant because it could well belie a later claim that the
insurer thought in good faith that there was no possibility of the claim falling within coverage.”
Trinity E. Energy, LLC v. St. Paul Surplus Lines Ins. Co., No. 4:11-CV-814-Y, 2013 WL
12124022, at *2 (N.D. Tex. Mar. 8, 2013) (citations omitted). In the context of a bad faith claim,
“evidence regarding [Defendants’] loss reserves is irrelevant if it lacks any tendency to show that
[Defendants] knew or should have known that its liability was reasonably clear, yet still denied
Plaintiffs’ claim.” Id.
Defendants argue the loss reserve information is irrelevant because they set the reserves
before making any interpretation regarding the policy language. Defendants state they did not yet
have the policy when they set the reserves. However, the policy at issue was a renewal of the
previous year’s policy. The loss reserve information is relevant because it could show that
Defendant knew or should have known its liability was reasonably clear, yet still denied Plaintiffs’
claim. The reserve information could reasonably lead to the discovery of admissible evidence.
Defendants are therefore ORDERED to produce the redacted claim notes regarding loss
reserve information. Plaintiff may depose Defendants’ 30(b)(6) representative limited to the
information included in the previously redacted claim notes.
SIGNED this 6th day of June, 2017.
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?