Western Insurance Company v. Rottman et al
MEMORANDUM DECISION AND ORDER granting in part and denying in part 43 Defendant's Motion to Compel Discovery. Signed by Magistrate Judge Evelyn J. Furse on 12/28/16. (dla)
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
AND ORDER GRANTING IN
PART AND DENYING IN
MOTION TO COMPEL
DISCOVERY (ECF NO. 43)
WESTERN INSURANCE COMPANY,
DICK L. ROTTMAN, JEFFREY P.
SHAFFER, JANICE LYNN BOWMAN,
BRADLEY A. PEARCE, R. SCOTT
ROTTMAN, and JOHN DOES 1 THROUGH
Civil No. 2:13-CV-436-DAK
Honorable Dale A. Kimball
Magistrate Evelyn J. Furse
Defendants Dick L. Rottman, Jeffrey P. Shaffer, Janice Lynn Bowman, Bradley A.
Pearce, and R. Scott Rottman (the “Directors and Officers”) move to compel 30(b)(6) deposition
testimony from the Plaintiff Western Insurance Company (“Western”) currently run through a
Special Deputy Liquidator (the “Liquidator”). The Court GRANTS IN PART and DENIES IN
PART the Motion as explained below.
Western primarily argues that no circumstances exist under which the Directors and
Officers can question the Liquidator about anything that has happened post-liquidation. Western
cites Utah Code section 31A-27a-401(2) for the proposition that “the rights and liabilities of the
insurer and of its creditors, policyholders, shareholders, members and all other persons interested
in its estate shall become fixed as of the day on which the order of liquidation is entered.”
Neither the parties nor the Court found any decision, reported or unreported, interpreting this
statute. Western bolsters its reading of the statute by citation to cases interpreting statutes from
different states on affirmative defenses.
Western first cites Foster v. Monsour Med. Found., 667 A.2d 18, 20 (Pa. Commw. Ct.
1995). The Monsour case stands for the proposition that directors and officers of an insurance
company in liquidation cannot assert affirmative defenses of failure to mitigate damages,
contributory negligence, comparative negligence, assumption of the risk, estoppel, and waiver
based on the insurance commissioner’s failure as a regulator to intervene in the insurance
company’s business sooner. Specifically, the court held “Any actions commenced by the
Liquidator are on behalf of the insurance company and its creditors and policyholders.” Id. The
Directors and Officers do not contest this proposition and do not assert any of defenses rooted in
the insurance commissioner’s regulatory actions as a basis for the discovery sought. Indeed, the
Utah statute specifically prohibits any defense asserting action or inaction of the insurance
commissioner in its regulatory capacity. Utah Code Ann. § 31A-27a-111. At the end of the
opinion, the court, in dicta and without elaboration, states,
Given this purpose, i.e., to protect the policyholders, the creditors and the public,
the Statutory Liquidator’s power to recover damages against the officers and
directors and to recoup the assets of the liquidated insurer should not be
encumbered by this Court’s examination of the correctness of the Liquidator’s
actions during liquidation or the Insurance Commissioner’s regulatory actions.
Monsour, at 21.
The court in Foster v. Rockwood Holding Co., 632 A.2d 335, 338 (Pa. Commw. Ct.
1993), held that the insurance commissioner should not have “to defend each act of regulatory
conduct in any action the Insurance Commissioner brings to recover damages for wrongdoing.”
As part of its reasoning, the court reiterated “‘if there is no wrongdoing by the officer or director,
there can be no liability, but if wrongdoing is established, the officer or director should not be
allowed to set up as a defense a claim that would permit the detailed examination’ of the
Insurance Commissioner’s action as statutory liquidator.” Id. at 339 (quoting Fed. Sav. & Loan
Ins. Corp. v. Burdette, 718 F. Supp. 649, 663 (E.D. Tenn. 1989)).
Utah’s statute provides immunity to the receiver in a number of circumstances. Utah
Code Ann. § 31A-27a-114. Such immunity suggests claims of comparative fault for actions
taken during liquidation would not succed. However, neither the statute nor the cases make clear
whether defendants can assert that the amounts paid by the liquidator or to the liquidator limit the
damages the liquidator can claim against defendants.
Western also cites a number of federal cases involving the liquidation of savings and loan
institutions and the Federal Savings and Loan Insurance Corporation. This Court does not find
those cases comparable to the liquidation of a private insurance company by the state of Utah.
As noted by the court in Burdette, 718 F. Supp. at 664, “The special urgency required in the
liquidation of a savings and loan, and a commercial bank, is a result of the special nature of the
insurance fund and the procedure for collection and disbursements of assets as provided by
Congress.” Western has not shown that the factors the United States Congress had in mind in
organizing the dissolution of a federally insured savings and loan are the same or even similar to
the factors the Utah legislature considered in the providing for the liquidation of a private
insurance company. Nor has Western shown that the Utah legislature came to the same decision
as the United States Congress in how to manage the dissolution of an insurance company as
compared to a savings and loan. Therefore, the Court does not rely on these cases in this
Federal Rule of Civil Procedure 26(b)(1) governs the scope of discovery and states:
Parties may obtain discovery regarding any nonprivileged matter that is relevant
to any party’s claim or defense and proportional to the needs of the case,
considering the importance of the issues at stake in the action, the amount in
controversy, the parties’ relative access to relevant information, the parties’
resources, the importance of the discovery in resolving the issues, and whether the
burden or expense of the proposed discovery outweighs its likely benefit.
1. Judgments, Settlements, Litigation, and Claim Prioritization
The Directors and Officers seek deposition testimony regarding topic numbers three and
twenty-seven concerning judgments or settlements obtained by Western, litigation in which
Western is engaged, and how Western has prioritized claims—all in relationship to the collateral
and warranty programs. (Reply to Pl.’s Resp. to Mot. to Compel 3, ECF No. 47.) The Directors
and Officers have failed to put forth sufficient support for the relevance and proportionality of
testimony regarding prioritization of claims. Therefore, the Court denies the Motion as to
As to judgments, settlements, and lawsuits concerning the collateral and warranty
programs, because no cases interpret Utah Code section 31A-27a-401(2), its meaning remains
open to interpretation. A court could construe the statute as allowing evidence of the outcome of
litigation of a claim, either by judgment or settlement, as evidence of the value of that claim on
the liquidation date depending on the circumstances of the settlement or judgment. While
Western disputes this point, this discovery motion does not provide the venue for final
determination of that dispute. Thus the discovery has relevance.
As to proportionality, the Court finds a 30(b)(6) inquiry into judgments, settlements, and
litigation does not require a detailed examination into the propriety of the liquidator’s actions in
the way a comparative negligence or similar defense would. Rather, it requires inquiry into
discrete facts that the liquidator should have readily available. The Court does not permit inquiry
into the reasoning behind the Liquidator’s actions or achievements. Thus, the burden of the
discovery on the Liquidator is not great, as compared to that imagined in Monsour. Moreover,
the values of claims may go not only to the Directors and Officers’ damages but also to liability
given the allegation that their actions caused Western to become insolvent. Western argues that
the size of the shortfall is so significant that the size of any claim could not possibly prove that
Western was solvent on the day of the liquidation order. The Directors and Officers disagree
with the assertion. Again, this discovery motion does not provide the venue for final
determination of that dispute. Hence, the discovery is important to the Directors and Officers in
determining the strength of their defenses.
Western also resists the 30(b)(6) deposition on this topic because an expert will later
testify about damages and how the Liquidator determined Western was insolvent. That a party
will offer expert testimony on damages subsequently does not prevent the Directors and Officers
from having discovery into the facts underlying Western’s damage claim prior to expert
discovery. Certainly, to the extent either party wishes to conduct discovery on the factual basis
for Western’s damage claim, it must do so during fact discovery and may not wait until expert
discovery. Furthermore, Western has superior access to these facts as compared with any other
person or entity given Western is the common entity for all of these settlements, judgments, and
Furthermore, the Court finds a 30(b)(6) deposition on this topic, in addition to other
topics noticed, does not present an overly burdensome task at this stage of the litigation given the
potential relevant evidence it could provide for different aspects of the Directors and Officers’
defense. Hence, the Court finds the discovery relevant and proportional and grants the Motion as
to judgments, settlements, and lawsuits concerning the collateral and warranty programs. This
Court does not rule on the admissibility of this evidence but will allow discovery under these
2. Financial Status
The Directors and Officers also seek deposition testimony on topic number twenty-two,
regarding Western’s financial status on the date of entry of the Liquidation Order. Western’s
financial status on that date has critical importance to the determination of liability and damages
in this case. As noted above, that the parties will call experts to testify on this point does not
prevent the Directors and Officers from making factual inquiries into damages at this point in
litigation. Discovery of the factual basis for the insolvency claim and alleged damages may aide
the Directors and Officers in conducting further discovery and preparing their case. As agreed in
the hearing on this matter, despite ambiguous wording, the Directors and Officers do not seek
discovery of Western’s legal theories. For the reasons previously articulated, the Court finds the
discovery relevant and proportional and grants the Motion as to Western’s financial status on the
date of the Liquidation Order.
The Directors and Officers further seek testimony on topic twenty-three regarding
reinsurance policies, payments, and settlements relating to liability and/or damages. Western’s
objection to this topic seems to admit relevance in that Western “objects” that the Directors and
Officers should have caused reinsurance claims to be made prior to liquidation and failing to do
so lost millions of dollars for the company. (Obj. & Resp. to Am. Notice of R. 30(b)(6) Dep. of
W. Ins. Co. 11, ECF No. 45-1.) Given this assertion, the Directors and Officers would be
entitled to discovery regarding the policies, payments, and settlments to prepare their defense to
the assertion. To the extent Western claims it has not received any reinsurance, the Directors and
Officers can inquire about that for purposes of verification because if Western had received
payment for claims, depending on the policy and the claims, that payment may provide evidence
of the claims’ value on the day of liquidation as articulated above. Therefore, the Court finds
this discovery regarding reinsurance relevant and proportional and thus grants the Motion as to
4. American Asphalt
Lastly, the Directors and Officers seek to depose Western about all communications,
conversations, or agreements between the Liquidator and American Asphalt involving Western
Insurance. At the Motion hearing, the Directors and Officers explained that they must ask about
this topic to assess whether privity exists between American Asphalt and Western for purposes
of asserting issue preclusion against Western from American Asphalt & Grading Co. v. Bowman.
The Directors and Officers also assert that the information to support this argument would not
appear in the public record. The topic sweeps more broadly than the discovery needed to
establish privity. The Court limits the Directors and Officers’ inquiry to questions bearing on the
issue of privity between American Asphalt and Western. Specifically, the Directors and Officers
may ask questions to determine whether American Asphalt was so identified in interest with
Western that in American Asphalt & Grading Co. v. Bowman American Asphalt represented
Western’s legal rights at that time. See Searle Bros. v. Searle, 588 P.2d 689, 691 (Utah 1978)
(explaining privity inquiry); see also Moss v. Parr Waddoups Brown Gee & Loveless, 2012 UT
42, ¶ 23, 285 P.3d 1157 (stating elements of issue preclusion).
The Court finds Western is the
best source of information about its relationship with American Asphalt. Under these
circumstances, the Court grants the Directors and Officers’ Motion regarding American Asphalt
with limitations. These limitations assure the relevance and proportionality of the discovery.
This Court Grants the Motion in Part as set forth above and Denies the remainder.
DATED this 28th day of December, 2016.
BY THE COURT:
EVELYN J. FURSE
United States Magistrate Judge
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