City of Orem et al v. Essex Insurance Company

Filing 128

MEMORANDUM DECISION AND ORDER Sustaining in Part and Overruling in Part Defendant's Partial Objection to Magistrate's Memorandum Decision and Order 102 : 1) Plaintiffs shall be allowed to take a Rule 30(b)(6) deposition of a managerial employee of Evanston most knowledgeable regarding the claims manuals, construed broadly to include company policies and procedures regarding claims; 2) The court strikes the final sentence of paragraph 3 of the Sanctions Order, which pr ovides, "[Evanston] shall pay for the reasonable attorney fees and expenses associated with the taking of this deposition"; 3) Evanston is ORDERED to comply with paragraph 2 of the Sanctions Order, which provides that "Defendant shall produce to Plaintiffs Markel's underwriting guidelines in place at the time the City's policy was issued, the Letter of Authority, and any other underwriting guidelines, manuals, policies, procedures, or other documents relied upon by the u nderwriter in issuing the City's policy"; and 4) Plaintiffs are awarded reasonable expenses, including attorneys' fees, related to Evanston's refusal to produce the documents as ordered by the Production Order. Signed by Judge Jill N. Parrish on 1/24/18. (dla)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
CITY OF OREM and JAMES LAURET,
MEMORANDUM DECISION AND
ORDER SUSTAINING IN PART AND
OVERRULING IN PART DEFENDANT’S
PARTIAL OBJECTION

Plaintiffs,
v.
EVANSTON INSURANCE COMPANY,
Defendant.

Case No. 2:16-cv-425-JNP
District Judge Jill N. Parrish

I.

BACKGROUND

This is an insurance case. In 2014, the City of Orem sponsored a Summerfest Parade (the
“Parade”). During the Parade, an explosion injured two children, Nylie and Liam Tanaka. They
sued the City and the chairman of the Parade (collectively, “Plaintiffs”). The City had purchased
a general commercial liability insurance policy (the “Policy”) for the Parade. The Policy was
issued by Essex Insurance Company, which later merged and was succeeded by Evanston
Insurance Company (collectively, “Evanston”). The Plaintiffs tendered the Tanaka lawsuit to
Evanston. But after investigating the incident and seeking independent legal advice, Evanston
determined that it did not have a duty to defend or indemnify Plaintiffs. As such, Plaintiffs paid
for their own defense and eventually settled the lawsuit.
During the pendency of the Tanaka lawsuit, Plaintiffs filed the above-captioned case in
state court. They seek a declaration (1) that the Policy provides coverage and (2) that Evanston
had a contractual duty to defend them. They also allege breach of contract and breach of the
implied covenant of good faith and fair dealing. Further, they claim they are entitled to “the

amount of any costs or expenses defending the [lawsuit], any amount paid in settlement . . . , and
any other amounts this court deems just.” Evanston removed the case to federal court on May 20,
2016.
On June 20, 2017, Plaintiffs filed a short-form motion to compel. First, Plaintiffs sought
to compel Evanston to produce the claims guidelines, policies, procedures, and manuals relating
to the handling of claims such as the Tanaka’s claims against the City. Second, Plaintiffs sought
to compel Evanston to produce its underwriting guidelines and policies. This matter was referred
to Magistrate Judge Paul M. Warner.
On July 3, 2017, Judge Warner issued a Memorandum Decision and Order (the
“Production Order”). It compelled Evanston to produce the following two categories of
documents: (1) claims manual or similar documents applicable to the subject claim; and (2)
underwriting materials that were utilized to underwrite the Policy. Specifically, the Production
Order provides:
(1)

If a claims manual existed during the creation and administration of the
City’s policy, it is relevant to Plaintiffs’ claims and discoverable.
Accordingly, the court orders Evanston to produce any claims manual that
would have assisted Evanston’s claims adjusters in evaluating the City’s
claim for coverage. This order should be construed broadly. A claims
manual may include any company policy or procedure that would have
assisted a claims adjuster in addressing the City’s claim.

(2)

With respect to Evanston’s underwriting materials, the court agrees with
Evanston that Plaintiffs are only entitled to the underwriting information
utilized to underwrite the City’s policy. As it is written, Plaintiffs’ request
is overly broad and is not proportional to the needs of the case. Therefore,
Evanston is ordered to produce any underwriting policies, procedures, and
guidelines utilized by Evanston in underwriting the City’s policy.

The court will refer to the first category as the “Claims Manual Category” and the second as the
“Underwriting Material Category.”

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Evanston did not produce documents falling into either category. Consequently, Plaintiffs
contended that Evanston violated the Production Order and that the court should impose
sanctions on Evanston pursuant to Federal Rule of Civil Procedure 37(b)(2). Evanston argued
that, despite failing to produce any documents, it had fully complied with the Production Order
because (1) a claims manual did not exist at the time the claim at issue was evaluated and (2)
“any underwriting guidelines in place were not utilized in the underwriting of the policy at
issue.” Plaintiffs’ request for sanctions was also referred to Judge Warner.
On November 7, 2017, Judge Warner issued a Memorandum Decision and Order (the
“Sanctions Order”). First, Judge Warner held that Evanston’s failure to produce anything related
to the Claims Manual Policy category “violate[d] both the letter and the spirit of the [Production]
Order.” Consequently, Judge Warner ordered Evanston to produce “whatever document, policy,
procedure, or guideline that was relied upon by the claims adjuster in making the decision
regarding the City’s claim, in compliance with the [Production] Order.” But Judge Warner also
gave Evanston the opportunity if it “continue[d] to insist that no such documents, policies,
procedures, or guidelines exist,” to “produce to Plaintiffs a declaration or affidavit confirming
the same, and explaining in detail exactly how the decision regarding the City’s claim was
made.”
Despite giving Evanston the opportunity to verify its position (i.e., that no claims
manuals or similar documents existed), Judge Warner imposed sanctions on Evanston.
Specifically, Judge Warner ordered that Plaintiffs be allowed to take a Rule 30(b)(6) deposition
of a managerial employee of Evanston most knowledgeable regarding the claims manual,
construed to include company policies and procedures regarding claims. Moreover, Judge

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Warner ordered that Evanston pay Plaintiffs the reasonable attorneys’ fees and expenses
associated with the deposition.
Second, as to the Underwriting Material Category, Judge Warner held that Evanston
violated the Production Order when it failed to produce a Letter of Authority, which “sets forth
the maximum premium and maximum coverage for an underwriter.” According to Judge
Warner, the Letter of Authority defined the limits of discretion given to the underwriters to quote
businesses and thus it was utilized by Evanston in underwriting the City’s policy. Judge Warner
also held that Evanston violated the Production Order when it failed to produce certain
underwriting guidelines. Consequently, Judge Warner ordered Evanston to produce the Letter of
Authority and the underwriting guidelines. Judge Warner, based on his determination that
Evanston violated the Production Order, awarded Plaintiffs reasonable attorneys’ fees related to
Evanston’s refusal to produce documents related to the Production Order.
In response to the Sanctions Order, Evanston produced an affidavit from David Ashley, a
Senior Claims Director for Markel Services, Inc. 1 Markel is the claims service manager for
Evanston. In the affidavit, Mr. Ashley states that “[i]n 2014 and 2015, [Markel] did not have (in
either electronic form or hard-copy) a written claims manual, policies, procedures, guidelines, or
other document that [the claims adjuster] could have consulted for the Tanaka Loss that would
be used to evaluate coverage. [Markel] did not issue a claims procedure manual of any type until
October 2016.” (emphasis added). 2

1

The court includes this paragraph for additional background only. Evanston asks the court to
take Mr. Ashley’s affidavit into account when ruling on its objection. But Judge Warner did not
consider the affidavit when he imposed sanctions. Indeed, Evanston produced the affidavit after
Judge Warner issued the Sanctions Order. Because Judge Warner did not consider the affidavit, it
would be improper for this court to consider it when reviewing Judge Warner’s Sanctions Order.
2

This is consistent with other representations made by employees of Markel. For instance, the
claims adjuster who worked on the claim at issue testified that there was no claims manual in
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II.

DISCUSSION

Evanston has objected to the Sanctions Order. First, Evanston contends that Judge
Warner erred when he ordered Evanston to provide and pay for a Rule 30(b)(6) deposition.
Second, Evanston contends that it was not required to produce the Letter of Authority or other
underwriting guidelines because they were not reviewed, consulted, or utilized in the
underwriting of the Policy. In short, Evanston claims that it was wrongfully sanctioned for
failing to produce documents that (1) never existed or (2) were not consulted, referred to, or
otherwise utilized in connection with the subject claim and the Policy.
A. MOTION STANDARD
Rule 37(b)(2) provides that “[i]f a party . . . fails to obey an order to provide or permit
discovery . . . the court where the action is pending may issue further just orders.” When a party
objects to a magistrate judge’s ruling, it must demonstrate that the order was “clearly erroneous”
or “contrary to law.” Fed. R. Civ. P. 72(a); 28 U.S.C. § 636(b)(1)(A). The clearly erroneous
standard requires that the reviewing court be left with a “definite and firm conviction that a
mistake has been committed.” Ocelot Oil Corp. v. Sparrow Indus., 847 F.2d 1458, 1464 (10th
Cir. 1988) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)).
B. THE CLAIMS MANUAL CATEGORY
Judge Warner held that Evanston’s failure to produce “anything at all [related to the
Claims Manual Category] violate[d] both the letter and the spirit of the [Production] Order.” But
Evanston has consistently maintained that it did not have a claims manual or similar document
when it issued the Policy and when it evaluated the claim. See supra note 2. Judge Warner was

2014. Goodman Dep. 18:4-16. Evanston’s counsel also confirmed in an email to Plaintiffs’
counsel that “there were no claims manuals during the creation of the City’s policy or at the time
the decisions were made regarding coverage decisions.”
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“skeptical” that “a claims adjuster would make a coverage decision without consulting any
policy, procedure, guidance, or other similar document.” But he did not determine that Evanston
was being untruthful when it claimed it did not have a claims manual or similar document.
Instead, he gave Evanston the opportunity to (1) produce a claims manual or similar document or
(2) produce a declaration or affidavit confirming that no claims manual or similar document
existed.
If Judge Warner had determined that Evanston misrepresented the existence of a claims
manual or similar documents, it would have been proper to order Evanston to pay the costs and
attorneys’ fees associated with a Rule 30(b)(6) deposition. In such a case, Evanston would have
violated the Production Order by failing to produce responsive documents. But Judge Warner
was merely skeptical of Evanston’s position. Indeed, he gave Evanston an opportunity to
produce a declaration or affidavit confirming its position. And if Evanston is telling the truth
(i.e., it did not have a written claims manual or similar document when the Policy was issued and
the claim was adjusted), it could not have violated the Production Order. Accordingly, the court
concludes that Judge Warner prematurely ordered Evanston to pay for a Rule 30(b)(6) deposition
because he had not found that Evanston misrepresented the existence of a claims manual or
similar document, which would have meant that Evanston violated the Production Order.
If Judge Warner determines that Evanston has not been truthful, he is free to impose
sanctions on Evanston, including costs and attorneys’ fees associated with the forthcoming Rule
30(b)(6) deposition. But it was premature to hold that Evanston violated the Production Order
before giving it an opportunity to confirm that it did not violate the Production Order. It was,
however, proper to order a Rule 30(b)(6) deposition to determine whether Evanston

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misrepresented the existence of a claims manual or similar documents. In sum, it was proper
order the Rule 30(b)(6) deposition but premature to order that Evanston pay for it.
For the reasons set forth above, the court concludes that it was premature to order
Evanston to pay for a Rule 30(b)(6) deposition concerning Evanston’s claims manuals and
similar documents. Accordingly, the court strikes the final sentence of paragraph 3 of the
Sanctions Order, which provides, “[Evanston] shall pay for the reasonable attorney fees and
expenses associated with the taking of th[e] [Rule 30(b)(6)] deposition.” 3 If Plaintiffs, after
taking the Rule 30(b)(6) deposition, find that Evanston has violated the Production Order, they
may then seek costs and attorneys’ fees associated with the deposition.
C. THE UNDERWRITING MATERIAL CATEGORY
Judge Warner ordered Evanston to produce “any underwriting policies, procedures, and
guidelines utilized by Evanston in underwriting the City’s policy.” (emphasis added). Evanston
contends that it was not required to produce a Letter of Authority, which “sets forth the
maximum premium and maximum coverage for an underwriter,” and certain underwriting
materials because they were not reviewed, consulted, or utilized in underwriting the Policy.
But the court is not persuaded by Evanston’s argument. As Judge Warner noted, “[b]y
[Evanston’s] own description, the Letter of Authority defines the limits of discretion given to
3

In their response to Evanston’s objection, Plaintiffs for the first time contend that, even if no
claims manual existed before 2016, the post-2016 claims manuals are relevant and should be
produced. The court agrees that such documents are relevant in that they would tend to establish
Evanston’s pre-2016 policies and procedures. As such, Evanston should produce them if they are
sought by Plaintiffs. The court is also concerned that Evanston may have violated the Federal
Rules of Civil Procedure when it instructed a witness not to answer questions about Evanston’s
claims manuals and guidelines. Rule 30(c)(2) provides that “[a] person may instruct a deponent
not to answer only when necessary to preserve a privilege, to enforce a limitation ordered by the
court, or to present a motion under Rule 30(d)(3).” (emphasis added). If Evanston instructs its
Rule 30(b)(6) witness not to answer questions at the forthcoming deposition without a basis for
doing so, it should be brought to Judge Warner’s attention so that the court can impose sanctions.

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Markel’s underwriters to quote business outside of the guidelines.” In short, the Letter of
Authority was “utilized” by the underwriter because it defined the underwriter’s discretion to
quote the Policy at issue. The fact that the underwriter did not “review” or “consult” the Letter of
Authority before quoting the Policy does not mean that the Letter of Authority was not
“utilized.” See use, BLACK’S LAW DICTIONARY 1776 (10th ed. 2014) (“To put into practice or
employ habitually or as a usual way of doing something; to follow as a regular custom.”). 4
Similarly, despite the fact that the Policy fell outside the scope of the underwriting guidelines,
the guidelines were “utilized” because someone determined that the Policy fell outside of their
scope. As such, Evanston violated the Production Order when it failed to turn over the Letter of
Authority and certain underwriting guidelines.
For the reasons set forth above, the court concludes that Judge Warner was justified in
ordering Evanston to produce Markel’s underwriting guidelines in place at the time the City’s
policy was issued, the Letter of Authority, and any other underwriting, manuals, policies
procedures, or other documents relied upon by the underwriter in issuing the City’s policy.
Accordingly, Evanston is required to comply with paragraph 2 of the Sanctions Order.
D. ATTORNEYS’ FEES
Evanston has objected to paragraph 4 of the Sanctions Order, which provides that
“Plaintiffs shall be awarded reasonable expenses, including attorneys’ fees, related to
[Evanston’s] refusal to produce the documents as ordered by the [Production] Order.” But as
detailed above, Evanston violated the Production Order when it failed to produce the Letter of

4

Evanston’s claim that it need not produce the Letter of Authority because “Mr. Schauss testified
about the Letter of Authority in detail” is without merit. A party cannot avoid producing a
document that it has been ordered to produce by simply claiming that the opposing party already
knows the contents of the document.
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Authority and its underwriting guidelines. Consequently, it was not clearly erroneous to award
Plaintiffs reasonable expenses, including attorneys’ fees.
III.

CONCLUSION AND ORDER

For the reasons set forth above, Evanston’s Partial Objection to Magistrate’s
Memorandum Decision and Order (ECF No. 102) is SUSTAINED IN PART and OVERRULED
IN PART. Accordingly, it is HEREBY ORDERED:
1. Plaintiffs shall be allowed to take a Rule 30(b)(6) deposition of a managerial
employee of Evanston most knowledgeable regarding the claims manuals,
construed broadly to include company policies and procedures regarding claims;
2. The court strikes the final sentence of paragraph 3 of the Sanctions Order, which
provides, “[Evanston] shall pay for the reasonable attorney fees and expenses
associated with the taking of this deposition”;
3. Evanston is ORDERED to comply with paragraph 2 of the Sanctions Order,
which provides that “Defendant shall produce to Plaintiffs Markel’s underwriting
guidelines in place at the time the City’s policy was issued, the Letter of
Authority, and any other underwriting guidelines, manuals, policies, procedures,
or other documents relied upon by the underwriter in issuing the City’s policy”;
and
4. Plaintiffs are awarded reasonable expenses, including attorneys’ fees, related to
Evanston’s refusal to produce the documents as ordered by the Production Order.
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Signed January 24, 2018
BY THE COURT

______________________________
Jill N. Parrish
United States District Court Judge

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