Security National Insurance Company v. Construction Associates of Spokane Inc, No. 2:2020cv00167 - Document 89 (E.D. Wash. 2021)

Court Description: ORDER GRANTING, IN PART, 72 DEFENDANTS' MOTION TO COMPEL, DENYING 84 PLAINTIFF'S MOTION FOR PROTECTIVE ORDER, AND DIRECTING PLAINTIFF TO SUBMIT MATERIALS FOR IN CAMERA REVIEW. Signed by Magistrate Judge John T. Rodgers. (LTR, Case Administrator)

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Security National Insurance Company v. Construction Associates of Spokane Inc Doc. 89 FI LED I N THE U.S. DI STRI CT COURT EASTERN DI STRI CT OF WASHI NGTON 1 UNITED STATES DISTRICT COURT 2 EASTERN DISTRICT OF WASHINGTON May 06, 2021 SEAN F. MCAVOY, CLERK 3 4 SECURITY NATIONAL INSURANCE COMPANY, 5 6 Plaintiff, 7 v. 8 9 10 CONSTRUCTION ASSOCIATES OF SPOKANE, INC.; and MARK AND JENNIFER WILSON, 11 No. 2:20-CV-0167-SMJ ORDER GRANTING, IN PART, DEFENDANTS’ MOTION TO COMPEL, DENYING PLAINTIFF’S MOTION FOR PROTECTIVE ORDER, AND DIRECTING PLAINTIFF TO SUBMIT MATERIALS FOR IN CAMERA REVIEW Defendants. 12 13 BEFORE THE COURT is a motion to compel discovery by Defendants 14 15 Mark and Jennifer Wilson. ECF No. 72. The motion was referred to the 16 undersigned magistrate judge on April 14, 2021, ECF No. 76, the motion was 17 argued in open court on May 4, 2021, and the matter was taken under advisement. 18 19 20 21 A. Factual Background In 2016, Plaintiff Security National Insurance Company issued a liability policy to Merit Electric of Spokane, Inc. (“Merit Electric” or “Merit”). 22 On August 30, 2016, Defendant Mark Wilson, an employee of Merit 23 Electric, was working on a project at the Paulsen Center located at 421 W. 24 Riverside, Ave., Spokane, Washington. On that date, Defendant Mark Wilson 25 sustained a work-related injury at the Paulsen Center. 26 Defendants Mark and Jennifer Wilson thereafter sued Defendant 27 Construction Associates of Spokane, Inc. (“Construction Associates” or “CAS”) as 28 a result of the Paulsen Center injury. ORDER . . . - 1 Dockets.Justia.com 1 On September 3, 2019, CAS contacted the insurance broker of Merit Electric 2 at Alliant Insurance Services, Inc. (“Alliant”) requesting a Certificate of Insurance 3 (“COI”) that might serve as evidence of additional insured (“AI”) coverage for 4 CAS under Merit Electric’s liability insurance. 5 On September 3, 2019, Alliant emailed a copy of a Certificate of Insurance 6 issued March 29, 2016 to CAS on behalf of Merit Electric for work performed by 7 Merit Electric on the Coeur d’Alene Courthouse Plaza project. A later email 8 submitted by Alliant contained a Certificate of Insurance, dated September 3, 9 2019, that purportedly applied retroactively to the 2016 liability policy, conferring 10 additional insured status to CAS with respect to general liability for Merit 11 Electric’s operations as the electrical subcontractor on the Paulsen Center remodel 12 project. 13 CAS, viewing the September 3, 2019 Certificate of Insurance generated by 14 Alliant as applicable and binding, sought to have Plaintiff Security National defend 15 and indemnify CAS against the lawsuit filed by Defendants Mark and Jennifer 16 Wilson. Plaintiff Security National advised CAS that the information was 17 insufficient to demonstrate CAS was an additional insured under Merit Electric’s 18 policy. Therefore, Plaintiff Security National denied defense and indemnity to 19 CAS as an additional insured on the insurance policy issued to Merit Electric. 20 Defendant CAS subsequently entered into a settlement agreement with 21 Defendants Mark and Jennifer Wilson and assigned its rights against Plaintiff 22 Security National to Defendants Mark and Jennifer Wilson. 23 24 25 B. Procedural Background On April 30, 2020, Plaintiff Security National brought this action against 26 Defendants for declaratory judgment, misrepresentation, insurance fraud and 27 violation of Wash. Rev. Code § 48.01.030. Defendants have filed counterclaims 28 for breach of contract, violation of Washington State’s Insurance Fair Conduct Act, ORDER . . . - 2 1 violations of Washington State’s Consumer Protection Act, violations of the duty 2 of good faith, negligence, coverage by estoppel, and damages pursuant to the 3 Olympic Steamship doctrine. A 10-day jury trial is scheduled for December 6, 4 2021. ECF No. 63. On April 5, 2021, Defendants filed the instant motion to compel discovery. 5 6 ECF No. 72. Plaintiff filed a combined response and motion for a protective order 7 on April 19, 2021, ECF No. 78, and an amended response on April 26, 2021, ECF 8 No. 84. Defendants filed a reply on April 26, 2021, ECF No. 82, and an additional 9 reply on May 3, 2021, ECF No. 87. The foregoing discovery dispute has been 10 referred to the undersigned for resolution. ECF No. 76. 11 12 13 C. Legal Standard The purpose of discovery is to make trial “less a game of blind man’s bluff 14 and more a fair contest with the basic issues and facts disclosed to the fullest 15 practicable extent possible,” United States v. Procter & Gamble, 356 U.S. 677, 683 16 (1958), and to narrow and clarify the issues in dispute, Hickman v. Taylor, 329 17 U.S. 495, 501 (1947). 18 19 20 21 22 23 24 25 Fed. R. Civ. P. 26(b)(1) establishes the scope of discovery and states in pertinent part: 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. Information within this scope of discovery need not be admissible in evidence to be discoverable. 26 27 “The party who resists discovery has the burden to show that discovery 28 should not be allowed, and has the burden of clarifying, explaining, and supporting ORDER . . . - 3 1 its objections.” Oakes v. Halvorsen Marine Ltd., 179 F.R.D 281, 283 (C.D. Cal. 2 1998); Nestle Foods Corp. v. Aetna Casualty & Surety Co., 135 F.R.D. 101, 104 3 (D. N.J. 1990). 4 5 D. Motion to Compel Discovery 6 Based on the briefing of the parties and the argument presented at the 7 hearing, the Court believes there are four categories of discovery being challenged 8 as improperly withheld from disclosure: (1) communications regarding the 9 handling, processing, investigating and evaluating of the claim in this case (Cedell 10 materials); (2) information asserted by Plaintiff as proprietary; (3) claims handling 11 manuals or materials; and (4) underwriting documents. 12 1. 13 Information RE: CAS’ tenders and decision-making process (Interrogatories 1, 2, 6 & 7; RFP 2 & 12) 14 Defendants contend that while Security National has identified some 15 individuals who participated or were substantively involved in the coverage 16 decision, it has not provided all information (or documentation) about what those 17 individuals did. ECF No. 82 at 8. Defendants argue Security National has refused 18 to fully provide what is discoverable under Cedell (information regarding the 19 handling, processing, investigating, and evaluating of the claim in this case). ECF 20 No. 72 at 5-6; ECF No. 82 at 7-8. 21 Plaintiff indicates it has fully responded to Interrogatories 1 & 2 by 22 identifying all individuals by name and title and by providing a separate 23 spreadsheet matching all the claims note entries with the individual who authored 24 the entry. ECF No. 84 at 5-6. As to Interrogatories 6 & 7 and RFP 12, Plaintiff 25 states it has provided a narrative response and all requested documents; there is 26 nothing further to provide. ECF No. 84 at 7. Plaintiff indicates the claims notes 27 and claims file identify all actions taken to investigate and evaluate CAS’ tender 28 /// ORDER . . . - 4 1 and all information Security National considered in its investigation and evaluation 2 of CAS’ tender. 3 Defendants argue Security National has not complied with its disclosure 4 obligations under Cedell. Plaintiff contends any documents withheld or redacted 5 pertaining to this category of information are “work product” where the attorney 6 involved was providing the insurer with counsel as to potential bad faith liability 7 exposure in preparation for litigation. ECF No. 84 at 2, 5, 10-11. 8 The application of attorney-client privilege and work-product protection in 9 Washington State is limited in the context of an insurance bad faith claim. Cedell 10 v. Farmers Ins. Co. of Washington, 295 P.3d 239, 246 (2013). An insurer may not 11 obstruct discovery of the claims file merely because of the participation of lawyers 12 or threat of litigation. Id. at 245-246 (the attorney-client privilege does not extend 13 to materials concerning the investigation, evaluation, and processing of the 14 insured’s claim). However, a party’s right to access an insurer’s claims file is not 15 absolute. The insurer may overcome the presumption of discoverability by 16 showing its attorney was not engaged in the quasi-fiduciary tasks of investigating 17 and evaluating or processing the claim, but instead in providing the insurer with 18 counsel as to its own potential liability. Id. at 246. This “work-product doctrine” 19 protects from discovery “documents and tangible things that are prepared in 20 anticipation of litigation or for trial by or for another party or its representative.” 21 United States v. Richey, 632 F.3d 559, 567 (9th Cir. 2011). The party invoking the 22 work product doctrine bears the burden of establishing that it applies. Id. at 566. 23 After reviewing the parties’ briefing and considering the argument of 24 counsel at the hearing on the motion, the Court finds in camera review of the 25 pertinent withheld materials is necessary in order to determine whether those 26 materials involve Security National’s attorney work product (legal advice or in 27 anticipation of litigation) or are discoverable under Cedell (materials concerning 28 the investigation, evaluation, and processing of the insured’s claim). ORDER . . . - 5 2. 1 2 Communications with Merit and Alliant RE: Merit’s policies (Interrogatories 3 & 4; RFP 3 & 4) 3 Defendants argue that Plaintiff’s claim that it can withhold information that 4 is proprietary to Merit or Alliant is unsupported. ECF No. 72 at 6-7; ECF No. 82 5 at 9. Defendants assert Security National has provided no valid basis for refusing 6 to provide a complete record of its communications with both Merit and Alliant 7 regarding Merit’s insurance policies. 8 Plaintiff indicates all claims notes, the claims file, and all relevant 9 communication in the Underwriting Department file have been produced. ECF 10 No. 84 at 6. Plaintiff’s “proprietary interest” objections argue information 11 proprietary to Security National (i.e. how premiums were calculated, reinsurance, 12 etc.) and to Merit (i.e. applications, other clients, etc.) is irrelevant to this action. 13 ECF No. 84 at 8, 11. 14 Pursuant to Fed. R. Civ. P. 26(b)(1), parties may obtain discovery regarding 15 any nonprivileged matter that is relevant to any party’s claim or defense, and the 16 party resisting discovery has the burden to show that discovery should not be 17 allowed and has the burden of clarifying, explaining, and supporting its objections. 18 As asserted by Defendants, information that is allegedly confidential or proprietary 19 is not rendered wholly undiscoverable, and such information could be protected 20 from broad public disclosure by a properly tailored protective order. See ECF No. 21 82 at 9. 22 The Court is not convinced that a party may properly refuse to disclose 23 information in discovery because it is proprietary or personal. The burden is on 24 Plaintiff to explain its withholding of evidence, and the Court finds Plaintiff has 25 failed to justify the withholding of materials on the basis of a proprietary interest. 26 Plaintiff shall be compelled to disclose materials withheld as proprietary. 27 /// 28 /// ORDER . . . - 6 1 3. Manuals, Guidelines, Standards, or Training Material (RFP 7) 2 Defendants argue that claims manuals and guidelines, “the existence of 3 which is not in doubt,” are relevant in insurance bad faith cases to allow a party to 4 compare standards for evaluating claims with the conduct of agents. ECF No. 72 5 at 8-9. Defendants assert it is difficult to credit Security National’s assertion that it 6 does not provide claims handling manuals or materials to its employees. ECF No. 7 82 at 10. Plaintiff states there were no claims manuals effective on the dates identified 8 9 10 by Defendants. ECF No. 84 at 7. Plaintiff indicates there are no responsive “Claims Guidelines” to produce. ECF No. 84 at 4. 11 Claims manuals and guidelines are relevant in insurance bad faith cases 12 because they allow a party to “compare defendant’s standards for evaluating claims 13 with the conduct of defendant’s agents. . . . A failure to follow established policy 14 could make it more likely that defendant acted in bad faith.” See ECF No. 72 at 8- 15 9 quoting Consugar v. Nationwide Ins. Co. of Am., 2011 WL 2360208 at *5-6 16 (M.D. Pa. 2011). While an insurer’s internal guidelines do not set the standard of 17 reasonable care, they may show an industry participant’s custom or practice and 18 provide a benchmark by which to compare conduct and policies. Ro v. Everest 19 Indemnity Insurance Company, 2017 WL 368349 at *1 (W.D. Wash. 2017). 20 The Court finds the requested materials are relevant and discoverable. 21 Plaintiff shall be compelled to produce any manuals, guidelines, or materials that 22 apply generally to its handling of the type of claims at issue in this case. 23 4. Underwriting Documents (RFP 8) 24 Defendants allege Security National has declined to produce any 25 underwriting documents, ECF No. 72 at 9-11; ECF No. 82 at 10-11, and the fact 26 that the request may seek proprietary or personal information does not exempt such 27 material from discovery, ECF No. 72 at 10. 28 /// ORDER . . . - 7 1 Plaintiff indicates Security National has produced the relevant portions of 2 the Underwriting Department file in response to RFP 8. ECF No. 84 at 4. Plaintiff 3 states Security National has produced the insurance policy documents (the bulk of 4 the file) and all communication concerning “AI” coverage and the remaining 5 documents are irrelevant and/or contain information proprietary to Security 6 National or Merit. ECF No. 84 at 8. “[P]re-trial discovery is ordinarily ‘accorded a broad and liberal treatment.’” 7 8 Shoen v. Shoen, 5 F.3d 1289, 1292 (9th Cir. 1993) (quoting Hickman v. Taylor, 9 329 U.S. 495, 507 (1947)). Therefore, unless good cause is established, or a 10 privilege applies, a party “may obtain discovery regarding any . . . matter that is 11 relevant to any party’s claim” or “appears reasonably calculated to lead to the 12 discovery of admissible evidence.” Fed. R. Civ. P. 26(b)(1). The party resisting 13 discovery has the burden to show that discovery should not be allowed. Information in the underwriting file may be relevant to this case, see Bayley 14 15 Const. v. Wausau Bus. Ins. Co., 2012 WL 6553790 at *2 (W.D. Wash. 2012) 16 (finding information contained in an underwriting file relevant to claims for denial 17 of coverage and may lead to the discovery of other admissible evidence), and the 18 burden is on Plaintiff to explain its withholding of evidence. The Court finds Plaintiff has made no showing of prejudice or harm that 19 20 would occur from the discovery of the underwriting materials related to this case, 21 and, as discussed above, the Court is not persuaded that information can be 22 withheld on the basis of a proprietary or personal interest. Therefore, Plaintiff 23 shall disclose the underwriting documents requested by Defendants. 24 25 26 E. Verify Interrogatory Answers Defendants assert that Fed. R. Civ. P. 33(b)(5) requires a party to verify 27 interrogatory answers. ECF No. 72 at 11. Defendants, citing an unpublished 28 District of New Mexico case, allege the “[f]ailure to verify an answer to an ORDER . . . - 8 1 interrogatory renders that answer incomplete.” ECF No. 72 at 11 quoting Martinez 2 v. Salazar, 2015 WL 13638319 at *1 (D. N.M. 2015). 3 Plaintiff responds it has never refused to provide verifications and a third 4 supplemental production on April 6, 2021, and a fourth supplemental production 5 on April 16, 2021, included Defendants’ requested verifications. ECF No. 84 at 9. 6 Fed. R. Civ. P. 33(b)(5) provides “[t]he person who makes the answers must 7 sign them, and the attorney who objects must sign any objections.” 8 The parties are directed to comply with Rule 33(b)(5). 9 10 F. Attorney’s Fees and Costs 11 Defendants’ request, pursuant to Fed. R. Civ. P. 37(a)(5), that Plaintiff 12 Security National be ordered to pay Defendants’ attorney’s fees and costs for 13 bringing this motion. ECF No. 72 at 11; ECF No. 82 at 11. 14 Plaintiff asserts Security National has taken its discovery obligations 15 seriously and has provided all responsive, relevant information in its possession, 16 subject to privilege objections. ECF No. 84 at 9. 17 When a motion to compel is granted, the Court must, after giving an 18 opportunity to be heard, require the party whose conduct necessitated the motion, 19 the party or attorney advising that conduct, or both to pay the movant’s reasonable 20 expenses incurred in making the motion, including attorney’s fees, unless the 21 opposing party’s nondisclosure was substantially justified or other circumstances 22 make an award of expenses unjust. Fed. R. Civ. P. 37(a)(5). If necessary, the Court shall set a briefing schedule for fees. However, at 23 24 this time, the Court reserves ruling on Defendants’ request for fees until the 25 completion of in camera review. 26 /// 27 /// 28 /// ORDER . . . - 9 1 G. 2 Plaintiff’s Motion for Protective Order Plaintiff has moved for a protective order for two document categories: 3 attorney-client communications and documents in the Security National 4 Underwriting Department. ECF No. 84 at 10. Fed. R. Civ. P. 26(c) is a safeguard to protect parties and witnesses in view 5 6 of Fed. R. Civ. P. 26’s broad discovery rights. United States v. Columbia 7 Broadcasting System, Inc., 666 F.2d 364, 368-369 (9th Cir. 1982). For “good 8 cause shown,” a court may issue a protective order “to protect a party or person 9 from annoyance, embarrassment, oppression, or undue burden or expense.” Fed. 10 R. Civ. P. 26(c)(1). To obtain a protective order, the party resisting discovery or seeking 11 12 limitations must show “good cause” for its issuance. Fed. R. Civ. P. 26(c)(1). 13 Generally, a party seeking a protective order has a “heavy burden” to show why 14 discovery should be denied and a strong showing is required before a party will be 15 denied the right to discovery. Blankenship v. Hearst Corp., 519 F.2d 418, 429 (9th 16 Cir. 1975). “The decision to issue a protective order rests within the sound 17 discretion of the trial court.” Seiter v. Yokohama Tire Corp., 2009 WL 2461000 at 18 *1 (W.D. Wash. 2009). 19 As discussed above, Plaintiff’s attorney-client communications shall be 20 submitted for in-camera review and Plaintiff is directed to disclose its underwriting 21 materials. Plaintiff’s motion for a protective order preventing the disclosure of 22 these documents is thus denied. 23 Based on the foregoing, IT IS HEREBY ORDERED: 24 1. 25 Defendants’ Motion to Compel, ECF No. 72, is GRANTED IN PART and RESERVED IN PART, pending further in camera review. 2. 26 Plaintiff’s Motion for Protective Order, ECF No. 84, is DENIED 27 WITHOUT PREJUDICE. 28 /// ORDER . . . - 10 1 3. Plaintiff shall file (using the ECF event for in camera review) 2 unredacted documents previously withheld from disclosure as attorney work 3 product within Five (5) days of this Order. The materials shall be provided in a 4 searchable electronic format. The Court will then complete the in camera review 5 and issue a separate supplement to this Order. 6 4. Plaintiff shall forthwith produce to Defendants (1) all communications 7 with Merit and Alliant regarding Merit’s policies previously withheld on the basis 8 of a proprietary or personal interest; (2) all manuals, guidelines, or materials that 9 apply generally to its handling of the type of claims at issue in this case; and (3) the 10 11 underwriting materials related to this case. 5. With respect to the materials ordered produced by this Court in the 12 preceding paragraph, the Court may entertain a properly tailored, jointly provided 13 protective order in order to prevent the broad public disclosure of certain sensitive 14 information. 15 16 17 IT IS SO ORDERED. The District Court Executive is directed to file this Order and provide copies to counsel. DATED May 6, 2021. 18 _____________________________________ JOHN T. RODGERS UNITED STATES MAGISTRATE JUDGE 19 20 21 22 23 24 25 26 27 28 ORDER . . . - 11

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