Archive for the 'NJ – Reinsurance' Category

JANUARY 2018 BAD FAITH CASES: COURT ALLOWS LIMITED BAD FAITH DISCOVERY ON THIRD PARTY ADMINISTRATOR THAT WAS NOT PARTY TO THE BAD FAITH ACTION (District of New Jersey)

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In this reinsurance litigation, non-party Resolute Management, Inc. (“Resolute”) filed a motion to quash a FRCP 30(b)(6) deposition served upon it by Defendant/insured J.M. Huber Corporation. Resolute sought a protective order barring the insured from inquiring into certain subjects during the future depositions of two of its employees. Additionally, Plaintiff/insurer Continental Casualty moved for a protective order barring the insured from inquiring into certain subjects during the insurer’s 30(b)(6) deposition. The insured opposed both Resolute’s motion and the insurer’s motion.

BACKGROUND

The factual background is as follows: Between 1969 and 1994, the insurer issued policies to the insured that were subject to “incurred loss retrospective premium plans” whereby the insured’s premiums are calculated according to the total number of payments and reserves on claims submitted under the policies. The retrospective premiums are calculated annually on the 1st of December, and continue year to year until all claims submitted are closed or until the maximum premium is reached. These retrospective premiums are called “Rating Plan Adjustments.”

The insurer sued over multiple unpaid invoices from previous Rating Plan Adjustments. The insurer alleged it was owed $33,629 under a March 2012 invoice, $737,116 under a March 2013 invoice, and $978,222 under a February 2014 Rating Plan Adjustment calculation. As such, the insurer brought claims for breach of contract and unjust enrichment.

The insured then filed its answer and brought counterclaims for breach of contract and breach of the duty of good faith and fair dealing. The insured alleged that, for decades, both parties enjoyed a professional and amicable relationship where any questions the insured would have about the Rating Plan Adjustments would be satisfactorily answered by the insurer and then promptly paid.

According to the insured, this all changed in 2010 when Berkshire Hathaway and its affiliates, Resolute and National Indemnity Company (“NICO”) “entered into an agreement with [the insurer] pursuant to which [the insurer’s] legacy asbestos and environmental pollution liabilities were transferred to NICO.”

It was alleged that once NICO assumed the insurer’s liabilities, Resolute became a third-party administrator of the insured’s asbestos and environmental claims. After having questions about the particular invoices on the Rating Plan Adjustments, the insured contends that neither the insurer nor Resolute satisfactorily addressed its concerns, and the insured was never provided with an adequate explanation as to the basis of the contested premiums.

ARGUMENTS

In filing the motion to quash, Resolute wanted to prevent the insured from exploring particular subjects during depositions concerning Resolute’s and the insurer’s (1) corporate practices, (2) claims handling procedures, and (3) the corporate relationships between the insurer, Resolute, NICO, and Berkshire Hathaway. The motion concerns both the Rule 30(b)(6) depositions and the depositions of particular Resolute employees.

The insurer and Resolute argued that the insured’s 30(b)(6) deposition topics were overbroad, would cause an undue burden, and would seek irrelevant information. They argued that the insured should only seek information relevant to the calculation of the retrospective premiums, and that the insured’s efforts were unreasonably duplicative because the insured seeks very similar, if not identical, information from both Resolute and the insurer.

The insured argued that all of the information was necessary for the claims and relevant. Resolute and the insurer also filed a motion for a protective order, seeking to bar the insured from inquiring into certain topics during the depositions of two particular Resolute employees. The insured took the position these employees are key witnesses.

COURT’S ANALYSIS

Initially, in discussing Federal Rule of Civil Procedure 26, the Court stated that “[it] is required to limit discovery where (i) the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive; (ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or (iii) the proposed discovery is outside the scope permitted by Rule 26(b)(1).”

The Court also addressed FRCP 45 governing subpoenas. The Court stated that four circumstances would warrant it to quash or modify a subpoena: (i) if the subpoena fails to allow a reasonable time to comply; (ii) if it requires a person to comply beyond the geographical limits specified in Rule 45(c); (iii) if it requires disclosure of privileged or other protected matter, if no exception or waiver applies; or (iv) if it subjects a person to an undue burden.

Failure to specify basis for objections and harm from compliance

The Court ruled that Resolute failed to (1) state its objections to the insured’s subpoena with specificity, and (2) it further failed to articulate any specific harm that could arise with its compliance. Thus, the court denied Resolute’s motion to quash. For the same reasons, the Court also denied Resolute’s motion for a protective order.

Discovery limited on some topics

Ruling in Resolute’s favor, the Court found that some of the insured’s deposition topics did exceed the scope of permissible discovery, and specifically limited such topics. These included (1) privileged information between Resolute and the insurer, (2) lawsuits against Resolute involving its administration of claims on behalf of other insurers, (3) particular document demands it found unreasonably cumulative, and (4) the insurer’s losses under other policies and Resolute’s knowledge thereof.

Discovery of corporate relationships, claims handling, and operating protocols relevant within limits

The Court further ruled that “discovery into the corporate relationships between [the insurer, Resolute, NICO, and Berkshire Hathaway], along with Resolute’s claims handling practices and operating protocols, is relevant to [the insured’s] claims and defenses in this matter.”

However, the Court went on to limit the discovery here to only relevant pieces of information, such as Resolute’s corporate structure and its affiliations.

The Court further limited the insured’s inquiries to “communications and correspondence regarding Resolute’s administration of Defendant’s claims; and Resolute’s policies, procedures and practices regarding the administration of claims on behalf of Plaintiffs involving retrospective premiums and its financial goals related to the same.”

The Court looked at a prior case involving Resolute, Pepsi-Cola Metro. Bottling Co. v. Ins. Co. of N. Am., No. CIV 10-MC-222, 2011 U.S. Dist. LEXIS 154369, 2011 WL 239655 (E.D. Pa. Jan. 25, 2011). That case also involved a bad faith claim against insurers, where the insureds “sought discovery from the insurers’ claims handler, non-party Resolute Management, Inc. by way of a 30(b)(6) subpoena. The 30(b)(6) subpoena sought information related to Resolute’s corporate relationships and structure and its operating protocols and business practices.

Resolute moved for a protective order and to quash the 30(b)(6) subpoena claiming that the information sought regarding its corporate relationships and business practices was irrelevant to the plaintiff’s claims against its insurers for bad faith.” Resolute argued “that its operating protocols and business practices were irrelevant to the plaintiff’s allegations….”

The Pepsi Court “noted that [t]o show bad faith, as opposed to mere negligence ‘a review of the policies and procedures of the companies in order to determine whether those policies instructed claims handlers to act in bad faith or provided them with an incentive structure that led to bad faith action is necessary,”

“Accordingly, in light of the plaintiff’s contention that the reinsurance relationship between the plaintiff’s insurers and Resolute and their claims handling practices may have resulted in the bad faith denial of the plaintiff’s claims, the [Pepsi] court found that the plaintiff had provided sufficient evidence of the relevance of the information sought by the subpoena and allowed the plaintiff to obtain discovery regarding Resolute’s corporate relationships and structure and its operating protocols and business practices.”

The present Court followed the Pepsi opinion, and agreed with the insureds’ position in concluding “that Defendant has demonstrated the requisite relevance of the information it seeks to its claims in this matter. In this case, Defendant claims that once Resolute became Plaintiffs’ third-party administrator, Defendant received improper and unexplained retrospective premium notices from Resolute and a letter from Resolute ‘abruptly’ denying coverage for a claim which Plaintiffs had long been providing coverage. …. Because Defendant’s bad faith claims against Plaintiffs result from conduct which arose when Resolute began handling Defendant’s claims, Defendant claims that the corporate relationships between Plaintiffs, Resolute, NICO and Berkshire Hathaway, and the corporate practices of these entities as they relate to Resolute’s claims handling practices is relevant to Defendant’s bad faith claim against Plaintiffs.”

Thus, “discovery into the corporate relationships between Resolute and Plaintiffs and Resolute as its affiliates, along with Resolute’s claims handling practices and operating protocols, is relevant to Defendant’s claims and defenses in this matter.” The Court went to limit that discovery: “However, while the Court will permit discovery into Resolute’s corporate relationships and general practices, Defendant’s requests must be narrowed to seek such information only as relevant to the claims in this matter.”

The Court found that the insurer failed to articulate the specific harm it would suffer if it complied with the insured’s subpoena, so its motion for a protective order was denied. Similarly, the Court also limited the scope of the insured’s discovery against the insurer to relevant information.

Date of Decision: December 19, 2017

Continental Casualty Co. v. J.M. Huber Corp., No. 13-4298 (CCC), 2017 U.S. Dist. LEXIS 208182 (D.N.J. Dec. 19, 2017) (Clark, III, M.J.)