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In re Western Insurance Co.

United States District Court, D. Utah

December 28, 2016


          Honorable Dale A. Kimball, Judge


          EVELWJ. FWSE, United States Magistrate Judge

         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 decision.

         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 ...

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