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City of Orem v. Essex Insurance Co.

United States District Court, D. Utah, Central Division

November 7, 2017

CITY OF OREM and JAMES LAURET, Plaintiffs,
v.
EVANSTON INSURANCE COMPANY, Defendant.

          Jill N. Parrish District Judge

          MEMORANDUM DECISION AND ORDER

          PAUL M. WARNER Chief United States Magistrate Judge

         District Judge Jill N. Parrish referred this case to Chief Magistrate Judge Paul M. Warner pursuant to 28 U.S.C. § 636(b)(1)(A).[1] Before the court is Plaintiffs' Motion for Sanctions Against Defendant for Failing to Comply with Court's Order.[2] In addition, Defendant has filed Defendant's Objection to the Declaration of Gary T. Fye (the “Objection”)[3] in response to Plaintiffs' Amended Reply to Defendant's Opposition to Plaintiffs' Motion for Sanctions (the “Reply”).[4] Having reviewed the parties' briefs and the relevant law, the court renders the following Memorandum Decision and Order.[5]

         BACKGROUND

         In 2014, during the Summerfest Parade sponsored by the City of Orem (the “City”), Nylie and Liam Tanaka (the “Tanakas”) were injured by an explosion.[6] Subsequently, the Tanakas filed a personal injury lawsuit in state court against the City and the chairman of the Summerfest Parade, James Lauret.[7]

         During the incident, the City was covered by a general commercial liability policy issued by Defendant Evanston Insurance Company (“Defendant”).[8] Pursuant to the Evanston policy, Plaintiffs tendered the defense of the Tanakas' lawsuit to Evanston.[9] After investigating the incident and seeking independent legal advice, Defendant determined that the Tanakas' lawsuit fell outside the policy's coverage and, therefore, Defendant had no duty to defend and indemnify the City.[10] In response, Plaintiffs defended the Tanakas' lawsuit and eventually reached a settlement.[11]

         During the pendency of the Tanakas' lawsuit, Plaintiffs filed the above-captioned lawsuit in state court seeking a declaratory judgment that Defendant had a contractual duty to defend Plaintiffs and that the Tanakas' claims are covered by the Defendant's policy.[12] Plaintiffs also ask for relief under theories of breach of contract and breach of the implied covenant of good faith and fair dealing.[13] Furthermore, Plaintiffs claim they are entitled to “the amount of any costs or expenses defending the [Tanakas' lawsuit], any amount paid in settlement . . ., and any other amounts this court deems just.”[14] On May 20, 2016, Evanston removed this action to federal court.[15]

         On June 20, 2017, Plaintiffs filed a short form motion to compel Defendant to produce the claims guidelines, policies, procedures and manual relating to the handling of claims such as the Tanakas' claims against the City (the “Motion to Compel”).[16] Plaintiffs also sought to compel Defendant to produce its underwriting guidelines and policies.[17] This motion was referred to the undersigned.[18]

         On July 3, 2017, this court issued an order granting in part the Motion to Compel (the “Order”).[19] In it, Defendant was ordered “to produce any claims manual that would have assisted Evanston's claims adjusters in evaluating the City's claim for coverage.”[20] The court instructed that the “order should be construed broadly” and that “[a] claims manual may include any company policy or procedure that would have assisted a claims adjuster in addressing the City's claim.”[21] In addition, the Defendant was “ordered to produce any underwriting policies, procedures, and guidelines utilized by Evanston in underwriting the City's policy.”[22]

         In response to the Order, Defendant has produced no documents whatsoever to Plaintiffs.[23] Plaintiffs argue that this constitutes a failure to comply with the Order, and seek sanctions pursuant to Rule 37(b)(2) of the Federal Rules of Civil Procedure.[24] Defendant argues that, despite failing to produce any documents, it has fully complied with the Order because (1) a claims manual did not exist at the time the claim at issue was handled, and (2) “any underwriting guidelines in place were not utilized in the underwriting of the policy at issue.”[25] Defendant has also filed an objection to the declaration of Plaintiffs' expert Gary T. Fye (the “Fye Declaration”), submitted in support of the Reply, and to the additional sanctions requested in the Reply.

         DISCUSSION

         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.” Fed.R.Civ.P. 37(b)(2)(A). For the reasons that follow, the court finds Defendant's arguments that it has complied with the Order disingenuous and unpersuasive. Accordingly, the court finds that the Defendant has not obeyed the Order and sanctions are appropriate.

         I. CLAIMS MANUAL OR OTHER DOCUMENTS THAT ASSISTED THE CLAIMS ADJUSTER IN EVALUATING THE CITY'S CLAIM

         The court instructed that the Order “should be construed broadly.”[26] Instead, Defendant has construed the Order narrowly to suit its own purposes. Defendant insists again, just as it did in its opposition to the Motion to Compel, that no claims manuals existed when the City's claim was submitted.[27] Therefore, Defendant argues that the Order did not compel it to produce anything. However, the Order did not limit the documents Defendant was ordered to produce to documents entitled, “claims manual.” Indeed, the court was well aware of Defendant's position that no claims manual existed when the Order was issued.[28] Knowing this, Defendant was ordered to produce any policy or procedure that would have assisted the claims adjuster in making her decision.

         The court notes that Defendant now makes an additional and slightly different argument, that “during the administration of the policy, Markel Services, Incorporated [(“Markel”)], claims manager for Essex and Evanston, did not utilize claims manuals.”[29] This is not necessarily inconsistent with Defendant's positon that no claims manuals existed during the relevant time period. However, it strains credulity that a claims adjuster would make a coverage decision without consulting any policy, procedure, guidance, or other similar document. The court is skeptical that Defendant was happy to have its claims adjusters rely on their instinct alone to make claims decisions.[30] This is particularly true where Defendant admits that claims manuals existed prior to and subsequent to the year in which the City's claim was submitted.[31] As was made plain in the Order, Plaintiffs are entitled to discover, and Defendant must produce, any and all documents, policies, procedures, or other guidance which was employed, referenced, or otherwise consulted by the claims adjuster in evaluating the City's claim, however designated. The court finds that the Defendant's failure to produce anything at all violates both the letter and the spirit of the Order. Therefore, Defendant shall produce to Plaintiffs 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 Order. If the Defendant continues to insist that no such documents, policies, procedures, or guidelines exist, then the Defendant shall 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.

         II. UNDERWRITING GUIDELINES AND OTHER DOCUMENTS RELIED UPON BY THE UNDERWRITER IN ISSUING THE CITY'S POLICY

         As to the underwriting guidelines, the Defendant has taken a similar approach. Defendant does not refuse to produce the underwriting guidelines because they don't exist. Indeed, Defendant admits they do exist. Rather, Defendant refuses to produce the underwriting guidelines because, Defendant argues, they were not “utilized” in the issuance of the City's policy.[32] Defendant argues that “the policy at issue fell outside of Markel's guidelines” so the guidelines were not “utilized” to issue the City's policy.[33] Instead, asserts Defendant, “Markel's underwriters have the discretion to quote business that falls within their authority.”[34] Defendant's hyper-technical definition of the term “utilized” is unavailing. The underwriting guidelines are within the scope of the Order, and Defendant has failed to comply with the Order by refusing to produce them.

         Moreover, Defendant explains that a letter of authority provided to Markel's underwriter by Defendant (the “Letter of Authority”) “sets forth the maximum premium and maximum coverage for an underwriter.”[35] Nevertheless, Defendant seems baffled that Plaintiffs would believe that the Letter of Authority is within the scope of the Order.[36] According to Defendant, because the Letter of Authority is not an underwriting guideline, it is not within the scope of the Order. The court does not share Defendant's bewilderment. Defendant was “ordered to produce any underwriting policies, procedures, and guidelines utilized by Evanston in underwriting the City's policy, ”[37] not merely documents titled, “underwriting guidelines.” By Defendant's own description, the Letter of Authority defines the limits of the discretion given to Markel's underwriters to quote business outside of the guidelines.

         Accordingly, the court finds that both the Letter of Authority and the underwriting guidelines are within the scope of the Order. The Defendant's failure to produce those documents, and any others relied upon by the ...


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