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G&S M Consultants Inc. v. Continental Casualty Co.

United States District Court, Northern District of Indiana, South Bend Division

October 24, 2014

G&S M CONSULTANTS, INC., Plaintiff/Counter Defendant,
v.
CONTINENTAL CASUALTY COMPANY, Defendant/Counter Claimant.

OPINION AND ORDER

PAUL R. CHERRY MAGISTRATE JUDGE

This matter is before the Court on G&S M Consultants, Inc.’s Motion to Compel Continental Casualty Company to Disclose Information on Loss Reserves [DE 210], filed by Plaintiff G&S M Consultants, Inc. (“G&S”) on September 16, 2014. Defendant Continental Casualty Company (“Continental”) filed a response on October 3, 2014, and G&S filed a reply on October 7, 2014.

An insurance reserve, also known as a “loss reserve, ” is “[t]he reserve for outstanding losses at least equal to the aggregate estimated amounts due or to become due on account of all losses or claims of which the company has received notice.” Ind. Code § 27-1-13-8(c). G&S asks the Court for an order permitting it to question Continental’s Rule 30(b)(6) representative about loss reserves. Continental opposes the request, arguing that loss reserves are irrelevant at this stage of the litigation when discovery on G&S’s Complaint has long been closed and discovery remains only as to G&S’s defense of Continental’s fraud Counterclaim. Continental also argues that information about loss reserves since the onset of litigation is protected as the mental impressions and litigation strategies of Continental’s lawyers.

BACKGROUND

G&S, the insured, filed this first party lawsuit against Continental, its insurer, on August 19, 2009, alleging breach of contract and bad faith related to property damage and business interruption losses that allegedly went unreimbursed by Continental after a November 29, 2007 steam explosion at G&S’s Georgia facility.

The parties conducted discovery over the next two years. On October 11, 2011, G&S took the deposition of Mr. Lon Barrick, Continental’s 30(b)(6) representative. At that time, Continental objected to Mr. Barrick providing any testimony on loss reserves set for this claim on the grounds that the testimony is privileged, proprietary, irrelevant, and unlikely to lead to the discovery of admissible evidence. However, Mr. Barrick provided testimony on how loss reserves are generally set in the adjustment of property insurance claims, including the approximate dollar amount of the “initial” or “bulk” reserves that are set as a matter of course when new claims are entered into Continental’s computer system.

In December 2011, the Court granted Continental’s Motion to Compel, and from January through October 2012, G&S disclosed approximately 300, 000 documents dating back to 2003 that had not been previously provided to Continental. Based on those documents, Continental sought leave to file an amended answer to assert additional affirmative defenses and a counterclaim based on alleged misconduct by G&S during the claim adjustment process. The Court granted the motion. On November 12, 2013, Continental filed the Amended Answer, pleading four additional affirmative defenses and a Counterclaim. On November 15, 2013, the Court reopened discovery to allow G&S to defend against the Counterclaim. The discovery deadline was reset for September 1, 2014.

On December 9, 2013, G&S filed an Answer and Affirmative Defenses to the Counterclaim. On August 1, 2014, G&S served on Continental a Notice of Rule 30(b)(6) Deposition and Subpoena Duces Tecum. Deposition Topic 13 requested testimony as to “[w]hether Continental currently has a reserve or loss reserve with regard to the Claim, the amount of each reserve, when such reserve was established, whether there was a change in the reserve related to the filing of the Counterclaim or other reasons for the change in reserve, and the identity of all persons with knowledge of the facts relating to the establishment of the reserves.”[1] (Pl. Br., Ex. A, p. 4) (emphasis added). Continental objected to Deposition Topic 13.

Mr. Barrick’s Rule 30(b)(6) deposition was originally set for August 29, 2014, and was then reset for September 30, 2014, at G&S’s request because of Continental’s objection to discovery of loss reserves. G&S did not file the instant motion until September 16, 2014, which necessitated the rescheduling of Mr. Barrick’s deposition. The Court extended the discovery deadline solely to allow for Mr. Barrick’s deposition following a ruling on the instant motion.

ANALYSIS

Federal Rule of Civil Procedure 26(b)(1) provides that “[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to the party’s claim or defense” and that “relevant information need not be admissible” but only “reasonably calculated to lead to the discovery of admissible evidence.” Fed.R.Civ.P. 26(b)(1). The relevance standard encompasses “any matter that bears on, or that reasonably could lead to other matter[s] that could bear on, any issue that is or may be in the case.” Oppenheimer Fund Inc. v. Sanders, 437 U.S. 340, 351 (1978). Federal Rule of Civil Procedure 37 allows a party to file a motion to compel if a corporation or other entity fails to make a designation under Rule 30(b)(6). See Fed. R. Civ. P. 37(a)(3)(B). For purposes of the rule, “an evasive or incomplete disclosure, answer, or response must be treated as a failure to disclose, answer, or respond.” Fed.R.Civ.P. 37(a)(4).

Although G&S did not pursue a motion to compel discovery of loss reserves during discovery on its Complaint for breach of contract and bad faith, G&S now seeks testimony regarding the loss reserves in relation to its defense of Continental’s Counterclaim. Unlike in most cases, in which the insured wants information on loss reserves to learn how the insurer valued the claim, [2]G&S seeks the information in this case to determine if the discovery that it provided to Continental in 2012 was really new to Continental such that the discovery could have formed the basis of Continental’s subsequently filed Counterclaim for fraud against G&S.

Continental’s Counterclaim alleges that G&S fraudulently concealed and misrepresented information that it failed to disclose during the original claim submission process by producing the information for the first time in 2012 during this litigation. G&S reasons that, one of the issues will be what Continental knew and when and what information Continental had access to and when. Based on Mr. Barrick’s prior testimony that reserves set for G&S’s claim change as new information is received by Continental, G&S reasons that “what the reserves were and are, when they changed, and by how much” may “establish a time line” of when Continental received information that it considered significant to the claim and whether the information was received during the original claim process or, as alleged by Continental in the Counterclaim, for the first time in 2012 during this litigation. G&S suggests that if the information was not “new” to Continental in 2012, this would be evidence that Continental’s Counterclaim sounding in fraud is without merit.

Continental responds that Rule 30(b)(6) testimony on how its loss reserves may have changed after this litigation was filed is irrelevant and reflects nothing more than the mental impressions and litigation strategies of Continental’s lawyers, protected by the attorney-client privilege and the work product doctrine. In his Affidavit filed in support of Continental’s objection, Mr. Barrick explains that once property insurance claims become the subject of coverage litigation, Continental may increase or decrease loss reserve sums in order to address litigation developments that may have taken place or may take place in the future, based on Continental’s litigation strategy, information obtained in discovery, the potential for settlement, and the possibility of a favorable or unfavorable judgment. (Def. Br., Ex. B, ¶ 5). He further explains that, in evaluating whether to increase or decrease loss reserves after litigation begins, Continental generally takes into account the confidential advice and work product of the attorneys retained to represent Continental in the litigation. Id. at ¶ 6. Continental’s attorneys generally report litigation developments and legal analysis to Continental in confidential attorney-client communications. Id. The advice, analysis, and recommendations of the attorneys are discussed by Continental management, who take into account the confidential attorney-client communications in considering whether and how to increase or decrease loss reserves. Id. Mr. Barrick explains that, consistent with its usual ...


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