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Westport Insurance Corp. v. Hippo Fleming & Pertile Law Offices

United States District Court, W.D. Pennsylvania

March 7, 2017




         I. Introduction

         This action arises from a dispute involving insurance coverage for professional liability. Westport Insurance Corporation brought an action for declaratory judgment, seeking a judgment that it has no duty or obligation to defend or to indemnify Hippo Fleming & Pertile Law Offices and Charles Wayne Hippo, Jr. against the allegations contained in an underlying state-court action. Hippo Fleming & Pertile Law Offices and Charles Wayne Hippo, Jr. filed a separate action seeking a declaratory judgment that Westport does owe a duty to defend and indemnify in the underlying action as well as asserting claims of bad faith and breach of contract against Westport. After denying motions to remand and dismiss, the Court granted the parties' joint motion to consolidate the two actions into one case. (ECF No. 39.) For the sake of simplicity, the Court will refer to the parties as "Hippo" and "Westport."

         Presently before the Court is Hippo's Motion to Compel (ECF No. 47) and Westport's Motion for Leave to File First Amended Complaint (ECF No. 57). Hippo requests that this Court compel production of Westport's underwriting manual and the underwriting file relating to Hippo as well as the personnel files of three Westport employees identified as having worked on the Hippo coverage file. (ECF No. 48 at 4.) Westport seeks leave to file an amended complaint which adds several claims one day after the deadline set by the Court for amended pleadings. For the reasons stated below, the Court will GRANT in part and DENY in part Hippo's Motion to Compel and GRANT Westport's Motion for Leave to Amend.

         II. Motion to Compel

         Generally, materials that are relevant to an issue in a case are discoverable unless they are privileged. Rule 26 explains the scope of discovery:

Unless otherwise limited by court order, the scope of discovery is as follows: 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.

FED. R. Civ. P. 26(b)(1). While the scope of discovery under the Federal Rules is broad, "this right is not unlimited and may be circumscribed." Bayer AG v. Betachem, Inc., 173 F.3d 188, 191 (3d Cir. 1999). Indeed, Rule 26(b)(1) imposes "two content-based limitations upon the scope of discovery: privilege and relevance." Trask v. Olin Corp., 298 F.R.D. 244, 257 (W.D. Pa. 2014). Even relevant discovery may also be limited by a court if the burden of producing it outweighs the benefit based on the specifics of the case. Fed.R.Civ.P. 26(b)(1).

         Underwriting Materials

         Hippo first requests that the Court compel production of Westport's underwriting manual as well as the underwriting file pertaining to Hippo. (ECF No. 48 at 4.) Hippo wants the underwriting materials because they may contain "information regarding the assessment of the [Hippo] claim, as well as notes regarding discussions by and between underwriting and claims concerning that claim." (Id. at 5.) Hippo relies on Consugar v. Nationwide Ins. Co. of Am., No. 3:10CV2084, 2011 WL 2360208, at *1 (M.D. Pa. June 9, 2011). In Consugar, the court ordered discovery of underwriting files over the objections from the defendant insurer which had argued, as Westport does here, that underwriting materials were not relevant where the plaintiff had brought only coverage and bad faith claims and no claims relating to the underwriting of her policy. (Id.) In opposition, Westport argues that the insurer in Consugar did not actually argue to the court that the underwriting materials were irrelevant based on the claims brought in the complaint. (ECF No. 49 at 11-12.) Westport further cites several cases from other districts where courts declined to compel production of underwriting materials in insurance coverage cases.

         The case law on the subject is somewhat unclear. Per one court: "[i]n short, the decisions suggest the underwriting files are discoverable in bad faith claims, but in breach of contract claims, only discoverable when the contract terms are ambiguous." Milinazzo v. State Farm Ins. Co., 247 F.R.D. 691, 702 (S.D. Fla. 2007). Other courts have denied production after reviewing the allegations in the pleadings to determine the possible relevancy of underwriting materials. See e.g., Query v. Lexington Ins. Co., No. 15-21951-CIV, 2015 WL 12434326, at *2 (S.D. Fla. Nov. 19, 2015); Ellison v. GEICO Gen. Ins. Co., No. 11-80812-CIV, 2012 WL 12865220, at *3 (S.D. Fla. Feb. 17, 2012). These decisions do not, however, entirely foreclose the possibility that underwriting materials could be relevant in some instances. See Query, 2015 WL 12434326, at *2 ("Defendant's objection to production of its underwriting file is well founded, given that this is a first party coverage case and Defendant has disclaimed reliance on any defense that is predicated on preexisting damage. Because discovery is at its early stages, however, the motion may be renewed at a later date if Defendant expands the scope of its stated defenses to include alleged malfeasance or misfeasance by the insured or pre-existing damage to the property prior to coverage, which may then give rise to impeachment evidence that may be found in the underwriting file."). In Consugar, the only case from a court within the Third Circuit, while the insurer did not argue as specifically as Westport does here, the court did expressly find that such information could be relevant to the case and ordered production. Consugar, 2011 WL 2360208, at *16-17.

         In the Court's view, production of the underwriting materials is proper under the facts of this case. Here, while Hippo does not bring any underwriting claims, it does bring a bad faith claim along with the breach of contract/coverage claim. (ECF No. 49-1 at 14.) In support of the bad faith claim, Hippo points to premium increases imposed by Westport relating to commencement of the underlying litigation. (ECF 52 at 9.) Given the bad faith claim and the related allegations, the underwriting materials may well be relevant.[1] Westport has not argued that the requested materials are either privileged or would be burdensome to produce and it does not appear that they would be. Therefore, the Court will grant the motion to compel with respect to the underwriting manual and underwriting file.

         Personnel Files

         The other set of discovery requested by Hippo is the personnel files of three employees in Westport's claims department that handled Hippo's underlying claim. (ECF 48 at 9.) Hippo wants this information in order to obtain: information about Westport's corporate policy, standards, and procedures, information relating to Westport's state of mind and relationship with its employees, and information regarding the relationship between the corporate policies ...

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