Westfield Insurance Company v. Icon Legacy Custom Modular Homes et alBRIEF IN OPPOSITION re MOTION to Compel Discovery SUPPLEMENTAL BRIEF IN OPPOSITION TO DEFENDANTS MOTION TO COMPELM.D. Pa.March 24, 2017 IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA WESTFIELD INSURANCE COMPANY v. ICON LEGACY CUSTOM MODULAR HOMES and ICON LEGACY : : CIVIL ACTION NO. : 4:15-cv-00539-MWB : : (Hon. Matthew W. Brann) : : : Document filed electronically : PLAINTIFF WESTFIELD INSURANCE COMPANY’S SUPPLEMENTAL BRIEF IN OPPOSITION TO DEFENDANTS’ MOTION TO COMPEL Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 1 of 24 i TABLE OF CONTENTS Page I. UNDER LONG-STANDING PENNSYLVANIA LAW, THE COURT CANNOT CONSIDER DISCOVERY MATERIAL IN ANALYZING WHETHER THE DUTY TO DEFEND IS TRIGGERED ........................... 2 A. Pennsylvania Law Unequivocally Holds That the Determination of an Insurer’s Duty to Defend is Based Solely on the Factual Allegations Within the “Four Corners” of the Underlying Complaint and the Applicable Insurance Policy ................................. 2 B. Courts Applying Pennsylvania Law Consistently Reject Attempts to Introduce Extrinsic Evidence to Support Coverage Positions ......... 4 C. This Long-Standing Rule is Fair and Provides Business Certainty ..... 6 II. THE DUTY TO DEFEND IS NOT TRIGGERED UNLESS A POTENTIALLY COVERED CLAIM CAN BE IDENTIFIED UPON A REASONABLE READING OF THE FACTUAL ALLEGATIONS WITHIN THE “FOUR CORNERS” OF THE THIRD-PARTY COMPLAINT .............................................................................................. 8 III. THE AMENDMENTS TO RULE 26(b)(1) NARROWED THE SCOPE OF PERMISSIBLE DISCOVERY............................................................. 12 A. The Discovery Sought Must Be Relevant to the Party’s Claim or Defense and Proportional to the Needs of the Case .......................... 12 B. The Amendments Impose a Heightened Obligation to Articulate How a Request is Relevant .............................................................. 14 C. The Discovery Icon Seeks to Compel Is Wholly Impermissible in Light of the Amendments to Rule 26(b)(1) and the Motion Should be Denied ......................................................................................... 16 IV. CONCLUSION ......................................................................................... 19 Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 2 of 24 ii TABLE OF AUTHORITIES Page(s) Cases Am. & Foreign Ins. Co. v. Jerry’s Sport Ctr., Inc., 2 A.3d 526 (Pa. 2010) .............................................................................. 2, 9, 10 Bituminous Cas. Corp. v. John W. Gleim, Jr., Inc., 2009 WL 473034 (M.D. Pa. Feb. 24, 2009) (Connor, J.) ................................... 8 Britamco Underwriters, Inc. v. Stokes, 881 F. Supp. 196 (E.D. Pa. 1995) ....................................................................... 9 Cole’s Wexford Hotel, Inc. v. Highmark Inc., 2016 WL 5025751 (W.D. Pa. Sept. 20, 2016) (Coti, C.J.) .......................... 12, 13 D’Auria v. Zurich Ins. Co., 507 A.2d 857 (Pa. Super. Ct. 1986) ................................................................... 8 Desabato v. Assurance Co. of Am., 2016 WL 5661745 (W.D. Pa. Sept. 30, 2016) ................................................ 3, 9 Dogra v. Liberty Mut. Fire Ins. Co., 2016 WL 6573950 (D. Nev. Nov. 4, 2016) ...................................................... 18 Fassett v. Sears Holdings Corp., 2017 WL 386646 (M.D. Pa. Jan. 27, 2017) (Brann, J.) .................................... 13 First Liberty Ins. Corp. v. Anderson, 2016 WL 2958831 (E.D. Pa. May 23, 2016) .................................................. 3, 5 Graziano Const. & Dev. Co. v. Pa. Nat. Mut. Cas. Ins. Co., 2011 WL 2409883 (Pa. Super. Ct. May 26, 2011) ............................................. 9 Hanover Ins. Co. v. Urban Outfitters, Inc., 806 F.3d 761 (3d Cir. 2015) (Roth, J.) ........................................................... 2, 7 Houston Specialty Ins. Co. v. Titleworks of Sw. Fla., Inc., 2016 WL 7130939 (M.D. Fla. July 19, 2016) ............................................ 13, 14 Koster v. Landmark Am. Ins. Co., 2016 WL 3014605 (M.D. Fla. May 20, 2016) ............................................ 14, 15 Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 3 of 24 iii Kvaerner Metals Div. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006) .............................................................................. 2, 12 Lebanon Sch. Dist. v. Netherlands Ins. Co., 2013 WL 308702 (M.D. Pa. Jan. 25, 2013) (Kane, C.J.) .............................. 3, 12 Markel Int’l Ins. Co. v. W. PA Child Care, LLC, 805 F. Supp. 2d (M.D. Pa. 2011) (Caputo, J.) .............................................. 3, 12 Merrill Reuter, M.D. v. Physicians Cas. Risk Retention Grp., 2017 WL 395242 (S.D. Fla. Jan. 27, 2017) ................................................ 14, 15 Mut. Benefit Ins. Co. v. Haver, 725 A.2d 743 (Pa. 1999) .................................................................................... 2 Nat’l Fire Ins. Co. of Hartford v. Burns & Scalo Roofing Co., 2017 WL 372144 (E.D. Pa. Jan. 26, 2017) ......................................................... 5 Penn-Am. Ins. Co. v. Peccadillos, Inc., 27 A.3d 259 (Pa. Super. Ct. 2011) ..................................................................... 8 Quality Stone Veneer, Inc. v. Selective Ins. Co. of Am., 2017 WL 345636 (E.D. Pa. Jan. 23, 2017) ....................................................... 12 Scopel v. Donegal Mut. Ins. Co., 698 A.2d 602 (Pa. Super. Ct. 1997) ....................................................... 4, 5, 6, 7 State Auto. Mut. Ins. Co. v. Lucchesi, 563 F. App’x 186 (3d Cir. 2014) (Barry, J.) ............................................. 8, 9, 11 State Farm Fire & Cas. Co. v. A.S., 2016 WL 7451631 (W.D. Pa. Dec. 28, 2016)................................................... 12 State Farm Fire & Cas. Co. v. Jumper, 2017 WL 839459 (M.D. Pa. Mar. 3, 2017) (Kane, J.) .................................. 2, 12 State Farm Fire & Cas. Co. v. Scalia, 2014 WL 6982926 (M.D. Pa. Dec. 9, 2014) (Jones, J.) ...................................... 5 Steadfast Ins. Co. v. Tomei, 2016 WL 2989982 (Pa. Super. Ct. May 24, 2016) ............................................. 3 Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 4 of 24 iv Travelers Prop. Cas. Co. of Am. v. Mericle, 486 F. App’x 233 (3d Cir. 2012) (Scirica, J.) ................................................. 8, 9 Vitamin Health, Inc. v. Hartford Cas. Ins. Co., 2015 WL 9591444 (E.D. Mich. Nov. 20, 2015) ......................................... 15, 16 Wilson v. Md. Cas. Co., 105 A.2d 304 (Pa. 1954) .................................................................................... 2 XTO Energy, Inc. v. ATD, LLC, 2016 WL 1730171 (D.N.M. Apr. 1, 2016) ....................................................... 18 York Int’l Corp. v. Liberty Mut. Ins. Co., 2016 WL 775050 (M.D. Pa. Feb. 29, 2016) (Rambo, J.) ................................ 3, 7 Rules Fed. R. Civ. P. 26 ........................................................................................... passim M.D. Pa. Rule 7.8(a) ............................................................................................... 3 Other Authorities 2015 Year-End Report on the Federal Judiciary ............................................. 14, 18 Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 5 of 24 Pursuant to the Court’s March 10, 2017 Order, Westfield1 respectfully submits this Supplemental Brief in Opposition to Icon’s Motion to Compel (“Motion”) and addresses the following issues: a) whether a court may properly consider discovery material in making the duty to defend determination or whether the court is bound by the text of the third-party complaint, b) the appropriate standard for determining whether an insurer’s duty to defend has been triggered by a third-party complaint under Pennsylvania law, and c) the effect Federal Rule of Civil Procedure 26(b)(1) has upon the discoverability of extrinsic evidence in a duty to defend declaratory judgment action. For the reasons set forth in Westfield’s Opposition Brief and below, Icon’s Motion should be denied in its entirety and the Court should set an expedited schedule for summary judgment briefing. 1 Unless otherwise stated herein, capitalized terms shall have the same meaning as those set forth in Westfield’s Opposition Brief. See Dkt. No. 70. Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 6 of 24 2 I. UNDER LONG-STANDING PENNSYLVANIA LAW, THE COURT CANNOT CONSIDER DISCOVERY MATERIAL IN ANALYZING WHETHER THE DUTY TO DEFEND IS TRIGGERED A. Pennsylvania Law Unequivocally Holds That the Determination of an Insurer’s Duty to Defend is Based Solely on the Factual Allegations Within the “Four Corners” of the Underlying Complaint and the Applicable Insurance Policy The Pennsylvania Supreme Court has long-held that an insurer’s duty to defend is determined solely by comparing the factual allegations contained in the “four corners” of the underlying complaint to the language of the applicable policy. Am. & Foreign Ins. Co. v. Jerry’s Sport Ctr., Inc., 2 A.3d 526, 541 (Pa. 2010); Kvaerner Metals Div. v. Commercial Union Ins. Co., 908 A.2d 888, 896 (Pa. 2006); Mut. Benefit Ins. Co. v. Haver, 725 A.2d 743, 745 (Pa. 1999); Wilson v. Md. Cas. Co., 105 A.2d 304, 307 (Pa. 1954). This standard has been uniformly applied by both Pennsylvania state courts and federal courts alike, including as recently as three weeks ago by Judge Kane of the Middle District of Pennsylvania. See, e.g., Hanover Ins. Co. v. Urban Outfitters, Inc., 806 F.3d 761, 765, 767 (3d Cir. 2015) (Roth, J.); State Farm Fire & Cas. Co. v. Jumper, 2017 WL 839459, at *5 (M.D. Pa. Mar. 3, 2017) (Kane, J.) (“‘An insurance company’s duty to defend a suit against an insured is determined solely on the basis of the allegations of the complaint in the underlying action.’” (quoting Westfield Ins. Co. v. Bellevue Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 7 of 24 3 Holding Co., 856 F. Supp. 2d 683, 691 (E.D. Pa. 2012)))2; Desabato v. Assurance Co. of Am., 2016 WL 5661745, at *8 (W.D. Pa. Sept. 30, 2016) (“Of course, materials outside the Vargo complaint are not to be considered when determining whether defendants had a duty to defend.”); First Liberty Ins. Corp. v. Anderson, 2016 WL 2958831, at *5-6 (E.D. Pa. May 23, 2016); York Int’l Corp. v. Liberty Mut. Ins. Co., 2016 WL 775050, at *2 (M.D. Pa. Feb. 29, 2016) (Rambo, J.) (“Under Pennsylvania law, an insurer’s duty to defend is determined exclusively by consideration of the allegations set forth in the underlying complaint. In fact, no extrinsic evidence is permitted.” (internal citations and quotations omitted)); Steadfast Ins. Co. v. Tomei, 2016 WL 2989982, at *6 (Pa. Super. Ct. May 24, 2016). Indeed, when determining whether an insurer’s duty to defend is triggered, a “court errs if it considers any pleadings or evidence apart from the plaintiff’s complaint in the underlying action.” Lebanon Sch. Dist. v. Netherlands Ins. Co., 2013 WL 308702, at *3 (M.D. Pa. Jan. 25, 2013) (Kane, C.J.) (emphasis added); see also Markel Int’l Ins. Co. v. W. PA Child Care, LLC, 805 F. Supp. 2d 88, 92 (M.D. Pa. 2011) (Caputo, J.) (“In determining whether an insurer has a duty to 2 As required by M.D. Pa. Rule 7.8(a), unpublished cases cited herein are attached as Ex. A. Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 8 of 24 4 defend and indemnify, a court must examine only the allegations in the complaint in the underlying litigation; it is error to look elsewhere.”). B. Courts Applying Pennsylvania Law Consistently Reject Attempts to Introduce Extrinsic Evidence to Support Coverage Positions It is equally axiomatic that Pennsylvania courts must reject efforts to inject “extrinsic” discovery into the duty to defend analysis. The Pennsylvania Superior Court’s decision in Scopel v. Donegal Mut. Ins. Co., 698 A.2d 602, 605 (Pa. Super. Ct. 1997), which Your Honor referenced during the March 9, 2017 hearing, is instructive on this point. In Scopel, the insurer denied the insured a defense based on allegations in the underlying complaint that the insured acted intentionally during a physical altercation. Id. at 603-04. Intentional conduct did not constitute an “occurrence” triggering coverage under the applicable policy. Id. In response, the insured cited to deposition testimony in the underlying case indicating that the conduct at issue may have been negligent or reckless (rather than intentional). Id. at 604-05. In affirming summary judgment in the insurer’s favor and refusing to consider the deposition testimony in its coverage analysis, the Scopel court held: Under Pennsylvania law the allegations contained in the complaint are the sole points of reference for determining whether a claim comes within the scope of the coverage under an insurance policy. Consequently, extrinsic evidence, such as discovery requests or questions asked by counsel at a deposition, need not be considered when Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 9 of 24 5 determining whether a particular claim falls within the scope of a policy. Id. at 606-07. (Internal citations omitted). Similarly, Judge Jones of this Court refused to consider an insurer’s claims notes in making a duty to defend determination, writing: Scalia points to evidence, in the form of State Farm’s Claim Notes, that Alexander was intoxicated at the time of the event in question and suggests that is the reason she fell and injured herself, and further points to the Claim Notes indicating that Alexander gave at least three different versions of the story of what happened between her and Scalia. However, while this evidence may be relevant in deciding the merits of the civil tort action against Scalia, it is not relevant to the determination of whether State Farm is required to defend and indemnify Scalia. State Farm Fire & Cas. Co. v. Scalia, 2014 WL 6982926, at *7 (M.D. Pa. Dec. 9, 2014) (Jones, J.) (emphasis added). Other courts in this Circuit have also rejected similar attempts to inject extrinsic evidence into the court’s analysis of the duty to defend. See, e.g., Nat’l Fire Ins. Co. of Hartford v. Burns & Scalo Roofing Co., 2017 WL 372144, at *5 (E.D. Pa. Jan. 26, 2017) (rejecting insured’s attempt at using “a wide array of extrinsic evidence, including . . . testimony . . . in the underlying action” to trigger the duty to defend); First Liberty Ins. Corp., 2016 WL 2958831, at *5-6 (rejecting insured’s attempt to use deposition testimony and documents from other cases and stating a “party may not use factual averments Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 10 of 24 6 contained in discovery evidence but not reflected in the complaint itself to establish a duty to defend” (internal citations and quotations omitted)). C. This Long-Standing Rule is Fair and Provides Business Certainty To consider extrinsic evidence when determining whether Westfield owes Icon a duty to defend would not only turn well-established insurance law on its head, but it would also eliminate all business certainty in the insurance industry. Indeed, were the Court to give credence to the standard Icon advocates, after making an initial coverage decision, an insurance carrier would be forced to constantly monitor all discovery developments in the underlying case, which is both impracticable and cost-prohibitive. The Scopel court succinctly summarized the problem such a standard would cause: [W]e find no reason to expand the well-reasoned and long-standing principle that an insurer’s duty to defend is triggered, if at all, by the factual averments contained in the complaint itself. Were this not the case, an insurer would be required to monitor the pre-trial developments of a case in which coverage was denied to insure that no discovery sheds light upon a possible claim for which a defense is mandated. We find this result unworkable and unacceptable, for the rightful denial of coverage based upon a filed complaint should relieve an insurer of the duty and burden of tracking the developments of a case in which the insurer has no legal interest. Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 11 of 24 7 Scopel, 698 A.2d at 606 (internal citations omitted).3 The Third Circuit has also explained the impact on predictability that departing from Pennsylvania’s long- standing prohibition on extrinsic evidence would cause: Urban Outfitters urges us to use extrinsic evidence to determine whether Hanover owes a duty to defend. We decline for two reasons. First, and most importantly, Pennsylvania law provides that the determination of a duty to defend depends on the language of the policy and the allegations of the complaint-not on extrinsic evidence. . . . Second, the premise underpinning Urban Outfitters’ advocacy of extrinsic evidence is misguided. . . . To abandon the underlying complaint . . . would occasion more protracted disputes by eroding the predictability that reliance on a single pleading ensures. Hanover Ins. Co., 806 F.3d at 767. Therefore, based on the litany of Pennsylvania precedent set forth above, in determining whether Westfield has a duty to defend Icon in the underlying state court cases, it is abundantly clear that the Court cannot consider any of the extrinsic discovery Icon seeks in its Motion. For this reason alone, the Motion should be denied. 3 The prohibition on extrinsic evidence applies with equal force to insurers in arguing that the duty to defend is not triggered under an insurance policy. See, e.g., York Int’l Corp., 2016 WL 775050, at *2 (“Although the defense invoices may demonstrate that liability for the underlying injury fell outside the scope of the York Policies, the complaints themselves indisputably establish the possibility of a covered claim for purposes of Defendant’s duty to defend.”). Thus, Westfield is equally constrained from consulting extrinsic evidence in arguing that coverage is not triggered. Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 12 of 24 8 II. THE DUTY TO DEFEND IS NOT TRIGGERED UNLESS A POTENTIALLY COVERED CLAIM CAN BE IDENTIFIED UPON A REASONABLE READING OF THE FACTUAL ALLEGATIONS WITHIN THE “FOUR CORNERS” OF THE THIRD-PARTY COMPLAINT The standard governing whether an insurer’s duty to defend has been triggered is inextricably entwined with the four corners rule discussed supra, at Section I. Indeed, the four corners rule is a “[b]edrock” principle upon which the duty to defend analysis often turns. See State Auto. Mut. Ins. Co. v. Lucchesi, 563 F. App’x 186, 191 (3d Cir. 2014) (Barry, J.). It is true that an insurer’s duty to defend is triggered if it can identify one claim in the complaint that potentially falls within the policy’s coverage. Penn-Am. Ins. Co. v. Peccadillos, Inc., 27 A.3d 259, 265 (Pa. Super. Ct. 2011); D’Auria v. Zurich Ins. Co., 507 A.2d 857, 859 (Pa. Super. Ct. 1986). This duty, however, “is determined solely by the allegations contained within the four corners of the complaint.” Travelers Prop. Cas. Co. of Am. v. Mericle, 486 F. App’x 233, 235 (3d Cir. 2012) (Scirica, J.) (citing Kvaerner, 908 A.2d at 896-97) (emphasis added). Within this boundary, the determination must “focus upon the substance of the allegations, rather than on the particular cause of action” pled. Bituminous Cas. Corp. v. John W. Gleim, Jr., Inc., 2009 WL 473034, at *4 (M.D. Pa. Feb. 24, 2009) (Connor, J.) (quoting Erie Ins. Exch. v. Muff, 851 A.2d 919, 926 (Pa. Super. Ct. 2004)). Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 13 of 24 9 Consequently, “[t]he question of whether a claim against an insured is potentially covered is answered by comparing the four corners of the insurance contract to the four corners of the complaint.” Am. & Foreign Ins. Co., 2 A.3d at 541 (emphasis added). A reasonable reading of the complaint guides this analysis. See, e.g., Desabato, 2016 WL 5661745, at *8 (“Plaintiffs’ assumptions regarding BCA improperly using Vargo’s advertising ideas are beyond any reasonable reading of Vargo’s complaint. Because the advertising-idea assertions by plaintiffs are not in Vargo’s complaint, they must be disregarded in the duty-to-defend context.”); Britamco Underwriters, Inc. v. Stokes, 881 F. Supp. 196, 200 (E.D. Pa. 1995) (“In the instant action, no reasonable reading of the Complaint permits the conclusion that Barton’s injuries were not the result of the intentional torts of assault and battery.”); Graziano Const. & Dev. Co. v. Pa. Nat. Mut. Cas. Ins. Co., 2011 WL 2409883, at *6 (Pa. Super. Ct. May 26, 2011) (“We cannot reasonably construe these and other similar allegations in the underlying complaint as suggesting Quattrone is liable for Champion’s injuries, thus triggering Penn National’s duty to defend.”). In this way, the four corners rule reigns in the scope of “potential” coverage, providing a clearly defined border that delineates, and bars from consideration, “hypothetical scenarios that reach . . . beyond the [c]omplaint’s ‘four corners.’” Lucchesi, 563 F. App’x at 191; see also Mericle, 486 F. App’x at 235 (a “court Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 14 of 24 10 should not inquire into or resolve factual disputes to determine whether an insurer’s duty to defend has been triggered; all evidence is limited to the language of the complaint against the insured” (internal quotations omitted)). As evidenced in its briefing and at the March 9, 2017 hearing, Icon attempts to muddle this well-established standard. Despite Icon’s efforts, coverage is not triggered, as Icon suggests, when there is a “one in a million chance” that “a jury” could find an aspect of damages covered by the insurance policy. Indeed, Icon urges this Court to abandon Pennsylvania’s four corners rule, which hinges on an insurer’s reasonable reading of the complaint, in favor of an ill-defined standard that is unsupported by law, and impracticable in reality. The duty to defend in this case depends, simply, on whether the Underlying Complaints’ factual allegations meet each explicit coverage requirement in the Policy.4 Under this standard, no further evidence need be - or can be - considered. In practice, Icon’s proffered standard would be untenable from a business perspective for several reasons. First, it cannot be ignored that it is an insurer’s employees - human beings - who need to make coverage decisions. See Am. & Foreign Ins. Co., 2 A.3d at 541-42. Icon’s proffered standard would impose a 4 As Westfield previewed at the March 9, 2017 hearing, and will explain in further detail in its forthcoming Motion for Summary Judgment, the allegations in the underlying complaints fail to satisfy the Policy’s definition of an “occurrence” triggering coverage, including under the CG 7121 Endorsement. Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 15 of 24 11 requirement on these individuals to divine any and all potential scenarios in which a hypothetical jury - without regard to whether that jury is reasonable or not - could rule. This outcome would stifle an insurer’s business because an insurer’s representatives would have to spend an inordinate amount of additional time in analyzing complaints. Not only could the insurer’s resources be drained by just one claim, the insured would also suffer the uncertainty of the insurer’s coverage decision while it awaits the results of this lengthy decision-making process. Further, requiring an insurer to untwist the proverbial Gordian Knot and work through the “million” scenarios of how a potential jury might rule (even an unreasonable one) would further eliminate all business certainty. Indeed, all an insured would have to do is hire a creative lawyer to dream up a scenario, however unlikely and unreasonable, of how a hypothetical jury could rule for the insurer to be forced to begin defending an underlying case. The effect of such a standard would be that insurers would owe a duty to defend in every case. The resulting impact would be an increase in insurance premiums, and an influx of bad faith claims, because against such a standard, it would be impossible to establish that a coverage denial was made on a reasonable basis. Perhaps most indicative that Icon’s proffered standard is an overstatement of the law is that courts routinely grant summary judgment in favor of insurers who seek declarations of no duty to defend. See, e.g., Lucchesi, 563 F. App’x at 190- Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 16 of 24 12 91; Jumper, 2017 WL 839459, at *7; Quality Stone Veneer, Inc. v. Selective Ins. Co. of Am., 2017 WL 345636, at *8-9 (E.D. Pa. Jan. 23, 2017); State Farm Fire & Cas. Co. v. A.S., 2016 WL 7451631, at *5 (W.D. Pa. Dec. 28, 2016); Lebanon Sch. Dist., 2013 WL 308702, at *4; Markel Int’l Ins. Co., 805 F. Supp. 2d at 94; Kvaerner Metals Div., 908 A.2d at 900. If Icon’s position were reality, surely these courts could have invented a one in a million scenario under which coverage could have been triggered. III. THE AMENDMENTS TO RULE 26(b)(1) NARROWED THE SCOPE OF PERMISSIBLE DISCOVERY The 2015 amendments to the Federal Rules made two material changes to Federal Rule 26(b)(1) (the “Amendments”), both of which militate heavily against the discoverability of large swathes of extrinsic evidence in duty to defend cases. A. The Discovery Sought Must be Relevant to the Party’s Claim or Defense and Proportional to the Needs of the Case Prior to the Amendments, a court, for “good cause” could “order discovery of any matter relevant to the subject matter involved in the action.” Cole’s Wexford Hotel, Inc. v. Highmark Inc., 2016 WL 5025751, at *8 (W.D. Pa. Sept. 20, 2016) (Coti, C.J.) (quoting Fed. R. Civ. P. 26(b)(1) (2000)). The current version of Rule 26(b)(1), however, eliminates the reference to the “subject matter involved” and makes clear that information must be “relevant to any party’s claim or defense” to be discoverable. Fed. R. Civ. P. 26(b)(1). As Chief Judge Coti of Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 17 of 24 13 the Western District of Pennsylvania noted in a recent opinion detailing the bounds of Rule 26(b)(1): Following the 2015 amendments becoming effective, however, courts . . . continue to hold that discovery is relevant under 26(b)(1) if there is “‘any possibility that the information may be relevant to the general subject matter of the action.’” This statement of the law prior to the 2015 amendment was-at best-incomplete, and, now, following the 2015 amendments is erroneous. That interpretation of Rule 26(b)(1), furthermore, is contrary to the advisory committee’s pervasive and continuing concerns about the abuse of discovery, which stem back to the 1980 amendment to Rule 26. Cole’s Wexford, 2016 WL 5025751, at *10 (internal citations omitted); see also Fassett v. Sears Holdings Corp., 2017 WL 386646, at *2 (M.D. Pa. Jan. 27, 2017) (Brann, J.) (“‘[T]he scope of [ ] discovery is not without limits.’ As such, ‘[d]iscovery should be tailored to the issues involved in the particular case.’” (quoting Kresefky v. Panasonic Commc’ns & Sys. Co., 169 F.R.D. 54, 64 (D.N.J. 1996)); Houston Specialty Ins. Co. v. Titleworks of Sw. Fla., Inc., 2016 WL 7130939, at *2 (M.D. Fla. July 19, 2016). Further, while relevance was traditionally interpreted very broadly, as Your Honor observed in Fassett v. Sears Holdings Corp., following the Amendments, “‘[t]his concept of relevance is tempered . . . by principles of proportionality.’” Fassett, 2017 WL 386646, at *3 (quoting Cope v. Brosius, 2016 WL 5871157, at *2 (M.D. Pa. Oct. 7, 2016) (Carlson, Mag. J.)); see also Fed. R. Civ. P. 26(b)(1), Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 18 of 24 14 Committee Notes. In the 2015 Year-End Report on the Federal Judiciary, Chief Justice Roberts described Rule 26(b)(1)’s proportionality mandate as: Crystaliz[ing] the concept of reasonable limits on discovery through increased reliance on the common- sense concept of proportionality. . . . The amended rule states, as a fundamental principle, that lawyers must size and shape their discovery requests to the requisites of a case. Specifically, the pretrial process must provide parties with efficient access to what is needed to prove a claim or defense, but eliminate unnecessary or wasteful discovery. The key here is careful and realistic assessment of actual need. That assessment may, as a practical matter, require the active involvement of a neutral arbiter-the federal judge-to guide decisions respecting the scope of discovery. 2015 Year-End Report on the Federal Judiciary (“Year-End Report”), at pp. 6-7 (emphasis added).5 B. The Amendments Impose a Heightened Obligation to Articulate How a Request is Relevant In addition, following the Amendments, multiple courts have held that parties seeking extrinsic evidence are subject to a heightened obligation to establish that a request is relevant to a claim or defense. See Houston Specialty Ins. Co., 2016 WL 7130939, at *2, 5, 5 n.4; Koster v. Landmark Am. Ins. Co., 2016 WL 3014605, at *2 (M.D. Fla. May 20, 2016); Merrill Reuter, M.D. v. Physicians Cas. Risk Retention Grp., 2017 WL 395242, at *3 (S.D. Fla. Jan. 27, 2017); see 5 Available at http://www.scotusblog.com/wp-content/uploads/2015/12/CJ-year- end-report-12-31-15.pdf. Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 19 of 24 15 also Fed. R. Civ. P. 26(b)(1), Committee Notes (“A party claiming that a request is important to resolve the issues should be able to explain the ways in which the underlying information bears on the issues as that party understands them.”).6 Moreover, in cases such as this one, where the insured seeks extrinsic evidence because it will purportedly help to resolve ambiguity in an insurance contract, courts have required the insured to: (1) identify the purported ambiguity, and (2) explain how the requested material will help resolve such ambiguity. See Koster, 2016 WL 3014605, at *2; Merrill Reuter, 2017 WL 395242, at *3. Your Honor aptly highlighted a requesting party’s obligation at the March 9, 2017 hearing by asking Icon’s counsel whether a party needed to do more than make a “bald assertion of ambiguity” to obtain extrinsic evidence in a coverage case. The answer to this question is unequivocally yes, and even more so in light of the Amendments.7 6 While certain extrinsic evidence of record may be relevant to the Court’s choice- of-law determination, tellingly, Icon’s Motion does not seek discovery related to this issue. Rather, Icon’s only proffered explanation for seeking extrinsic evidence is that it might aid the court in its “contract interpretation.” See Dkt. No. 62 at ECF pp. 8-12. 7 To the extent Icon attempts to argue that production of its requested material is in accord with Vitamin Health, Inc. v. Hartford Cas. Ins. Co., 2015 WL 9591444 (E.D. Mich. Nov. 20, 2015) - the case cited by Your Honor during the March 9, 2017 hearing - such argument is misguided. Unlike the instant case, in Vitamin Health, the moving party had already filed a summary judgment motion in which it requested that the court resolve a purported ambiguity in the policy - presumably Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 20 of 24 16 C. The Discovery Icon Seeks to Compel is Wholly Impermissible in Light of the Amendments to Rule 26(b)(1) and the Motion Should be Denied Icon has utterly failed to comply with the current requirements of Rule 26(b)(1). As Westfield highlighted in its Opposition Brief, Icon has not even attempted to explain how the five categories of discovery it seeks to compel is relevant to any party’s claims or defenses in this lawsuit. See Dkt. No. 70 at ECF pp. 17-19. Specifically, Icon seeks: • Information Relating to Other Westfield Insureds: Document Requests 17, 18, 19, and 31 and Interrogatories 15, 16, and 17 seek documents and information related to lawsuits involving other Westfield insureds. • Information Relating to the Swaldi case: Document Requests 16 and 30 and Interrogatory 14 seek information about a fourth state court case filed against Icon in which Westfield is currently providing Icon a defense under reservation, but has not sought a declaration of no coverage. putting before the court the exact language of the policy it alleged was ambiguous and explaining why. Id. at *2. Additionally, the proportionality mandate was not at issue as the insurer made clear that it only opposed the requests on the basis of relevance. Id. Of note, in accord with the Amendments, the insured had revisited its requests after it filed its motion to compel, and during the hearing, the insured limited the scope of its motion to just four requests. Id. at *1. In stark contrast to Vitamin Health, (1) Icon has never identified a purported ambiguity, let alone explained how the requested material would resolve this unidentified ambiguity, (2) Icon has never narrowed the multitude of broad requests it seeks in accord with the Amendments, and (3) the disputed requests are not proportional to the needs of this case as set forth in Westfield’s Opposition Brief. See Dkt. No. 70 at ECF pp. 20-29. Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 21 of 24 17 • Westfield’s Underwriting File: Document Requests 3 and 29 seek a complete copy of Westfield’s underwriting file for the Policy. Like the other categories of documents Icon seeks, the underwriting file has no bearing on the coverage determination in this case. Neither the contents of the Westfield Policy nor the premiums Icon paid for it are in dispute in this case. • Materials that Only have Relevance in a Bad Faith Claim: Document Requests 6, 32, and 33 and Interrogatories 4, 6, and 7 seek Westfield’s claims manuals, advertising materials, documents relating to Westfield’s investigation into the Messana and Ahmad cases, and information on Westfield’s general business procedure. After the Court’s dismissal with prejudice of Icon’s bad faith claim, these materials have no relevance to the claims or defenses in this case. • Materials Which Westfield has Already Provided: Document Requests 7 and 8 and Interrogatory 2 seek information that Westfield has already provided, including all documents “relating in any manner to the subject matter” of this case and “relating in any manner to the subject matter” of the Ahmad and Messana cases, and the identification of persons with “knowledge of any facts relevant to the issues in” this case. Tellingly, Icon still never explained the deficiency in Westfield’s production or interrogatory responses - as Icon has never conferred with Westfield regarding these three requests. Icon’s Reply Brief did nothing to remedy this omission, instead averring that it “believes the more appropriate forum to” do so “is at a hearing/argument before the Court.” Dkt. 72 at ECF p. 15. Because Icon has failed to explain the purported relevance of the disputed requests, the Motion should be denied. In addition, as Westfield explained in its Opposition Brief, besides being irrelevant, the material Icon seeks is wholly disproportionate to the needs of this case. See Dkt. No. 70 at ECF pp. 20-29. As Chief Justice Roberts forecasted in Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 22 of 24 18 the Year-End Report, and which various courts have experienced in practice, the Amendments require more aggressive involvement by federal judges to ensure that the discovery sought is proportional to the actual needs of the case. 2015 Year-End Report on the Federal Judiciary, at pp. 6-7; see also XTO Energy, Inc. v. ATD, LLC, 2016 WL 1730171, at *18-19 (D.N.M. Apr. 1, 2016) (“This assessment may, as a practical matter, require ‘judges to be more aggressive in identifying and discouraging discovery overuse by emphasizing the need to analyze proportionality before ordering production of relevant information.’” (quoting State Farm Mut. Auto. Ins. Co. v. Fayda, 2015 WL 7871037, at *2 (S.D.N.Y. Dec. 3, 2015))); Dogra v. Liberty Mut. Fire Ins. Co., 2016 WL 6573950, at *4 (D. Nev. Nov. 4, 2016) (Amendments “encourage trial courts to exercise their broad discretion to limit and tailor discovery to avoid abuse and overuse, and to actively manage discovery to accomplish the goal of Rule 1.”). Westfield submits that Your Honor’s active and effective involvement - which was evident at the March 9, 2017 hearing - is particularly important in this case. Icon has utterly failed to articulate how the extrinsic evidence it seeks in the Motion is relevant to the Court’s analysis of any party’s claim or defense, nor how it is proportionate to the needs of the case. See Dkt. No. 62 at ECF pp. 8-12. Westfield, however, has explained at length why it is not. See Dkt. No. 70 at ECF pp. 20-29. As a result, the Court should deny the Motion. Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 23 of 24 19 IV. CONCLUSION In light of the well-established precedents cited above, the Amendments to Rule 26(b)(1), and the reasons set forth in Westfield’s Opposition Brief, Westfield respectfully requests that the Court deny Icon’s Motion to Compel and order an expedited briefing schedule for summary judgment. Respectfully submitted, FOX ROTHSCHILD LLP By: ____________________________ John J. Haggerty, Esq. (66932) James C. Clark, Esq. (310900) Zachary C. Martin, Esq. (307223) 2700 Kelly Road, Suite 300 Warrington, PA 18976 215.345.7500 (telephone) 215.345.7507 (facsimile) Attorneys for Plaintiff, Westfield Insurance Company Date: March 24, 2017 Case 4:15-cv-00539-MWB Document 79 Filed 03/24/17 Page 24 of 24 EXHIBIT A Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 1 of 177 Bituminous Cas. Corp. v. John W. Gleim, Jr., Inc., Not Reported in F.Supp.2d (2009) 2009 WL 473034 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2009 WL 473034 Only the Westlaw citation is currently available. United States District Court, M.D. Pennsylvania. BITUMINOUS CASUALTY CORPORATION, Plaintiff v. JOHN W. GLEIM, JR., INC. and Crossgates, Inc., Defendants. Civil Action No. 1:07-CV-2287. | Feb. 24, 2009. West KeySummary 1 Insurance Accident, occurrence or event Insurance Intentional Acts or Injuries; Crimes and Abuse 217 Insurance 217XVII Coverage--Liability Insurance 217XVII(A) In General 217k2273 Risks and Losses 217k2275 Accident, occurrence or event 217 Insurance 217XVII Coverage--Liability Insurance 217XVII(A) In General 217k2273 Risks and Losses 217k2278 Common Exclusions 217k2278(2) Intentional Acts or Injuries; Crimes and Abuse 217k2278(3) In general An insurer had no duty to defend an insured in an arbitration demand as the allegations leading to the demand were based on intentional acts. The arbitration demand stated that the insured deceptively concealed from its client that it did not follow the plans and specifications agreed to. It also stated that the insured deceptively and fraudulently covered up substandard work. Further, the insurance policy specifically stated that it only covered accidental occurrences and intentional acts were excluded from the scope of coverage. Fed.Rules Civ.Proc.Rule 56, 28 U.S.C.A. 2 Cases that cite this headnote Attorneys and Law Firms Andrew J. Gallogly, Margolis Edelstein, Philadelphia, PA, for Plaintiff. James D. Flower, Jr., Saidis, Shuff, Flower & Lindsay, Carlisle, PA, C. Grainger Bowman, Christian T. Haugsby, Harrisburg, PA, for Defendants. MEMORANDUM CHRISTOPHER C. CONNER, District Judge. *1 This is an insurance declaratory judgment action filed by plaintiff Bituminous Casualty Corporation (“Bituminous”). Bituminous seeks a declaration that it owes no duty to defend or indemnify defendant John W. Gleim, Jr., Incorporated (“Gleim”) in an arbitration proceeding instituted by defendant Crossgates, Incorporated (“Crossgates”). Presently before the court is Bituminous' motion for summary judgment. (Doc. 17.) For the reasons that follow, the motion will be granted. I. Statement of Facts Gleim is a construction company that contracted with Crossgates in 1998 to perform site improvements at a manufacturing facility located in Dauphin County, Pennsylvania. (See Doc. 1 ¶ 10; Doc. 5 ¶ 10; Doc. 23, Ex. 1 ¶ 2.) The work was completed in 1999. (Doc. 1 ¶ 11; Doc. 5 ¶ 11.) Three years later, on June 30, 2002, Gleim purchased a general liability insurance policy (“the Policy”) from Bituminous. (Doc. 1 ¶ 4; Doc. 5 ¶ 4.) Gleim renewed the Policy annually through June 30, 2006. (Doc. 1 ¶ 4; Doc. 5 ¶ 4.) The Policy obligated Bituminous to “pay those sums that [Gleim] becomes liable to pay as damages because of ... ‘property damage’ “ caused by an “occurrence.” (Doc. 1, Ex. 1 at CG 00 01 10 01.) In October 2006, Crossgates filed a demand for arbitration, alleging that Gleim “deceptively and fraudulently covered up ... substandard earthwork [in 1998 and 1999] with an intent that it not be discovered by Crossgates.” (Doc. 1, ase 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 2 of 177 Bituminous Cas. Corp. v. John W. Gleim, Jr., Inc., Not Reported in F.Supp.2d (2009) 2009 WL 473034 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 Ex. 5 ¶ 20 (emphasis added)). Bituminous claims that it is not obligated under the Policy to defend Gleim in this arbitration action. The court will provide a brief background of Crossgates' demand before analyzing Bituminous' position in the above-captioned matter. A. The Crossgates Demand 1 1 In accordance with the legal standard applicable in this case, the court must accept as true the factual allegations of Crossgates' arbitration demand even if such allegations are false or fraudulent. See infra Part III; see also Westport Ins. Corp. v. Black, Davis & Shue Agency, Inc., 513 F.Supp.2d 157, 165 (M.D.Pa.2007). The 1998 contract obligated Gleim to restore the earthwork surrounding the manufacturing facility owned by Crossgates. (See Doc. 23, Ex. 1 ¶ 2.) Specifically, Gleim was responsible for “Site Improvements including clearing, erosion and sediment control, earthwork, [and] utilities.” (Id. ¶ 16.) The contract also included a series of plans and specifications, intended to guide the manner in which Gleim conducted its work. (See id. ¶¶ 16, 20, 25.) Crossgates claims that the plans and specifications were ignored, and that Gleim not only failed to compact properly the earthwork at the site, but also intentionally concealed its deficient performance, causing Crossgates to remain ignorant of the earthwork's defective condition for several years. (See id. ¶¶ 20-21.) In 2004, Crossgates received a report from an independent architectural firm indicating that the facility's foundation and parking lot were cracking. (Id. ¶ 21.) Repair costs are estimated to exceed $1 million. (Id. ¶ 42.) Crossgates filed its demand for arbitration in October 2006. 2 The demand avers that “Gleim commenced earthwork operations, but deceptively concealed from Crossgates the fact that Gleim did not follow the plan and specifications.” (Id. ¶ 20.) Gleim is accused of “conceal[ing] its shortcuts” and “cover[ing] up [its] substandard earthwork with an intent that it not be discovered.” (Id. ¶¶ 37, 40.) Finally, Crossgates claims that “Gleim is responsible on account of its fraudulent behavior” for the repair costs incurred to correct its deficient performance. (Id. ¶ 40.) 2 On April 4, 2008, Crossgates filed a consolidated arbitration demand. (Doc. 23, Ex. 1.) With respect to Gleim, the factual allegations contained therein are substantively identical to those contained in the original demand. (Compare Doc. 1, Ex. 5, with Doc. 23, Ex. 1.) The consolidated demand simply includes an additional defendant-the Norwood Company- against whom fraud claims are alleged. B. The Above-Captioned Action *2 The overarching dispute in the instant matter centers upon the Policy's liability coverage for “property damage.” The coverage provision reads, in pertinent part: 1. Insuring Agreement a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies.... [W]e will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply.... b. This insurance applies to “bodily injury” and “property damage” only if: (1) The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory”; .... (Doc. 1, Ex. 1 at CG 00 01 10 01.) An “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (See id.) Bituminous contends that intentional misrepresentation, concealment, and fraud are not included within the scope of the Policy's definition of “property damage.” On December 18, 2007, Bituminous filed a complaint for declaratory judgment, 3 seeking the court's affirmation that it has no duty to defend or indemnify Gleim in the underlying arbitration with Crossgates. 4 (See Doc. 1.) Gleim answered the complaint on January 23, 2008, denying Bituminous' interpretation of the Policy. (See Doc. 5.) On April 29, 2008, Bituminous moved for summary judgment. (Doc. 17.) The motion has been fully briefed and is ripe for disposition. 3 Bituminous filed its complaint pursuant to the federal Declaratory Judgment Act, 28 U.S.C. § 2201. 4 In addition to Gleim, Bituminous named Crossgates as a defendant in this matter. On January 28, 2008, Crossgates moved to dismiss the complaint ase 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 3 of 177 Bituminous Cas. Corp. v. John W. Gleim, Jr., Inc., Not Reported in F.Supp.2d (2009) 2009 WL 473034 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 for its alleged failure to plead a justiciable case or controversy. (See Docs. 7, 10.) The court denied this motion on July 1, 2008. (Doc. 26.) Crossgates thereafter filed a statement in response to the motion for summary judgment, wherein it stated that “upon consideration of the fact that in this action Plaintiff does not seek any monetary or material relief against Crossgates, ... Crossgates takes no further position with respect either to Plaintiff's motion for summary judgment or request for declaratory relief.” (Doc. 27 at 1-2.) II. Standard of Review Through summary adjudication the court may dispose of those claims that do not present a “genuine issue as to any material fact” and for which a jury trial would be an empty and unnecessary formality. See FED. R. CIV. P. 56(c). The burden of proof is upon the nonmoving party to come forth with “affirmative evidence, beyond the allegations of the pleadings,” in support of its right to relief. Pappas v. City of Lebanon, 331 F.Supp.2d 311, 315 (M.D.Pa.2004); FED. R. CIV. P. 56(e); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). This evidence must be adequate, as a matter of law, to sustain a judgment in favor of the nonmoving party on the claims. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-57, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-89, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); see also FED. R. CIV. P. 56(c), (e). Only if this threshold is met may the cause of action proceed. Pappas, 331 F.Supp.2d at 315. III. Discussion 5 5 Jurisdiction over the instant action is based on diversity of citizenship, see 28 U.S.C. § 1332, which requires the court to apply Pennsylvania law to the parties' substantive claims, see Erie R.R. Co. v. Tompkins, 304 U.S. 64, 79-80, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); see also Borse v. Pierce Goods Shop, Inc., 963 F.2d 611, 613 (3d Cir.1992). Neither party disputes the application of Pennsylvania law to this matter. The Declaratory Judgment Act allows a court to declare the rights of parties to an insurance contract, including the extent to which a policy obligates an insurer to defend or indemnify an insured. See ACandS, Inc. v. Aetna Cas. & Sur. Co., 666 F.2d 819, 822-23 (3d Cir.1981); Everett Cash Mut. Ins. Co. v. Ins. Co. of Hanover, Civ. A. No. 1:07-CV- 0641, 2008 WL 4453113, at *3 (M.D.Pa. Sept.30, 2008). In Pennsylvania, the duty of an insurer to defend its insured in a proceeding brought by a third party is resolved “solely from the language of the complaint against the insured.” Kvaerner Metals Div. v. Commercial Union Ins. Co., 589 Pa. 317, 908 A.2d 888, 896 (Pa.2006); see also Black, Davis & Shue, 513 F.Supp.2d at 163. The coverage determination is thus a question of law to be decided by the court. Westport Ins. Corp. v. Bayer, 284 F.3d 489, 496 (3d Cir.2002). *3 An insurer's duty to defend attaches when the allegations of the complaint against the insured “potentially come[ ] within the policy's coverage.” Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 220 (3d Cir.2005); see also Britamco Underwriters v. Weiner, 431 Pa.Super. 276, 636 A.2d 649, 651 (Pa.Super.1994). Even where only a “single claim in a multiclaim lawsuit is potentially covered, the insurer must defend all claims until there is no possibility that the underlying plaintiff could recover” on the covered claim. Penn Nat'l Ins. v. HNI Corp., 482 F.Supp.2d 568, 607 (M.D.Pa.2007) (quoting Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir.1999)). Conversely, the insurer bears no duty to defend if it can confine the complaint to “recovery that is not within the scope of the coverage.” USX Corp. v. Liberty Mut. Ins. Co., 444 F.3d 192, 202 n. 18 (3d Cir.2006). The duty to defend is broader than the duty to indemnify. Kvaerner, 908 A.2d at 896 n. 7; see also Sikirica, 416 F.3d at 225. Thus, “there may be a duty to defend without a duty to indemnify.” Frog, Switch & Mfg. Co., 193 F.3d at 746. However, “[b]ecause the duty to defend is broader than the duty to indemnify, there is no duty to indemnify if there is no duty to defend.” Sikirica, 416 F.3d at 225; see also Mut. Benefit Ins. Co. v. Haver, 555 Pa. 534, 725 A.2d 743, 746 n. 1 (Pa.1999). To determine whether an insurer has a duty to defend an insured, the court must engage in the following two-step process. First, the court must determine the proper scope of coverage under the policy. See Lucker Mfg. v. Home Ins. Co., 23 F.3d 808, 814 (3d Cir.1994); see also Britamco, 636 A.2d at 651. Second, the court must “examine the complaint in the underlying action to determine whether it triggers coverage.” Sikirica, 416 F.3d at 226. If the court determines that the complaint “avers facts that might support recovery under the policy, coverage is triggered and the insurer has a duty to defend.” Id. (citing Gen. ase 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 4 of 177 Bituminous Cas. Corp. v. John W. Gleim, Jr., Inc., Not Reported in F.Supp.2d (2009) 2009 WL 473034 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 Accident Ins. Co. of Am. v. Allen, 547 Pa. 693, 692 A.2d 1089, 1095 (Pa.1997)). “Traditional principles of insurance policy interpretation” control the first inquiry. Lucker, 223 F.3d at 814. The court's primary interpretive goal is to “ascertain the intent of the parties as manifested by the language of the written instrument.” Standard Venetian Blind Co. v. Am. Empire Ins. Co., 503 Pa. 300, 469 A.2d 563, 566 (Pa.1983). This court has previously explained that coverage clauses are to be “interpreted broadly so as to afford the greatest possible protection to the insured.” Penn Nat'l, 482 F.Supp.2d at 607; Everett Cash, Civ. A. No. 1:07-CV-0641, 2008 WL 4453113, at *3. As the Pennsylvania Supreme Court stated in Kvaerner: When the language of the policy is clear and unambiguous, we must give effect to that language. Alternatively, when a provision in the policy is ambiguous, the policy is to be construed in favor of the insured to further the contract's prime purpose of indemnification and against the insurer, as the insurer drafts the policy and controls coverage. *4 908 A.2d at 897 (internal citations omitted). Nevertheless, the policy language “must not be tortured to create ambiguities where none exist.” Sikirica, 416 F.3d at 220. Once the policy's coverage has been determined, the court must examine the underlying complaint to ascertain whether its factual allegations trigger coverage. Given the broad nature of the duty to defend, the court must construe the factual allegations of the underlying complaint liberally and resolve all doubts as to coverage in favor of the insured. See Frog, Switch & Mfg. Co., 193 F.3d at 746; see also Biborosch v. Transamerica Ins. Co., 412 Pa.Super. 505, 603 A.2d 1050, 1052 (Pa.Super.1992). This analysis must focus upon the substance of the allegations rather than on “the particular cause of action that a complainant pleads.” Erie Ins. Exch. v. Muff, 851 A.2d 919, 926 (Pa.Super.2004); see also Black, Davis & Shue, 513 F.Supp.2d at 165. As part and parcel of this analysis, the court is required to accept as true all factual allegations of the underlying complaint because the duty to defend is triggered even if such allegations are “groundless, false, or fraudulent.” Britamco, 636 A.2d at 651 (quoting Gedeon v. State Farm Mut. Auto. Ins. Co., 410 Pa. 55, 188 A.2d 320, 321 (Pa.1963)). The Bituminous Policy affords coverage for “property damage” caused by an “occurrence”; an “occurrence” is defined as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (Doc. 1, Ex. 1 at CG 00 01 10 01.) The Policy provides no definition for the term “accident.” The parties appear to agree, however, that intentional concealment and fraud are not included within the scope of coverage-a position in accord with Pennsylvania insurance law. In Kvaerner, the Pennsylvania Supreme Court interpreted a liability policy containing language identical to that included in the Policy, and held that an “accident” was typically an “unexpected and undesirable event.” 908 A.2d at 897-98. Moreover, the court stated: “The key term in the ordinary definition of ‘accident’ is ‘unexpected.’ This implies a degree of fortuity ....“ Id. at 898; see also Foremost Ins. Co. v. Erickson, Civ. A. No. 07-0195, 2007 WL 2301119, at *4 (E.D.Pa. Aug.7, 2007) (“Pennsylvania courts have defined accident as a fortuitous, untoward or unexpected happening.” (internal quotations and citations omitted)); State Farm Fire & Cas. Co. v. Czop, No. Civ. A. 02-1048, 2004 WL 632724, at *5 (E.D.Pa. Feb.11, 2004) (same); Allstate Ins. Co. v. Fischer, No. 97-4806, 1998 WL 205693, at *3 n. 3 (E.D.Pa. Apr.28, 1998) (same). Furthermore, both Pennsylvania state courts and federal courts applying Pennsylvania law have held that intentional acts, including intentional misrepresentations, are not covered as “occurrences” under a general liability insurance policy. See Sclabassi v. Nationwide Mut. Fire Ins. Co., 789 A.2d 699, 703 (Pa.Super.2001) (“Intentional acts are not ‘occurrences.’ ”); see also Jerry Davis, Inc. v. Md. Ins. Co., 38 F.Supp.2d 387, 392 (E.D.Pa.1999) (“Intentional acts such as misrepresentation are not covered as an occurrence under policies of liability insurance.”); United States Fid. & Guar. Co. v. Korman Corp., 693 F.Supp. 253, 258 (E.D.Pa.1988) (“Intentional acts, including intentional misrepresentations, are not ‘accidents' and thus not ‘occurrences.’ ”); United Nat'l Ins. Co. v. St. Paul Reinsurance Co., Civ. No. 1:CV-07-2092, 2008 WL 4671780, at *4 (M.D.Pa. Oct.17, 2008) (“An intentional act is not a covered ‘occurrence’ under a liability policy because it is not an accident.”); Gene & Harvey Builders v. Pa. Mfrs' ase 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 5 of 177 Bituminous Cas. Corp. v. John W. Gleim, Jr., Inc., Not Reported in F.Supp.2d (2009) 2009 WL 473034 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 Associated Ins. Co., 512 Pa. 420, 517 A.2d 910, 913 (Pa.1986) (holding that both intentional concealment and intentional misrepresentation “are not ‘occurrences' under [a general liability policy], for an intentional act is not an accident (and only accidents are covered).”). In light of well-established case law interpreting identical policy provisions, the court finds the Bituminous Policy language unambiguous: intentional acts, including intentional misrepresentation and fraud, are excluded from the scope of the Policy coverage. *5 The court must now turn to Crossgates' demand for arbitration and determine whether the factual allegations contained therein trigger the Policy's coverage. Bituminous contends that the averments within the demand “leave no doubt but that the insured has been sued for intentional fraud.... There is no allegation that the insured was negligent, or merely should have known that its earthwork was deficient.” (Doc. 18 at 10.) The court has examined the arbitration demand and it is clear that the factual allegations do not trigger coverage. The demand states that “Gleim commenced earthwork operations, but deceptively concealed from Crossgates the fact that Gleim did not follow the plans and specifications.” (Doc. 23, Ex. 1 ¶ 20 (emphasis added)). Gleim purportedly concealed and covered up [its] non-compactive effort, its uncontrolled 3 foot lifts, its uncompacted voids, its lack of documentation of types of soils used for fill, its lack of soil density testing documentation, its non-use of geogrids or earth benches, and its failure to perform earthwork consistent with the requirements of contract specifications.... None of these concealed failures were to be discovered until it was reported to Crossgates that the building was settling and required rehabilitation to correct the existing settlement and to prevent future damage. (Id. ¶ 37, 517 A.2d 910 (emphasis added)). Finally, Crossgates' demand requests compensation because “Gleim deceptively and fraudulently covered up [its] substandard earthwork with an intent that it not be discovered by Crossgates.” (Id. ¶ 40, 517 A.2d 910 (emphasis added)). In this fashion, Crossgates' allegations set forth claims seeking redress for intentional misconduct, concealment, and fraud, none of which constitutes an “occurrence” under the Policy. Gleim responds by identifying two allegations in Crossgates' arbitration demand that purportedly sound in negligence. (See Doc. 22 at 5-6.) According to Gleim, acts of negligence are by definition unintentional and accidental; thus, Bituminous is obliged to defend if Crossgates' demand contains at least “some allegations that arguably may invoke coverage.” (Id. at 5, 517 A.2d 910 (emphasis added)). The first highlighted allegation asserts that “geogrid and/or earth benches were ignored by Gleim.” (Id. at 5, 517 A.2d 910 (quoting Doc. 23, Ex. 1 ¶ 36)). This averment is quoted accurately, but out of context. The actual demand clarifies: “The ignoring [sic] of these recommendations [regarding geogrid an/ or earth benches] was not brought to Crossgates' attention during earthwork operations by Gleim, which it is asserted, was further evidence of Gleim's cover- up ....” (Doc. 23, Ex. 1 ¶ 36 (emphasis added)). Read in context, Crossgates' allegation sounds in intentional misrepresentation, concealment, or fraud. The claim is not simply that Gleim's performance was inadequate, but that Gleim camouflaged its deficient performance with calculated subterfuge, causing Crossgates to remain ignorant of the alleged deficiencies. *6 The second allegation purportedly averring negligent behavior reads: “The lack of control of the fill materials composition by Gleim and the placement of materials with inadequate compaction by Gleim directly under the foundation and structural slab area and the parking lot that is settling is a direct cause of the settlement.” (Doc. 22 at 5-6 (quoting Doc. 23, Ex. 1 ¶ 40)). Again, Gleim quotes the averment accurately, but omits context. Crossgates' actual demand continues, “Gleim deceptively and fraudulently covered up this substandard earthwork with an intent that it not be discovered by Crossgates.” (Doc. 23, Ex. 1 ¶ 40 (emphasis added)). Read in context, this allegation also asserts a claim of intentional misrepresentation, concealment, or fraud. Notwithstanding Gleim's interpretive efforts, Crossgates' allegations perspicuously sound in intentional acts; intentional acts of misrepresentation, concealment, and fraud do not constitute “occurrences” under the Policy. To the extent that Crossgates identifies performance falling below that required by the contract, it does so merely to describe activity that Gleim purportedly concealed. Bituminous therefore has no duty to defend or indemnify Gleim against the allegations contained within Crossgates' arbitration demand. 6 7 Summary judgment is appropriate. ase 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 6 of 177 Bituminous Cas. Corp. v. John W. Gleim, Jr., Inc., Not Reported in F.Supp.2d (2009) 2009 WL 473034 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 6 “Because the duty to defend is broader than the duty to indemnify, there is no duty to indemnify if there is no duty to defend.” Sikirica, 416 F.3d at 225; see also Scopel v. Donegal Mut. Ins. Co., 698 A.2d 602, 605 (Pa.Super.1997). Bituminous has no duty to defend against Crossgates' arbitration demand and, consequently, also has no duty to indemnify. 7 Gleim's brief in opposition also proffers the following argument regarding Bituminous' duty to defend: even if the allegations of Crossgates' arbitration demand seek recovery for purely intentional acts, an arbitrator may nonetheless ground an arbitral award on Gleim's negligent performance. This mere possibility requires Bituminous to provide a defense. (See Doc. 22 at 7- 11.) Gleim's argument lacks any basis in Pennsylvania law. An insurer's duty to defend is not affected by the remote possibility that an arbitrator will go beyond the face of the arbitration demand in imposing an award. Moreover, “the nature of the allegations contained in the complaint control whether an insurer must defend a policyholder.” Scopel, 698 A.2d at 605. This court is not permitted to speculate on theories which would require it to leap beyond the four corners of the arbitration demand, and Gleim cites no case law to the contrary. IV. Conclusion In accordance with the foregoing discussion, the court declares that Bituminous has no duty to defend or indemnify Gleim in the Crossgates arbitration. Intentional misrepresentation, concealment, and fraud simply do not constitute an “occurrence” under the Policy. The court will therefore grant Bituminous' motion for summary judgment. An appropriate order will issue. ORDER AND NOW, this 24th day of February, 2009, upon consideration of plaintiff's motion (Doc. 17) for summary judgment, and for the reasons set forth in the accompanying memorandum, it is hereby ORDERED that: 1. Plaintiff's motion (Doc. 17) for summary judgment is GRANTED. 2. The Clerk of Court is directed to enter JUDGMENT for plaintiff Bituminous Casualty Corporation and against defendants John W. Gleim, Incorporated and Crossgates, Incorporated, with respect to all claims. 3. The Clerk of Court is directed to CLOSE this case. All Citations Not Reported in F.Supp.2d, 2009 WL 473034 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. ase 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 7 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 KeyCite Yellow Flag - Negative Treatment On Reconsideration Cole’s Wexford Hotel, Inc. v. UPMC and Highmark Inc., W.D.Pa., February 1, 2017 2016 WL 5025751 United States District Court, W.D. Pennsylvania. Cole's Wexford Hotel, Inc., on its own behalf and on behalf of all others similarly situated, Plaintiffs, v. Highmark Inc., Defendant. Civil Action No. 10-1609 | Signed September 20, 2016 Synopsis Background: Purchaser of small group health insurance coverage filed putative class action alleging that insurer engaged in anticompetitive conduct in violation of the Sherman Act. Purchaser submitted a discovery dispute to the special master appointed to oversee discovery regarding whether it could seek from insurer discovery concerning base rates approved by the Pennsylvania Insurance Department (PID) and rates actually charged by insurer. The special master recommended that the court deny purchaser's discovery requests for failure to establish its relevance. Parties filed objections. [Holding:] The District Court, Conti, Chief Judge, held that purchaser failed to satisfy its burden to show that the information it sought was relevant. Motion denied. West Headnotes (8) [1] Federal Civil Procedure Scope 170A Federal Civil Procedure 170AX Depositions and Discovery 170AX(A) In General 170Ak1272 Scope 170Ak1272.1 In general Discovery requests are not relevant simply because there is a possibility that the information may be relevant to the general subject matter of the action. Fed. R. Civ. P. 26. 1 Cases that cite this headnote [2] Antitrust and Trade Regulation Regulatory agencies; regulated industries 29T Antitrust and Trade Regulation 29TXI Antitrust Exemptions and Defenses 29Tk906 Regulatory agencies; regulated industries The filed rate doctrine bars antitrust suits based on rates that have been filed and approved by federal agencies and state agencies. Cases that cite this headnote [3] Public Utilities Enforcement or Prevention of Enforcement by Courts of Orders of Commission 317A Public Utilities 317AIII Public Service Commissions or Boards 317AIII(C) Judicial Review or Intervention 317Ak182 Enforcement or Prevention of Enforcement by Courts of Orders of Commission 317Ak183 In general When the filed rate doctrine applies, it is rigid and unforgiving; it does not depend on the culpability of the defendant's conduct or the possibility of inequitable results, nor is it affected by the nature of the cause of action the plaintiff seeks to bring. Cases that cite this headnote [4] Public Utilities Enforcement or Prevention of Enforcement by Courts of Orders of Commission 317A Public Utilities 317AIII Public Service Commissions or Boards 317AIII(C) Judicial Review or Intervention Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 8 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 317Ak182 Enforcement or Prevention of Enforcement by Courts of Orders of Commission 317Ak183 In general The filed rate doctrine applies when a plaintiff's claim implicates either of the doctrine's underlying principles of (1) preventing carriers from engaging in price discrimination as between ratepayers, and (2) preserving the exclusive role of agencies in approving rates by keeping courts out of the rate-making process, a function that regulatory agencies are more competent to perform. Cases that cite this headnote [5] Public Utilities Enforcement or Prevention of Enforcement by Courts of Orders of Commission 317A Public Utilities 317AIII Public Service Commissions or Boards 317AIII(C) Judicial Review or Intervention 317Ak182 Enforcement or Prevention of Enforcement by Courts of Orders of Commission 317Ak183 In general Non-discrimination strand of filed rate doctrine recognizes that victorious plaintiffs would wind up paying less than non-suing ratepayers. Cases that cite this headnote [6] Public Utilities Enforcement or Prevention of Enforcement by Courts of Orders of Commission 317A Public Utilities 317AIII Public Service Commissions or Boards 317AIII(C) Judicial Review or Intervention 317Ak182 Enforcement or Prevention of Enforcement by Courts of Orders of Commission 317Ak183 In general Nonjusticiability strand of filed rate doctrine recognizes: (1) legislatively appointed regulatory bodies have institutional competence to address rate-making issues; (2) courts lack the competence to set rates; and (3) the interference of courts in the rate-making process would subvert the authority of rate- setting bodies and undermine the regulatory regime. Cases that cite this headnote [7] Public Utilities Enforcement or Prevention of Enforcement by Courts of Orders of Commission 317A Public Utilities 317AIII Public Service Commissions or Boards 317AIII(C) Judicial Review or Intervention 317Ak182 Enforcement or Prevention of Enforcement by Courts of Orders of Commission 317Ak183 In general A court having to calculate the legal rate but for the defendant's antitrust violations, alone, is enough to implicate the nonjusticiability strand of the filed rate doctrine. Cases that cite this headnote [8] Antitrust and Trade Regulation Regulatory agencies; regulated industries Federal Civil Procedure Scope 29T Antitrust and Trade Regulation 29TXI Antitrust Exemptions and Defenses 29Tk906 Regulatory agencies; regulated industries 170A Federal Civil Procedure 170AX Depositions and Discovery 170AX(A) In General 170Ak1272 Scope 170Ak1272.1 In general Expert's declaration, in support of discovery request for regulated rates charged by health insurer in prior years, that he sought such evidence in order to find a period in time during which the same market participants were competing in the same market environment free of the effects of alleged anticompetitive behavior in order to establish a useful benchmark for prices that would have prevailed during the Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 9 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 period associated with the antitrust violation but for the anticompetitive behavior after appropriate adjustments were made, was insufficient to establish that the regulated rates charged in those years were relevant to small group health insurance coverage purchaser's anticompetitive conduct claims under Sherman Act; the years for which purchaser sought regulated rate information did not actually represent a period of time during which the same market participants were competing in the same market environment free from the effects of anticompetitive behavior, and, even if expert's declaration were sufficient, the use of the rate information would be barred by filed rate doctrine. Fed. R. Civ. P. 26. Cases that cite this headnote Attorneys and Law Firms Andrew M. Stone, Stone Law Firm, LLC, Pittsburgh, PA, Kathleen S. Kiernan, Evan E. North, Hamish Hume, Joshua P. Riley, Melissa Felder Zappala, Boies, Schiller & Flexner LLP, Washington, DC, Patrick K. Cavanaugh, Arthur H. Stroyd, Jr., Del Sole Cavanaugh Stroyd LLC, Pittsburgh, PA, David B. Harrison, David S. Stone, Stone And Magnanini, Berkeley Heights, NJ, Jason C. Spiro, Spiro Law LLC, Short Hills, NJ, Scott Michael Hare, Pittsburgh, PA, for Plaintiffs. Alexander W. Saksen, Gordon & Rees, Pittsburgh, PA, Andrew J. Robinson, Jennifer L. Giordano, Margaret M. Zwisler, Latham & Watkins LLP, Washington, DC, John G. Ebken, Richard T. Victoria, Gordon & Rees, LLP, Pittsburgh, PA, Alfred C. Pfeiffer, Latham & Watkins LLP, San Francisco, CA, for Defendant. OPINION CONTI, Chief District Judge I. Introduction *1 Pending before the court in this antitrust lawsuit are objections (ECF Nos. 407, 408) filed by plaintiff Cole's Wexford Hotel, Inc. (“Cole's Wexford”) and defendant Highmark Inc. (“Highmark”) to the special master's amended report and recommendation no. 4 (ECF No. 403.). Cole's Wexford submitted a discovery dispute to the special master appointed in this case to oversee discovery with respect to whether it may seek from defendant discovery concerning base rates approved by the Pennsylvania Insurance Department (“PID”) and rates actually charged by Highmark between 1999 and 2001, between 2008 and 2010, and after March 2012. The special master-citing the filed rate doctrine -recommended that the court deny Cole's Wexford's discovery requests because Cole's Wexford did not satisfy its burden to show that the information it seeks is relevant under Federal Rule of Civil Procedure 26. The court agrees with the special master that Cole's Wexford did not satisfy its burden to show that the information it requests is relevant. The court will, therefore, adopt the amended report and recommendation no. 4 with respect to that portion of his recommendation, as supplemented by the court's analysis set forth in this opinion. The court, however, will reject the portion of the amended report and recommendation no. 4 which discussed the construction of the term “relevant” under the 2015 amendments to Federal Rule of Civil Procedure 26. As discussed below, under Rule 26, the court and parties have obligations to analyze the scope of discovery by considering whether the discovery sought is relevant to a party's claims or defenses and proportional to the needs of the case. FED. R. CIV. P. 26(b)(1). Contrary to the analysis in the amended report and recommendation no. 4, discovery requests are not relevant simply because there is a possibility that the information may be relevant to the general subject matter of the action. (ECF No. 403 at 5.) As discussed in more detail below, the special master reached the correct conclusion that Cole's Wexford failed to satisfy its burden under Rule 26 to show that its discovery request is relevant, but did not properly construe the term “relevant” as contemplated by Rule 26. The special master considered relevancy to be as broad as the subject matter, which is broader than the scope of discovery contemplated by Rule 26. II. Procedural History and Background On October 9, 2012, Cole's Wexford, among other plaintiffs who were later dismissed from this case, filed a second amended complaint against Highmark and then defendant UPMC. 1 (ECF No. 90.) On September 27, Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 10 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 2013, after consideration of motions to dismiss filed by Highmark and UPMC, the parties' submissions related to those motions, and the oral argument presented to the court at a hearing held on July 1, 2013, the court issued an opinion and order granting UPMC's and Highmark's motions to dismiss the second amended complaint. (ECF Nos. 240, 241.) The court held the second amended complaint must be dismissed because the measure of damages set forth in the second amended complaint, i.e., the difference between the rates Highmark charged the members of the putative class and the rates it would have charged members of the class but for the alleged UPMC- Highmark conspiracy, implicated the filed rate doctrine, and plaintiffs' claim for tortious interference with existing and prospective contractual relations was time barred. (ECF No. 240 at 1.) The second amended complaint was dismissed without prejudice to plaintiffs seeking leave to file a third amended complaint “to the extent they [were] able to plead, with respect to the antitrust claims, a measure of damages that does not require the court to interfere with the ratemaking authority of the…[PID] and, with respect to the tortious interference claim against UPMC, a basis for fraudulent concealment.” (Id. at 80.) 1 On July 29, 2016, this court approved a settlement agreement between UPMC and Cole's Wexford. (ECF Nos. 414, 415.) UPMC is no longer a defendant in this case. *2 On October 28, 2013, plaintiffs filed a motion for leave to file a third amended complaint, a brief in support of the motion, and the proposed third amended complaint attached to the motion. (ECF No. 249.) On August 21, 2014, the court granted in part and denied in part the motion for leave to file a third amended complaint. The court, among other things: - denied the motion for leave with respect to the claims asserted by the individual plaintiffs because the measure of damages asserted by those plaintiffs in the proposed third amended complaint was barred by the filed rate doctrine; - denied the motion for leave with respect to the claims asserted by the small group plaintiffs based upon damages measured by the difference between rates the small group plaintiffs paid to Highmark during the alleged UPMC-Highmark conspiracy and the rates the small group plaintiffs would have paid beginning on March 21, 2012, to Highmark's competitors but for the UPMC- Highmark conspiracy because that measure of damages was barred by the filed rate doctrine; - granted plaintiffs leave to amend with respect to the small group plaintiffs' claims based upon damages measured by the difference between the rates Highmark charged the small group plaintiffs during the alleged UPMC-Highmark conspiracy and the rates Highmark's excluded and marginalized competitors who were not subject to the PID's rate-filing requirements prior to March 21, 2012, would have charged the small group plaintiffs prior to March 21, 2012, but for the UPMC-Highmark conspiracy; - granted plaintiffs leave to amend with respect to the small group plaintiffs' claims based upon damages measured by the difference between the rates the small group plaintiffs paid to Highmark's subsidiary Highmark Health Insurance Company during the alleged UPMC-Highmark conspiracy and prior to March 21, 2012, and the rates it would have paid Highmark Health Insurance Company but for the UPMC-Highmark conspiracy; (ECF No. 284); Royal Mile Co., Inc. v. UPMC and Highmark, 40 F.Supp.3d 552 (W.D.Pa.2014). On October 1, 2014, Cole's Wexford filed a third amended complaint. (ECF No. 286.) Cole's Wexford in the third amended complaint alleges that Highmark and UPMC “conspired, agreed, and acted in an organized, orchestrated, and deliberate fashion to control, divide, and/or monopolize both the market for medical care and the market for health insurance,” which “resulted in the exclusion of competing insurers from the market.” (Id. ¶ 1.) Cole's Wexford defined the class it seeks to represent in this case as “all persons, whether natural or fictitious, who purchased small group health insurance coverage from, or otherwise paid any small group plan premiums or portion thereof to, Highmark Health Insurance Co. [“HHIC”], or a similar for-profit subsidiary of Highmark Inc., between approximately July 1, 2010 and approximately March 21, 2012.” (Id. ¶ 11.) UPMC and Highmark filed motions to dismiss the third amended complaint. (ECF Nos. 288, 290.) On September 1, 2015, the court denied Highmark's motion to dismiss the third amended complaint and granted in part and denied Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 11 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 in part UPMC's motion to dismiss the third amended complaint. (ECF Nos. 301, 302.) The court explained, among other things, that “[u]nlike the proposed third amended complaint, the third amended complaint does not set forth a measure of damages barred by the filed rate doctrine.” (ECF No. 302 at 39.) *3 In early 2016, Cole's Wexford submitted to the special master its discovery dispute with respect to base rates approved by the PID and rates actually charged by Highmark between 1999 and 2001, between 2008 and 2010, and after March 2012. On March 9, 2016, the special master filed revised 2 report and recommendation no. 4 with respect to that discovery dispute. (ECF No. 353.) On March 17, 2016, Highmark filed objections to revised report and recommendation no. 4. (ECF No. 359.) On March 31, 2016, Cole's Wexford filed a response in opposition to Highmark's objections. (ECF No. 366.) On April 7, 2016, Highmark filed a reply brief. (ECF No. 372.) The court after review of revised report and recommendation no. 4 and the submissions by Cole's Wexford and Highmark remanded the matter for the parties and special master to conduct an analysis with respect to whether Cole's Wexford's discovery request complied with Federal Rule of Civil Procedure 26, i.e., whether the information sought was relevant and proportional to the case. The court set a briefing schedule for Cole's Wexford to renew its motion with respect to its discovery request with the special master and for the special master to conduct a hearing about the dispute. (H.T. 5/23/16 (ECF No. 397).) 2 The special master filed a revised report and recommendation no. 4 because the initial report and recommendation no. 4 contained information the parties deemed confidential. The special master filed revised report and recommendation no. 4 to omit the allegedly confidential information. On June 24, 2016, the special master filed the amended report and recommendation no. 4. (ECF No. 403.) In the amended report and recommendation no. 4, the special master, among other things: (1) determined that the only discovery request properly before him was a request for Highmark's base rates and rates Highmark actually charged its customers for specific time periods; (2) determined that under Rule 26 and pursuant to the filed rate doctrine, Cole's Wexford did not satisfy its burden to show that information was relevant to the subject matter of the litigation; and (3) certain data sought but not specifically identified by Cole's Wexford may be relevant and proportional to this case. (ECF No. 403.) On July 17, 2016, Cole's Wexford and Highmark each filed objections to the amended report and recommendation no. 4. (ECF Nos. 407, 408.) Cole's Wexford attached to its objections, among other things, the following: (1) a declaration of economist Jeffrey J. Leitzinger (“Leitzinger”) (ECF No. 408-2 at 30-37); (2) a declaration of economist Einer R. Elhauge (“Elhauge”) (id. at 50- 57); and (3) a supplemental declaration of Leitzinger (ECF No. 408-4 at 2.) On July 29, 2016, Cole's Wexford and Highmark filed responses in opposition to each other's objections to the amended report and recommendation no. 4. (ECF Nos. 416, 417.) On August 12, 2016, Cole's Wexford filed a supplement to its objections. (ECF No. 420.) On August 15, 2016, Highmark filed a response to the supplement. (ECF No. 421.) On August 16, 2016, the court held a hearing with respect to the objections made to the amended report and recommendation no. 4. (H.T. 8/16/16 (ECF No. 423).) The court held on the record that the only issue properly before the special master was “whether or not the Plaintiffs would be able to obtain information concerning rates charged in certain periods by Highmark,” which included the rates actually charged and the base rates approved by the PID from 1999 through 2001 and in 2014. (Id. at 3, 44.) In other words, the court held that Cole's Wexford did not properly, i.e., with the requisite specificity, place in issue its discovery requests for various data underlying the rates Highmark charged to its customers during those years. (Id.) With respect to Cole's Wexford's requests for the base rates approved by the PID and the actual rates charged by Highmark from 1999 through 2001 and in 2014, the court acknowledged that Highmark agreed to provide to Cole's Wexford that information with respect to 2009 and 2013, the year before and year after the class period in this case. (Id.) The court expressed serious reservations about whether the base rates and rates actually charged by Highmark from 1999 to 2001 and in 2014 were relevant in light of the filed rate doctrine and the evidence submitted by Cole's Wexford. (Id. at 35, 38, 43.) The court also explained that even if it found that information to be relevant, it would need more information from Cole's Wexford and Highmark to assess whether Cole's Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 12 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 Wexford's request was proportional to the case. (Id. at 46- 50.) *4 In response to the court's concerns, counsel for Cole's Wexford stated on the record: Judge, I could go back to the experts and find out if we had some more limited like average rates or something or whatever was filed, if that's even sufficient. I can't speak to that because I haven't asked them that question. But I am certainly willing to go back. We don't want anything more than what we absolutely need. We are not trying to overburden them. I tried to limit the periods and even reduce them even further just so we have what we absolutely need. So I could go back and ask that question. And also perhaps-I know that there are annual reports that sometimes these companies do that have the average rates for a particular group or something, and that might be sufficient too so they wouldn't have to give us every change or every- (H.T. 8/16/16 (ECF No. 423) at 50-51.) The court responded: Why don't you find out that information. This goes to the relevancy-this goes to the proportionality and the burden because there is something to what Highmark is saying, even assuming it's relevant, when you have to go back 17 years and you have to pull up all of this data and you have all of these people that have to work on it. I do understand the need to control certain information, although that warrants putting more of the burden on the party that doesn't want to be open and let some other third party come in. But be that as it may, it is still a significant factor for the Court to consider in terms of what the undertaking would have to be here. If there's something a lot more discrete that can be more readily determined, it might make the issue easier to resolve. But if-again, I am still struggling with how you turn a regulated rate as the benchmark for a competitive rate ten years, twelve years later, although I do understand we are looking at what would be an unregulated rate in-an unregulated competitive rate in the time frame that we're dealing with. So I do appreciate that. ... What is the minimum really necessary that they would need without having to go back and reconstruct old systems. Because even if I gave you everything you wanted, you wouldn't see this for a long time. That doesn't serve this case well since it's from 2010 and we need to get focused here- ... -on getting this case moving. I have got to weigh that too, the timing and that type of thing. So I think that would be very helpful to know that answer at this stage because I could go off on both issues here. (Id. at 51-52.) The court permitted Cole's Wexford to file a supplemental submission setting forth a more discrete category of base rates and rates actually charged by Highmark and permitted Highmark to respond to that supplemental submission with respect to the proportionality of that request. (Id. at 52-53.) On August 19, 2016, Cole's Wexford filed a supplement to its objections. (ECF No. 422.) Cole's Wexford, however, did not identify in its supplement a more discrete category of either base rates or rates actually charged by Highmark; rather, Cole's Wexford set forth another discovery request for information including and in addition to the base rates approved by the PID. (Id.) In other words, Cole's Wexford ignored the court's holding that a request for data underlying Highmark's rates was not properly before the special master or the court and that Cole's Wexford should identify a more discrete category of rates that it wanted Highmark to produce. On August 23, 2016, Highmark filed a response to Cole's Wexford's supplement arguing, among other things, that Cole's Wexford did not comply with the court's directive set forth on the record to identify a more discrete category of rates. (ECF No. 425.) Highmark argued Cole's Wexford's supplement requested additional information, which Cole's Wexford did not show was relevant, and Highmark would “face substantial burdens to provide all of the requested data.” (Id. at 5.) On August 29, 2016, Cole's Wexford filed a reply to Highmark's response. (ECF No. 427.) Cole's Wexford in the reply argued that its supplement answered the court's question about whether Cole's Wexford's “experts could base an economic model simply upon publicly filed base rates.” (Id. at 2.) Cole's Wexford asserted in its reply that the answer to that question is “yes, but only if (1) Plaintiff's experts have certain additional information for both Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 13 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 the pre-conspiracy period and the class period, and (2) Highmark calculated and used base rates during the class period.” (Id.) Cole's Wexford in its reply identified five categories of information it is requesting from Highmark. (Id.) III. Standard of Review *5 The court reviews the special master's findings of fact and conclusions of law de novo. FED. R. CIV. P. 53(f); (ECF No. 92 ¶ 18.) The court may adopt, modify, or reject wholly or in part the report and recommendation. FED. R. CIV. P. 53(f). IV. Discussion A. Scope of Discovery under the 2015 Amendment to the Federal Rule of Civil Procedure 26 The Federal Rules of Civil Procedure were initially adopted in December 1937. Prudential Ins. Co. of Am. v. U.S. Gypsum Co., 991 F.2d 1080, 1083 (3d Cir.1993). Rule 26 at that time addressed the taking of depositions. FED. R. CIV. P. 26 advisory committee's note to 1937 adoption. The advisory committee notes to the 1937 adoption of Rule 26 recognized that the “old chancery practice” of limiting discovery “to facts supporting the case of the party seeking it,” was “largely abandoned by modern legislation.” Id. Following the 1946 amendments to the rules, Rule 26 still concerned only the taking of depositions. Rule 26 following the 1946 amendments made “clear the broad scope of examination [at a deposition] and that it may cover not only evidence for use at the trial but also inquiry into matters in themselves inadmissible as evidence but which will lead to the discovery of such evidence.” FED. R. CIV. P. 26 advisory committee's note to 1946 amendment. The advisory committee notes to the 1946 amendment to Rule 26 explain: “The purpose of discovery is to allow a broad search for facts, the names of witnesses, or any other matters which may aid a party in the preparation or presentation of a case.” Id. The 1970 amendment to Rule 26 broadened the scope of Rule 26 to include “all of the discovery devices provided in the discovery rules.” FED. R. CIV. P. 26 advisory committee's note to 1970 amendment. Rule 26(b) was “recast to cover the scope of discovery generally” and “regulate…any of the discovery devices” listed in the rule. Id. The Supreme Court in Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351, 98 S.Ct. 2380, 57 L.Ed.2d 253 (1978), discussed the scope of discovery under the 1970 amendments to Rule 26(b)(1). That 1970 version of Rule 26(b)(1) provided: “Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.” Oppenheimer, 437 U.S. at 351-52, 98 S.Ct. 2380 (quoting FED. R. CIV. P. 26(b)(1) (1970)) (emphasis added). The Supreme Court in Oppenheimer explained: “The key phrase in this definition-‘relevant to the subject matter involved in the pending action’-has been construed broadly to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case.” Oppenheimer, 437 U.S. at 351-52, 98 S.Ct. 2380 (quoting FED. R. CIV. P. 26(b)(1) (1970) (current version at FED. R. CIV. P. 26(b) (1) (2015)). *6 The advisory committee in its notes to the 1980 amendment to Rule 26 acknowledged for the first time that there was “widespread criticism of abuse of discovery” under that rule. FED. R. CIV. P. 26 advisory committee's note to 1980 amendment. The advisory committee considered a change to the text of Rule 26 to combat the abuse of discovery, but determined that a textual change was not necessary. Id. The advisory committee concluded that “abuse can best be prevented by intervention by the court as soon as abuse is threatened.” Id. The 1980 amendment to Rule 26 authorized and encouraged court intervention in discovery disputes when necessary. Id. 3 3 Rule 26(f) following the 1980 amendment provided: (f) DISCOVERY CONFERENCE. At any time after commencement of an action the court may direct the attorneys for the parties to appear before Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 14 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 8 it for a conference on the subject of discovery. The court shall do so upon motion by the attorney for any party if the motion includes: (1) A statement of the issues as they then appear; (2) A proposed plan and schedule of discovery; (3) Any limitations proposed to be placed on discovery; (4) Any other proposed orders with respect to discovery; and (5) A statement showing that the attorney making the motion has made a reasonable effort to reach agreement with opposing attorneys on the matters set forth in the motion. Each party and his attorney are under a duty to participate in good faith in the framing of a discovery plan if a plan is proposed by the attorney for any party. Notice of the motion shall be served on all parties. Objections or additions to matters set forth in the motion shall be served not later than 10 days after service of the motion. Following the discovery conference, the court shall enter an order tentatively identifying the issues for discovery purposes, establishing a plan and schedule for discovery, setting limitations on discovery, if any; and determining such other matters, including the allocation of expenses, as are necessary for the proper management of discovery in the action. An order may be altered or amended whenever justice so requires. Subject to the right of a party who properly moves for a discovery conference to prompt convening of the conference, the court may combine the discovery conference with a pretrial conference authorized by Rule 16. FED. R. CIV. P. 26(f) (1980) (current version at FED. R. CIV. P. 26(b)(1) (2015)). The advisory committee notes to the 1983 amendment to Rule 26 further discussed the abuse of discovery by litigants, which remained a concern of the advisory committee continuing up to the 2015 amendment to Rule 26. FED. R. CIV. P. 26 advisory committee's note to 1983 amendment. The advisory committee notes to the 1983 amendment provide: Excessive discovery and evasion or resistance to reasonable discovery requests pose significant problems. Recent studies have made some attempt to determine the sources and extent of the difficulties. ... The purpose of discovery is to provide a mechanism for making relevant information available to the litigants. “Mutual knowledge of all the relevant facts gathered by both parties is essential to proper litigation.” Hickman v. Taylor, 329 U.S. 495, 507, 67 S.Ct. 385, 91 L.Ed. 451 (1947). Thus the spirit of the rules is violated when advocates attempt to use discovery tools as tactical weapons rather than to expose the facts and illuminate the issues by overuse of discovery or unnecessary use of defensive weapons or evasive responses. All of this results in excessively costly and time-consuming activities that are disproportionate to the nature of the case, the amount involved, or the issues or values at stake. *7 Given our adversary tradition and the current discovery rules, it is not surprising that there are many opportunities, if not incentives, for attorneys to engage in discovery that, although authorized by the broad, permissive terms of the rules, nevertheless results in delay.…As a result, it has been said that the rules have “not infrequently [been] exploited to the disadvantage of justice.” Herbert v. Lando, 441 U.S. 153, 179, 99 S.Ct. 1635, 60 L.Ed.2d 115 (1979) (Powell, J., concurring). These practices impose costs on an already overburdened system and impede the fundamental goal of the “just, speedy, and inexpensive determination of every action.” Fed.R.Civ.P. 1. FED. R. CIV. P. 26 advisory committee's note to 1983 amendment. The 1983 amendment 4 to Rule 26(b)(1) added a paragraph to the rule. Id. The first sentence of the new paragraph was added to “deal with the problem of over-discovery.” Id. The new paragraph, in its entirety, provided: The frequency or extent of use of the discovery methods set forth in subdivision (a) shall be limited by the court if it determines that: (i) the discovery sought is unreasonably cumulative or duplicative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive; (ii) the party seeking discovery has had ample opportunity by discovery in the action to obtain the information sought; or (iii) the discovery is Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 15 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 9 unduly burdensome or expensive, taking into account the needs of the case, the amount in controversy, limitations on the parties' resources, and the importance of the issues at stake in the litigation. The court may act upon its own initiative after reasonable notice or pursuant to a motion under subdivision (c). FED. R. CIV. P. 26(b)(1) (1983) (current version at FED. R. CIV. P. 26(b)(1) (2015)). The advisory committee notes explain: The objective is to guard against redundant or disproportionate discovery by giving the court authority to reduce the amount of discovery that may be directed to matters that are otherwise proper subjects of inquiry. The new sentence is intended to encourage judges to be more aggressive in identifying and discouraging discovery overuse. The grounds mentioned in the amended rule for limiting discovery reflect the existing practice of many courts in issuing protective orders under Rule 26(c). FED. R. CIV. P. 26 advisory committee's note to 1983 amendment. 4 Rule 26(b)(1) following the 1983 amendment provided: (b) Discovery Methods. Unless otherwise limited by order of the court in accordance with these rules, the scope of discovery is as follows: (1) In General. Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, custody condition and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence. The frequency or extent of use of the discovery methods set forth in subdivision (a) shall be limited by the court if it determines that: (i) the discovery sought is unreasonably cumulative or duplicative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive; (ii) the party seeking discovery has had ample opportunity by discovery in the action to obtain the information sought; or (iii) the discovery is unduly burdensome or expensive, taking into account the needs of the case, the amount in controversy, limitations on the parties' resources, and the importance of the issues at stake in the litigation. The court may act upon its own initiative after reasonable notice or pursuant to a motion under subdivision (c). FED. R. CIV. P. 26(b)(1) (1983) (current version at FED. R. CIV. P. 26(b)(1) (2015)). *8 The 1983 amendment to Rule 26(b) encouraged attorneys and the court to prevent abuse in discovery. Id. For example, the advisory committee notes instruct attorneys to “be sensitive to the comparative costs of different methods of securing information,” and “to think through their discovery activities in advance so that full utilization is made of each deposition, document request, or set of interrogatories.” Id. The 1983 amendment to Rule 26(b) also “contemplate[d] greater judicial involvement in the discovery process.” Id. The 1983 amendment to Rule 26(b) addressed the proportionality of discovery in consideration of the following factors: a case's nature and complexity, the importance of the issues at stake, the limitations of a financially weak litigant, and the significance of the substantive issues. Id. The 1993 amendments to the rules did not change the text of Rule 26(b)(1). The advisory committee in its notes to the 1993 amendment, however, acknowledged “[t]he information explosion of recent decades,” which “greatly increased both the potential cost of wide-ranging discovery and the potential for discovery to be used as an instrument for delay or oppression.” FED. R. CIV. P. 26 advisory committee's note to 1993 amendment. In 2000, the text of Rule 26(b)(1) was amended and provided: (b) Discovery Scope and Limits. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 16 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 10 (1) Scope in General. 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-including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. All discovery is subject to the limitations imposed by Rule 26(b)(2)(C). FED. R. CIV. P. 26(b)(1) (2000) (current version at FED. R. CIV. P. 26(b)(1) (2015) (emphasis added). The advisory committee notes to the 2000 amendment to Rule 26(b) (1) once again reflect the advisory committee's concerns about parties engaging in and courts permitting overbroad discovery. Those notes provide, in relevant part: Subdivision (b)(1). In 1978, the Committee published for comment a proposed amendment, suggested by the Section of Litigation of the American Bar Association, to refine the scope of discovery by deleting the “subject matter” language. This proposal was withdrawn, and the Committee has since then made other changes in the discovery rules to address concerns about overbroad discovery. Concerns about costs and delay of discovery have persisted nonetheless, and other bar groups have repeatedly renewed similar proposals for amendment to this subdivision to delete the “subject matter” language. Nearly one-third of the lawyers surveyed in 1997 by the Federal Judicial Center endorsed narrowing the scope of discovery as a means of reducing litigation expense without interfering with fair case resolutions. Discovery and Disclosure Practice, supra, at 44- 45 (1997). The Committee has heard that in some instances, particularly cases involving large quantities of discovery, parties seek to justify discovery requests that sweep far beyond the claims and defenses of the parties on the ground that they nevertheless have a bearing on the “subject matter” involved in the action. The amendments proposed for subdivision (b)(1) include one element of these earlier proposals but also differ from these proposals in significant ways. The similarity is that the amendments describe the scope of party-controlled discovery in terms of matter relevant to the claim or defense of any party. The court, however, retains authority to order discovery of any matter relevant to the subject matter involved in the action for good cause. The amendment is designed to involve the court more actively in regulating the breadth of sweeping or contentious discovery. The Committee has been informed repeatedly by lawyers that involvement of the court in managing discovery is an important method of controlling problems of inappropriately broad discovery. Increasing the availability of judicial officers to resolve discovery disputes and increasing court management of discovery were both strongly endorsed by the attorneys surveyed by the Federal Judicial Center. See Discovery and Disclosure Practice, supra, at 44. Under the amended provisions, if there is an objection that discovery goes beyond material relevant to the parties' claims or defenses, the court would become involved to determine whether the discovery is relevant to the claims or defenses and, if not, whether good cause exists for authorizing it so long as it is relevant to the subject matter of the action. The good-cause standard warranting broader discovery is meant to be flexible. *9 ... The rule change signals to the court that it has the authority to confine discovery to the claims and defenses asserted in the pleadings, and signals to the parties that they have no entitlement to discovery to develop new claims or defenses that are not already identified in the pleadings. FED. R. CIV. P. 26(b)(1) advisory committee's note to 2000 amendment. The 2015 amendments to the Federal Rules of Civil Procedure became effective on December 1, 2015. The current and amended version of Rule 26(b)(1), does not contain any reference to the subject matter of the action. Amended Rule 26(b)(1) provides: (b) Discovery Scope and Limits. (1) Scope in General. 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 Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 17 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 11 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) (“amended Rule 26 ”) (emphasis added). Despite the textual changes made to Rule 26(b)(1), the advisory committee notes explain that the meaning and import of Rule 26(b)(1) remains the same, i.e., the court and parties have obligations to analyze whether the discovery sought is relevant to a party's claims or defenses and proportional to the needs of the case. The text of the amended rule following the 2015 amendment no longer provides that a court, based upon good cause, may order discovery “of any matter relevant to the subject matter involved in the action.” FED. R. CIV. P. 26(b)(1) (2000). The amended rule omits that sentence in its entirety. The advisory committee notes accompanying the 2015 amendments explain, in relevant part: The amendment deletes the former provision authorizing the court, for good cause, to order discovery of any matter relevant to the subject matter involved in the action. The Committee has been informed that this language is rarely invoked. Proportional discovery relevant to any party's claim or defense suffices, given a proper understanding of what is relevant to a claim or defense. The distinction between matter relevant to a claim or defense and matter relevant to the subject matter was introduced in 2000. The 2000 Note offered three examples of information that, suitably focused, would be relevant to the parties' claims or defenses. The examples were “other incidents of the same type, or involving the same product”; “information about organizational arrangements or filing systems”; and “information that could be used to impeach a likely witness.” Such discovery is not foreclosed by the amendments. Discovery that is relevant to the parties' claims or defenses may also support amendment of the pleadings to add a new claim or defense that affects the scope of discovery. *10 FED. R. CIV. P. 26(b)(1) advisory committee's note to 2015 amendment. The standing committee recognized that previous versions of Rule 26(b)(1) contained a distinction between “party- controlled discovery” and “court-controlled discovery.” Committee on Rules of Practice and Procedure of the Judicial Conference of the United States, Preliminary Draft of Proposed Amendments to the Federal Rules of Bankruptcy and Civil Procedure-Request for Comment (2013), available at http://www.regulations.gov/#! documentDetail;D=USC-RULES-CV-2013-0002-0001. The standing committee defined party-controlled discovery under the 2000 amendments to Rule 26(b)(1) to include “matter that is relevant to any party's claim or defense,” while court-controlled discovery was limited to “any matter relevant to the subject matter involved in the action.” Id. The standing committee acknowledged that its proposed 2015 amendments deleted the sentence authorizing court-controlled discovery of any matter relevant to the subject matter involved in the action, and, that under the proposed rule, “[d]iscovery should be limited to the parties' claims or defenses.” Id. at 265. Following the 2015 amendments becoming effective, however, courts-as noted by the special master in this case-continue to hold that discovery is relevant under 26(b)(1) if there is “ ‘any possibility that the information may be relevant to the general subject matter of the action.’ ” (ECF No. 403 (quoting Kegerise v. Susquehanna Twp. Sch. Dist., Civ. Action No. 14-0747, 2016 WL 2736048, at *1 (M.D.Pa. May 11, 2016).) This statement of the law prior to the 2015 amendment was-at best-incomplete, and, now, following the 2015 amendments is erroneous. That interpretation of Rule 26(b)(1), furthermore, is contrary to the advisory committee's pervasive and continuing concerns about the abuse of discovery, which stem back to the 1980 amendment to Rule 26. Any holding-following the 2000 amendment to Rule 26(b)(1)-that the scope of discovery was controlled by any matter relevant to the subject matter involved in the action was erroneous because those holdings omitted the important distinction found in the text of the rule between party-controlled discovery and court- controlled discovery. Following the 2000 amendments, party-controlled discovery was limited in scope by the claims or defenses in a case, and court-controlled Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 18 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 12 discovery was limited in scope by the subject matter of the litigation. The 2015 amendment to Rule 26(b)(1) “deleted the ‘subject matter involved in the action’ from the scope of discovery,” i.e., deleted a court's authority to order discovery of matter relevant to the subject matter of a case. Now, under amended Rule 26, the scope of all discovery is limited to matter that is relevant to the claims or defenses in the case and proportional to what is at stake in a given case. In other words, the scope of discovery is limited to party-controlled discovery. [1] The special master in this case cited decisions in which the courts relied upon Oppenheimer in support of a broad construction of the term “relevant,” i.e., referencing the subject matter, with respect to amended Rule 26(b) (1). (ECF No. 403 (citing Green v. Cosby, 314 F.R.D. 164, 171 (E.D.Pa.2016); Henry v. Morgan's Hotel Grp., Inc., Civ. Action No. 15-1789, 2016 WL 303114, at *3 (S.D.N.Y. Jan. 25, 2016); State Farm Mut. Auto. Ins. Co. v. Fayda, Civ. Action No. 14-9792, 2015 WL 7871037, at *2 (S.D.N.Y. Dec. 3, 2015).) The reliance on Oppenheimer, however, is misplaced. The Supreme Court in Oppenheimer, did not construe just the term “relevant;” rather, the Supreme Court construed the phrase “relevant to the subject matter involved in the pending action,” which is a phrase that no longer appears in amended Rule 26(b)(1). The Court's definition of “relevant to the subject matter involved in the pending action,” therefore, has no application to the text of amended Rule 26(b) (1), and it would be inappropriate to continue to cite to Oppenheimer for the purpose of construing the scope of discovery under amended Rule 26(b)(1). As set forth in the advisory committee notes to the 2015 amendments to Rule 26(b)(1) and the standing committee's commentary with respect to its proposed 2015 changes to Rule 26(b)(1), the scope of discovery is limited to matter that is relevant to claims or defenses and is proportional to the needs of a case. For the foregoing reasons, the court rejects the amended report and recommendation no. 4 with respect to the special master's statement that “ ‘[d]iscovery requests may be deemed relevant if there is any possibility that the information may be relevant to the general subject matter of the action.’ ” (ECF No. 403 (quoting Kegerise, 2016 WL 2736048, at *1.) 5 5 The court notes, however, that the special master entitled the section of the amended report and recommendation no. 4 in which he discusses the relevancy of the information requested by Cole's Wexford as “Bearing on Claims and Defenses/Limitations imposed by the Filed Rate Doctrine.” (ECF No. 403 at 9.) B. Relevant to claims or defenses 1. The amended report and recommendation no. 4 *11 The issue properly before the special master in the amended report and recommendation no. 4 was whether Cole's Wexford's requests for Highmark to produce the base rates and actual rates charged by Highmark from 1999 to 2001 and in 2014 were relevant and proportional to the needs of this case. Cole's Wexford attempted to show that the information was relevant through the declarations of Leitzinger and Elhauge. Leitzinger in his declarations sets forth an explanation of how he would use the rates from 1999 to 2001 to arrive at an overcharge calculation in this case, i.e., a dollar amount that represents the difference between what HHIC actually charged to Cole's Wexford and what HHIC would have charged Cole's Wexford but for the alleged UPMC- Highmark conspiracy. Leitzinger explained: Because the Amount of Overcharge Depends on These Situationally Specific Circumstances, The Primary Focus in Constructing the but for World, If Possible, Is To Find A Period During Which The Same Market Participants Were Competing in This Same Market Environment Free of the Effects of the Specific Anticompetitive Behavior At Issue. Once Such a Period Is Established the Corresponding Prices Provide an Extremely Useful Benchmark for Prices That Would Have Prevailed During the Period Associated With the Antitrust Violation but for the Anticompetitive Behavior After Appropriate Adjustments Are Made. ... This is the role contemplated for the pricing information that has been requested from January 1, 1999 to December 31, 2011, what I refer to as the “earlier benchmark period.” Based on the allegations in the Third Amended Complaint, the conspiracy alleged in this case began in 2002. Accordingly, the three years from January 1, 1999 to December 31, 2001 provide a useful window into the kind of market results that would have occurred but for the conspiracy alleged in this case. With insurance premiums from that period in hand, there would then be various ways using Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 19 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 13 data both from that geographic market and other competitors geographic markets)-including, simple extrapolations of the premium levels, extrapolations including adjustments for increased costs or changing demand, and/or econometric modeling-to predict premiums that would have prevailed during the Class period but for the conspiracy (i.e., during the prior from July 1, 2919 to March 21, 2012). Premium data from the earlier benchmark period is uniquely valuable for this purpose because, based on the allegations in the Complaint, there is no other period since then in which the alleged conspiracy and anticompetitive conduct was not occurring or, as is explained in more detail below, may not have acted in some fashion to influence the economic environment. (ECF No. 408-2 at 32 ¶¶ 8-9 (emphasis added).) Leitzinger explained he would use the base rates and actual rates charged by Highmark in 2014 in relationship to the base rates and actual rates charged by Highmark from 1999 to 2001, i.e., he would use the rates from 2014 to determine how long it took for the effects of the alleged UPMC-Highmark conspiracy to dissipate, which would enable him “to identify a trend over time towards lower premiums which (through extrapolation) could then be used to identify premiums that would have prevailed had the conspiracy never occurred in the first place.” (Id. ¶ 15.) Leitzinger further explained that he would use the 2014 base rates and actual rates charged by Highmark to analyze “the extent to which factors independent of the conspiracy or anticompetitive conduct may have caused prices to change from 1999 to the present.” (Id. ¶ 16.) 6 6 Leitzinger's supplemental declaration provides, in pertinent part: 3. If you construct a model that identifies overcharges during the class period of 2010-2012, does this necessarily mean that the model will identify overcharges between 2002 and July 2010, and after March 2012? 4. No it does not. In order to determine whether or not there were overcharges during those other periods one would have to apply the overcharge model to those periods, accounting for other factors relevant to rates during those periods. That is not an analysis I plan to undertake. Nor have I been asked by counsel to do so. (ECF No. 408-4 ¶¶ 3-4.) *12 According to Elhauge's declaration, Cole's Wexford retained him to show that the “issues of antitrust economics raised by the proposed class's claims against Highmark can be resolved on a classwide basis using methodologies and evidence that are common [to] the class.” (ECF No. 408-2 at 52 ¶ 4.) Elauge's declaration provides that the base rates and actual rates charged by Highmark from 1999 through 2001 and in 2014 “can assist in understanding the relevant markets before, during, and after the alleged conspiracy period without questioning the appropriateness of the rates filed by Highmark with the Pennsylvania Insurance Department during these times.” (ECF No. 408-2 at 53 ¶ 7.) Elhauge explained that the information can be used to: - show the degree of market power held by relevant market participants before, during, and after the alleged conspiracy conduct (Id. ¶ 9); ¶Æ# - define the relevant antitrust market (Id. ¶ 10); ¶Æ# - determine “whether the actions undertaken by Highmark…would have been in its rational self- interest if those actions had been undertaken standing alone, separate from other components of the alleged conspiracy” ((Id. ¶ 11); and ¶Æ# - “determine the ways in which rivals' abilities or incentives to compete were altered by the alleged conspiracy conduct” (Id. ¶ 13.) The special master reviewed the declarations of Leitzinger and Elhauge and considered the proposed uses of the base rates and rates actually charged by Highmark from 1999 through 2001 and in 2014 to determine whether Cole's Wexford met its burden to show that the information requested is relevant. (ECF No. 403 at 10-12.) The special master determined that each of the proposed uses proffered by Cole's Wexford via the declarations of Leitzinger and Elhauge required the court to “insert itself into the rate setting process,” which is forbidden by the filed rate doctrine. (ECF No. 403 at 12.) The special master explained that the “proposed use of the actual rates themselves is not likely to produce admissible evidence that will assist in resolving the question of damages ... [because] [i]f the Court were to admit damages evidence which itself was constructed using a baseline established through the use of the filed rate doctrine data, it would necessarily insert itself into the rate setting process.” (ECF No. 403 at 12.) Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 20 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 14 The special master concluded that under those circumstances the information requested by Cole's Wexford was not relevant because “such information is not likely to assist in resolving the question of damages,” i.e., there is “no potential use for this data because any damage calculation derived from it would itself be inadmissible.” (Id. at 14.) The special master noted that with respect to Elhauge's proposed uses of the base rates and rates actually charged by Highmark, “[p]laintiff does not explain how these concepts are relevant to the damages claim that is at issue in this matter.” (ECF No. 403 at 10 n.5.) 2. The filed rate doctrine This court discussed in detail the filed rate doctrine in three of its previous opinions. (ECF Nos., 240, 284, 301.) Because of the important implications the filed rate doctrine has on the discovery dispute presently before the court, a further discussion of the doctrine is warranted here. [2] [3] [4] [5] [6] [7] The filed rate doctrine “ ‘bars antitrust suits based on rates that have been filed and approved by federal agencies' ” and state agencies. McCray v. Fidelity Nat'l Title Ins. Co., 682 F.3d 229, 236 (3d Cir.2012) (quoting Utilimax.com, Inc. v. PPL Engery Plus, LLC, 378 F.3d 303, 306 (3d Cir.2004)). *13 When the filed rate doctrine applies, it is rigid and unforgiving. Indeed, some have argued that it is unjust. See, e.g., Fax Telecommunicaciones Inc. v. AT&T, 138 F.3d 479, 491 (2d Cir.1998); Ting v. AT&T, 319 F.3d 1126, 1131 (9th Cir.2003). It does not depend on “the culpability of the defendant's conduct or the possibility of inequitable results,” nor is it affected by “the nature of the cause of action the plaintiff seeks to bring.” Marcus v. AT&T Corp., 138 F.3d 46, 58 (2d Cir.1998). It applies whenever a claim would implicate its underlying twin principles of “preventing carriers from engaging in price discrimination as between ratepayers” and “preserving the exclusive role of federal agencies in approving rates.” Id. Simon v. KeySpan Corp., 694 F.3d 196, 205 (2d Cir.2012). 7 The filed rate doctrine's genesis is found in Keogh v. Chicago & Northwestern Ry. Co., 260 U.S. 156, 43 S.Ct. 47, 67 L.Ed. 183 (1922), and its progeny. 7 The filed rate doctrine applies when a plaintiff's claim implicates either of the doctrine's underlying principles of (1) “preventing carriers from engaging in price discrimination as between ratepayers,” and (2) “preserving the exclusive role of...agencies in approving rates ...by keeping courts out of the rate-making process,” a function that “regulatory agencies are more competent to perform.” McCray, 682 F.3d at 241 (quoting Marcus, 138 F.3d at 58-59). The first principle, known as the “non-discrimination strand,” “recognizes that ‘victorious plaintiffs would wind up paying less than non-suing ratepayers.’ ” McCray, 682 F.3d at 242 (quoting Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17, 21 (2d Cir.1994)). The nondiscrimination strand is not implicated in this case because Cole's Wexford is suing Highmark on behalf of a putative class. McCray, 682 F.3d at 242. It is, therefore, “unlikely that a victory would allow [plaintiffs] to pay less than other ratepayers.” McCray, 682 F.3d at 242. The second principle is known as the “nonjusticiability strand” and recognizes: “(1) legislatively appointed regulatory bodies have institutional competence to address rate- making issues; (2) courts lack the competence to set...rates; and (3) the interference of courts in the rate-making process would subvert the authority of rate-setting bodies and undermine the regulatory regime.” Sun City Taxpayers' Assoc. v. Citizens Utils. Co., 45 F.3d 58, 62 (2d Cir.1995). McCray, 682 F.3d at 242. A primary concern of the nonjusticiability strand is “preventing courts from engaging in the ratemaking process.” McCray, 682 F.3d at 242. The court having to calculate the legal rate but for the defendant's antitrust violations “alone is enough to implicate the nonjusticiability principle.” Id.; In re N.J. Title Ins. Litig., 683 F.3d 451, 457 (3d Cir.2012) (“[T]he nonjusticiability strand recognizes that federal courts are ill- equipped to engage in the rate making process, which does not depend on whether agencies actually use their superior expertise.”). In Keogh, the Court held a shipper could not maintain an antitrust lawsuit based upon rates charged by railroad carriers who allegedly conspired together to fix freight transportation rates because “every rate complained of had been duly filed by the several carriers with the Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 21 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 15 Interstate Commerce Commission.” Keogh, 260 U.S. at 160, 43 S.Ct. 47. The shipper argued that competition was eliminated pursuant to the conspiracy, which caused the increase in his rates. Id. at 161, 43 S.Ct. 47. The shipper sought damages measured by the difference between the rates charged pursuant to the conspiracy and the rates charged prior to the conspiracy going into effect. Id. at 160, 43 S.Ct. 47. The Court dismissed the lawsuit identifying four reasons for its decision: *14 • First, the Court reasoned that the rates charged to the shipper were determined by the Interstate Commerce Commission to be “reasonable and nondiscriminatory,” and it would be improper for the court to hold the carriers liable based upon approved legal rates. Keogh, 260 U.S. at 162-63, 43 S.Ct. 47. • Second, the Court held that to permit the shipper to recover the difference between the rate charged and a hypothetical lower rate would defeat the purpose of Congress to prevent rate discrimination by “operat[ing] to give [the shipper] a preference over his trade competitors.” 8 Id. at 163, 43 S.Ct. 47. • Third, the Court found the shipper's injury was based upon hypothesis. Id. at 163, 43 S.Ct. 47. The Court explained: The burden resting upon the plaintiff would not be satisfied by proving that some carrier would, but for the illegal conspiracy, have maintained a rate lower than that published. It would be necessary for the plaintiff to prove, also, that the hypothetical lower rate would have conformed to the requirements of the Act to Regulate Commerce. For unless the lower rate was one which the carrier could have maintained legally, the changing of it could not conceivably give a cause of action. To be legal a rate must be nondiscriminatory. ... But it is the Commission which must determine whether a rate is discriminatory; at least, in the first instance....But by no conceivable proceeding could the question whether a hypothetical lower rate would under conceivable conditions have been discriminatory, be submitted to the Commission for determination. And that hypothetical question is one with which plaintiff would necessarily be confronted at a trial. Id. at 164, 43 S.Ct. 47. • Fourth, the Court refused to award damages under those circumstances because the alleged damages, based upon a hypothetical rate that should have been charged, were “purely speculative.” Id. at 164, 43 S.Ct. 47. The Court explained: [R]ecovery cannot be had unless it is shown, that, as a result of defendants' acts, damages in some amount susceptible of expression in figures resulted. These damages must be proved by facts from which their existence is logically and legally inferable. They cannot be supplied by conjecture.1 To make proof of such facts would be impossible in the case before us. It is not like those cases where a shipper recovers from the carrier the amount by which its exaction exceeded the legal rate. Southern Pacific Co. v. Darnell-Taenzar Co., 245 U.S. 531, 38 S.Ct. 186, 62 L.Ed. 451 [ (1918) ]. Here the instrument by which the damage is alleged to have been inflicted is the legal rate, which, while in effect, had to be collected from all shippers. Exaction of this higher legal rate may not have injured Keogh at all; for a lower rate might not have benefited him. Every competitor was entitled to be put-and we must presume would have been put-on a parity with him. And for every article competing with excelsior and tow, like adjustment of the rate must have been made. Under these circumstances no court or jury could say that, if the rate had been lower, Keogh would have enjoyed the difference between the rates or that any other advantage would have accrued to him. The benefit might have gone to his customers, or conceivably, to the ultimate consumer. Id. at 164-65, 43 S.Ct. 47. The Court, based upon the foregoing rationale, affirmed the decision of the Court of Appeals for the Seventh Circuit dismissing the shipper's claims against the carriers. Id. at 165, 43 S.Ct. 47. 8 The Court rejected the argument that to avoid discriminatory rates all shippers injured may sue to recover based upon the difference in rates. Keogh, 260 U.S. at 164, 43 S.Ct. 47. The Court reasoned that it Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 22 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 16 was “highly improbable” all courts and juries would provide each shipper “the same measure of relief.” Id. *15 The Court applied the principles set forth in Keogh in Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409, 106 S.Ct. 1922, 90 L.Ed.2d 413 (1986). In Square D, a class of shippers sued motor carriers and the ratemaking bureau for conspiring to fix rates for transporting freight. Square D, 476 U.S. at 412, 106 S.Ct. 1922. The shippers requested treble damages measured by the difference between the rates they paid and rates they would have paid “in a freely competitive market.” Id. at 413, 106 S.Ct. 1922. The district court relied on Keogh and dismissed the shippers' claims for damages. Id. at 414, 106 S.Ct. 1922. The court of appeals affirmed the district court's decision with respect to the filed rates. Id. The shippers appealed to the Supreme Court of the United States. Id. at 410, 106 S.Ct. 1922. The Supreme Court declined to distinguish Keogh from the case before it based upon the rates that were charged to the shippers not being “challenged in a formal ICC hearing before they were allowed to go into effect.” Id. at 417, 106 S.Ct. 1922. The Court in Square D noted that the rates were “duly submitted, lawful rates under the Interstate Commerce Act in the same sense that the rates filed in Keogh were lawful,” and the shippers under those circumstances were precluded from maintaining “a treble-damages antitrust action.” Id. at 418, 106 S.Ct. 1922. In In re Lower Lake Erie Iron Ore Antitrust Litigation, 998 F.2d 1144, 1159 (3d Cir.1993) , the Third Circuit Court of Appeals held the filed rate doctrine does not preclude claims for damages based upon non-rate anticompetitive conduct. In that case, several groups of plaintiffs sued railroad companies alleging the railroad companies conspired “to eliminate competition and monopolize the transportation and handling of iron ore.” Id. at 1152. The plaintiffs alleged: Railroad officials orally agreed that leases of railroad docks or facilities should be examined or modified to frustrate the efforts of non-railroad docks to handle ore from self-unloaders. They also agreed to refuse to provide competitively-priced inland rail service, i.e., to publish commodity line haul rates for moving ore from such docks. Finally, it was agreed that railroad docks should assess the same handling charges for unloading ore from bulkers as from self-unloaders, regardless of the extent of service performed. ... To effectuate the goal of market preclusion, the railroads used coercion to enforce adherence to the agreement to foreclose competition from private docks. B & LE and its co-conspirators did indeed restrict the lease and sale of railroad-owned dock property and boycotted non-railroad docks. These activities eliminated much of the economic incentives to use self- unloaders. By impeding the progress of the private dock system, the railroads were also effective in foreclosing competition from trucks. Id. at 1153. The issue before the court of appeals relevant to this case was whether the plaintiffs' claims for treble damages based upon allegations that the railroads “conspired to preclude competition in which ICC-approved rates played a role in thwarting market entry” were barred under Keogh and Square D. Id. at 1158. With respect to the steel company-plaintiffs, the district court in Lower Lake Erie dismissed their claims for damages based upon rates filed by the railroads and “any damage claims that would require estimating what rates the ICC would have accepted, an estimation forbidden by Keogh.” Lower Lake Erie, 998 F.2d at 1158. The district court permitted two of the steel company-plaintiffs' claims against the railroads to proceed. Id. The district court described those claims as follows: “(1) [a claim] that [the steel companies] could have paid lower dock-handling rates (sooner) to the private docks than they did to the railroad docks if the railroads had not retarded the development of the self-unloader industry; and (2) [a claim] that [the steel companies] could have paid lower land transport rates (sooner) to the truckers, had the railroads not restrained competition by that industry and monopolized linehauling from their docks.” Lower Lake Erie, 998 F.2d at 1158 (quoting In re Lower Lake Erie Iron Ore Antitrust Litig., 759 F.Supp. 219, 234 (E.D. Pa. 1991)). The district court reasoned that with respect to those claims, the “plaintiffs' damages [did] not depend on proof of price-fixing by defendants, which Keogh would bar, but on proof that defendants conspired to exclude low cost competitors from the market, which does not implicate the ICC's exclusive jurisdiction and therefore is not barred by Keogh.” Lower Lake Erie, 998 Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 23 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 17 F.2d at 1158 (emphasis added). The district court also determined that one of the plaintiffs' “claims for damages emanating from the delay in the construction and use of [its] own dock facilities” was not barred under Keogh. Id. at 1159. The district court noted that to bar such a claim “would overextend Keogh's reach and could produce a rule that one who pays for services governed by ICC tariffs is foreclosed from asserting that antitrust violations prevented use of a less expensive, equivalent service.” Id. *16 The Court of Appeals for the Third Circuit affirmed the decision of the district court with respect to the steel company-plaintiffs holding “the district court correctly characterized [the railroads'] anti-competitive activity as market preclusion, and Keogh's protective rule cannot apply to forbid recovery for the resulting economic detriment.” Lower Lake Erie, 998 F.2d at 1159. The court of appeals held: As the Supreme Court has succinctly stated, Keogh merely prevents private shippers from sustaining an award of treble damages by claiming that ICC-approved rates were the product of an antitrust violation. Square D, 476 U.S. at 422, 106 S.Ct. at 1929. That statement of Keogh's protection does not preclude liability based on non-rate anticompetitive activity. Indeed, the steel companies' case involves damage claims based on non-rate activity that targeted potential low- cost competitors. Lower Lake Erie, 998 F.2d at 1159 (emphasis added). The court acknowledged “that the success of anticompetitive non-rate activity would coincidentally implicate rates,” but noted the rates charged by the railroad in that case were “ancillary” to the steel company-plaintiffs' claims. Id. The court instructed: It is fully consistent with Keogh...to accept these rates as lawful and nonetheless to conclude that through non- rate activities, particularly the restriction on the sale or lease of dock space and the refusal to deal with potential competitors, the railroads effectively retarded entry of lower cost competitors to the market. The instrument of damage to the steel companies was the absence of the lower-cost combination. In contrast, the Supreme Court in Keogh made it clear that “the instrument by which Keogh is alleged to have been damaged is rates approved by the Commission.” 260 U.S. at 161, 43 S.Ct. at 49. Lower Lake Erie, 998 F.2d at 1159. The court stressed that the plaintiffs in Lower Lake Erie met their burden by showing “the railroads conspired to protect their stronghold in the ore transport market by blocking entry by low-cost competitors, not that the railroads charged an unlawful rate.” Id. This was in contrast to the shipper's burden in Keogh-which the Court found the shipper could not meet-to prove that but for the conspiracy a carrier would have charged him a lower rate and the lower rate would have been approved by the ICC. Id. The measure of damages in Lower Lake Erie was the difference between the approved rates charged by the railroads to the steel company-plaintiffs and the lower rates the steel company-plaintiffs could have paid to the railroads' lower-cost competitors, i.e., the privately owned docks and trucking companies whose rates were not subject to approval by a governmental agency. To calculate damages in Lower Lake Erie the court compared legally approved rates charged by the railroads with rates charged by unregulated docks and trucking companies. Under those circumstances, the steel company-plaintiffs were not required to prove what regulated entities would have charged but for the railroads' anticompetitive conduct and that the ICC would have approved those hypothetical rates. The court, therefore, was not required to engage in the ratemaking process, and the steel company-plaintiffs could sustain their burden of proving lower-cost options that were precluded by the railroads' anticompetitive conduct. *17 In Goldwasser v. Ameritech Corp., Civ. No. 97- 6788, 1998 WL 60878 (N.D.Ill. Feb. 4, 1998), the plaintiffs alleged the defendant telephone service company, which controlled more than ninety percent of the relevant markets, “effectively fenced-out competitors from the local telephone service market, thus preserving [the defendant's] monopoly power and its ability to extract supracompetitive prices from consumers.” Goldwasser, 1998 WL 60878, at *5. The defendant argued, among other things, that the plaintiffs' claims were barred under Keogh because “no matter what the underlying conduct that [the plaintiffs] complain of, [the plaintiffs] are merely seeking recovery for [the defendant's] overcharge for local telephone services.” Id. at *4. The plaintiffs cited to Lower Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 24 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 18 Lake Erie and argued the filed rate doctrine did not bar their claims because they were based upon the defendant's non-rate anticompetitive activity. Id. at *5. The court rejected the plaintiffs' argument finding that rate making was implicated for the competitors and Lower Lake Erie was distinguishable on that basis. The court explained: In Lower Lake Erie, the alleged anticompetitive activity sought to exclude an entirely new alternative means of competition-shipping by truck instead of rail-which would have otherwise been available to the consumer steel company plaintiffs. The court explained that “the question of hypothetical lower rates [was] ancillary” since the excluded trucking competitors would not have been subjected to the same rate-setting regulatory review. Id. at 1160. Thus, the filed rates of the railroads were only relevant to the extent that consumers were constrained to pay them for lack of any other options. In stark contrast, the competitors allegedly excluded in this case are telephone companies, just like Ameritech, that are governed by the same rate-filing requirements in that industry. Unlike the steel companies in Lower Lake Erie, consumers in the local telephone market are captive to rates approved by the state PUCS. Any measure of damages in this case would necessarily involve the Court's determination of a hypothetical lower rate that would have been approved by the various state PUCs -exactly the messy task which the filed rate doctrine seeks to avert. Thus, since filed rates are necessarily implicated by Plaintiffs' claims, the distinction drawn by Lower Lake Erie is not relevant to the case at bar. See County of Stanislaus v. Pacific Gas & Elec. Co., 114 F.3d 858, 865 (9th Cir.1997) (similarly finding Lower Lake Erie's distinction irrelevant where filed rates are unavoidable). Id. at *5-6 (emphasis added). 3. Leitzinger's declaration Cole's Wexford requests from Highmark the base rates approved by the PID and the actual rates charged by Highmark from 1999 through 2001 and in 2014. Under Rule 26, Cole's Wexford must show how that information is relevant to its claims and defenses in this case. (ECF No. 403 at 6-7 (citing FED. R. CIV. P. 26(b)(1) advisory committee's note to 2015 amendment; Hon. Elizabeth D. Laporte & Jonathan M. Redgrave, A Practical Guide to Achieving Proportionality Under New Federal Rule of Civil Procedure 26, 9 FED. CTS. L. REV. 19, 40 (2015); and Floyd v. Olshefski, Civ. Action No. 13- 578, 2016 WL 738819, at *1 (M.D.Pa. Feb. 22, 2016) (“The moving party must demonstrate the relevance of the information sought to a particular claim or defense.”).) Cole's Wexford attempted to show that the information it requests from Highmark is relevant to its claims for damages via the declaration of Leitzinger. As described above, Leitzinger's declaration provides that he will use the rates actually charged by Highmark, which were filed rates, as a benchmark to show what HHIC would have charged Cole's Wexford but for the alleged UPMC- Highmark conspiracy. One treatise explains the benchmark or yardstick method of calculating damages for a case based upon an overcharge theory as follows: *18 The yardstick method of estimating damages was approved by the Supreme Court in 1946, in Bigelow v. RKO Radio Pictures, Inc. Under the yardstick method the plaintiff identifies some geographic market that is as similar as possible to the the cartelized market, but for the conspiracy. Obviously, the yardstick method has certain inherent limitations. ... The ideal conspiracy for the yardstick approach is a local cartel where a nearby market can be found which has the same basic cost structure. Adjustments must probably be made for differences in taxes and regulatory fees, costs of transportation, and different wage and salary rates. However, if these differences can be isolated and quantified, an expert economist or accountant should be able to produce a “reconstructed” price that would have prevailed in the cartelized market if it had the same level of competition as exists in the yardstick market. A good illustration of the method in practice is Greenhaw v. Lubbock County Beverage Ass'n, which involved a price fixing conspiracy among liquor retailers in Lubbock County, Texas. In estimating damages the plaintiff's expert compared prices in Lubbock County during the conspiracy period with those that prevailed in Dallas, which was presumably competitive. First, the expert developed a ratio that reflected cost differentials between the two markets, Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 25 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 19 and from this ratio calculated what were described as “should have been” prices for the defendants' products during the conspiracy years. From these prices the expert was then able to estimate that the cartel overcharged purchases by about 7.74%. This percentage of the defendants' total sales during the conspiracy period equaled the aggregate monopoly overcharge. HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY, THE LAW OF COMPETITION AND ITS PRACTICE 894-95 (5th ed. 2016). [8] Here, Leitzinger in his declaration describes how he would use the actual regulated rates charged by Highmark to show the damages to Cole's Wexford in this case as follows: Because the amount of overcharge depends on these situationally specific circumstances, the primary focus in constructing the but for world, if possible, is to find a period in time during which the same market participants were competing in this same market environment free of the effects of the specific anticompetitive behavior at issue. One such a period is established the corresponding prices provide an extremely useful benchmark for prices that would have prevailed during the period associated with the antitrust violation but for the anticompetitive behavior after appropriate adjustments are made. (ECF No. 408-2 at 32 ¶ 8.) Leitzinger's declaration is insufficient to prove that the regulated rates charged by Highmark from 1999 through 2001 are relevant in this case. Leitzinger declares that his benchmark methodology is based upon “find[ing] a period in time during which the same market participants were competing in this same market environment free of the effects of the specific anticompetitive behavior at issue.” (Id. (emphasis added).) According to Cole's Wexford's allegations in the third amended complaint, however, HHIC, the nonregulated entity, did not compete in the relevant market from 1999 through 2001, which is the timeframe in which Leitzinger wants to derive his benchmark. There are no allegations or evidence that any nonregulated entities were competing in the relevant market from 1999 through 2001. Leitzinger's declaration, therefore, does not show that Highmark's regulated rates charged from 1999 through 2001 are relevant because 1999 through 2001 does not represent a period of time during which the same market participants that were competing in the same market environment free from the effects of anticompetitive behavior. In other words, Leitzinger in his declaration explains how rates charged during a period of time in which the same market participants were competing in the same market environment free of the effects of the anticompetitive behavior alleged in a case are relevant, but Cole's Wexford did not request from Highmark rates it charged during a period of time in which the same market participants were competing in the same market environment free of the effects of the anticompetitive behavior alleged in this case. *19 Even if Leitzinger's declaration was sufficient for the court to consider that the same market participants and environment existed during the class period and the 1999 through 2001 timeframe, Cole's Wexford still did not satisfy its burden to show that the requested regulated rate information is relevant to the claims or defenses in this case. Cole's Wexford did not present to the court any information about how Highmark's regulated rates during the 1999 through 2001 timeframe could be utilized that does not run afoul of the filed rate doctrine. The rates Highmark charged during the 1999 through 2001 timeframe were required to comply with the PID's rate- filing requirements and be approved by the PID as lawful rates. For the court to separate out the effects of the PID's rate-filing requirements to determine a competitive, nonregulated rate for the class period would necessitate the court to assess the rate-making of the PID, which runs afoul of the filed rate doctrine. If the effects of the rate-filing requirements were not separated out from Highmark's regulated rates, this court's acceptance of Cole's Wexford's calculations based upon Highmark's regulated rates would in effect require the court to assess would have been a regulated rate during the class period. That assessment would impugn the ratemaking authority of the PID and in effect involve the court in ratemaking. The court is not convinced that Cole's Wexford can utilize Highmark's regulated rates charged from 1999 through 2001 in a calculation to determine rates that would have been charged during the class period Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 26 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 20 and avoid the implications of the filed rate doctrine by assigning the results of that calculation to a nonregulated entity, i.e., HHIC. For the foregoing reasons, Cole's Wexford failed to show via the declaration of Leitzinger that the regulated rates charged by Highmark from 1999 through 2001 are relevant in this case. With respect to the actual regulated rates charged by Highmark in 2014, Leitzinger declares that those rates are relevant in relation to the actual regulated rates charged by Highmark from 1999 through 2001. Because Cole's Wexford did not satisfy its burden to show that the actual regulated rates charged by Highmark from 1999 through 2001 are relevant, the court cannot discern how the actual rates charged by Highmark in 2014 are relevant to Cole's Wexford's claims or defenses in this case. With respect to the base rates approved for Highmark by the PID from 1999 through 2001 and in 2014, Cole's Wexford in its latest submission to the court conceded that information is relevant “only if (1) Plaintiff's experts have certain additional information for both the pre-conspiracy period and the class period, and (2) Highmark calculated and used base rates during the class period.” (ECF No. 427 at 1.) 9 As the court explained on the record during the August 16, 2016, the discovery request properly before the special master and in issue in the amended report and recommendation no. 4 is Cole's Wexford's request for the actual rates charged by Highmark and the base rates from 1999 through 2001 and in 2014. Cole's Wexford, therefore, failed to show that the base rates-separate and apart from the actual rates charged during those timeframes- are relevant to its claims or defenses in this case. 9 If Cole's Wexford finds in discovery that HHIC used base rates calculated by the same method used by Highmark to establish the prior regulated rates, there may be a basis to reconsider this issue. 4. Elhauge's declaration Cole's Wexford attempted to show the actual rates charged by Highmark and the base rates approved by the PID from 1999 through 2001 are relevant via the declaration of Elhauge. Elhauge declared that the information sought by Cole's Wexford “can assist in understanding the relevant markets before, during, and after the alleged conspiracy period.” (ECF No. 408-2 at 53 ¶ 7.) As the special master concluded, however, Elhauge's declaration is conclusory and Cole's Wexford does not “strenuously advance[ ]” his position to prove that the information it requests from Highmark is relevant in this case. (ECF No. 403 at 10 n.5.) Cole's Wexford does not sufficiently explain how regulated rates that are not subject to commentary by this court and are presumed to be reasonable, can aide Elhauge's analysis. Cole's Wexford did not, therefore, satisfy its burden to show that the information it requests from Highmark is relevant based upon Elhauge's declaration. C. Proportionality *20 Having determined that Cole's Wexford did not satisfy its burden to show that the information it requests from Highmark is relevant, the court is not required to analyze whether that request is proportional to this case. Even if this court found the information is relevant, the court has serious concerns about whether Cole's Wexford's request is proportional to this case. The special master did not address the proportionality of the discovery request before him. V. Conclusion Subject to the foregoing analysis, the court will adopt the special master's amended report and recommendation no. 4 to the extent it recommended that the court deny Cole's Wexford's discovery request for actual rates charged by Highmark and base rates approved by the PID from 1999 through 2001 and in 2014 because Cole's Wexford failed to satisfy its burden to show that information is relevant to its claims and defenses. The court rejects the part of the amended report and recommendation concerning the construction of the term “relevant.” The court-as set forth on the record at the hearing held on August 16, 2016-will not adopt any portion of the report and recommendation that addresses discovery requests that were not properly before the special master. The denial of Cole's Wexford's discovery request is without prejudice to Cole's Wexford submitting to Highmark, and, if a dispute arises, to the special master, a specific discovery request about exactly the non-rate information it is seeking from Highmark. Accordingly, the objections (ECF No. 407) filed by Highmark to the amended report and recommendation no. 4 will be sustained, and the objections (ECF No. 408) to the amended report and recommendation no. 4 filed by Cole's Wexford will be denied. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 27 of 177 Cole's Wexford Hotel, Inc. v. Highmark Inc., --- F.Supp.3d ---- (2016) 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 21 Within fourteen days of the entry of this opinion and accompanying order, Cole's Wexford and Highmark must meet and confer with the special master to develop a revised discovery plan to address the close of phase I of discovery in this case, and, if there are disputes about discovery, whether Cole's Wexford intends to submit another discovery dispute to the special master. Within twenty-one days of the entry of this opinion and accompanying order, Cole's Wexford and Highmark shall file with the court the revised discovery plan apprising the court of the procedure to be undertaken to address any remaining discovery disputes and the pertinent dates for the close of phase I discovery. An appropriate order will be entered. All Citations --- F.Supp.3d ----, 2016 WL 5025751, 95 Fed.R.Serv.3d 1155 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 28 of 177 Desabato v. Assurance Company of America, --- F.Supp.3d ---- (2016) 2016 WL 5661745 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2016 WL 5661745 Only the Westlaw citation is currently available. United States District Court, W.D. Pennsylvania. Paul G. Desabato, Anthony Desimone, Benjamin M. Pusateri, Sr., and Bella Capelli Academy, LLC, Plaintiffs, v. Assurance Company of America, Northern Insurance Company of New York, and Maryland Casualty Company, Defendants. 2:15cv484 | Signed September 30, 2016 Synopsis Background: Insured members of limited liability company (LLC) brought action against their commercial general liability (CGL) insurer seeking declaration that underlying action by former LLC member, who had his ownership interest in LLC terminated for gross misconduct, against insured members asserting, inter alia, breach of fiduciary duty, conversion, breach of contract, and breach of the duty of fair dealing, fell within scope of personal and advertising injury provision in CGL policy. Insurer and insureds cross-moved for summary judgment. Holdings: The District Court, David Stewart Cercone, J., held that: [1] allegations in underlying complaint did not raise potential defamation claim, and, thus, did not fall within coverage of personal and advertising injury provision of policy, and [2] allegations in underlying complaint did not raise potential misappropriation of advertising ideas claim, and, thus, did not fall within coverage of personal and advertising injury provision of policy. Insurer's motion granted; insureds' motion denied. West Headnotes (23) [1] Insurance In general; nature and source of duty 217 Insurance 217XXIII Duty to Defend 217k2911 In general; nature and source of duty The duty to defend is separate and distinct from the duty to indemnify under Pennsylvania insurance law. Cases that cite this headnote [2] Insurance Pleadings 217 Insurance 217XXIII Duty to Defend 217k2912 Determination of Duty 217k2914 Pleadings Under Pennsylvania law, an insurer's obligation to defend is fixed solely by the allegations in the underlying complaints. Cases that cite this headnote [3] Insurance Pleadings 217 Insurance 217XXIII Duty to Defend 217k2912 Determination of Duty 217k2914 Pleadings Under Pennsylvania law, an insurer has a duty to defend whenever the allegations in a complaint against its insured, when taken as true and construed in favor of the insured, set forth a claim which potentially falls within the coverage provided by the insurance policy. Cases that cite this headnote [4] Insurance Pleadings 217 Insurance 217XXIII Duty to Defend 217k2912 Determination of Duty 217k2914 Pleadings Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 29 of 177 Desabato v. Assurance Company of America, --- F.Supp.3d ---- (2016) 2016 WL 5661745 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 Under Pennsylvania law, the duty to defend is triggered even if the allegations against the insured are groundless, false, or fraudulent. Cases that cite this headnote [5] Insurance In general; standard 217 Insurance 217XXIII Duty to Defend 217k2912 Determination of Duty 217k2913 In general; standard Under Pennsylvania law, the duty to defend arises when the potential for a covered claim exists and the determination of coverage depends upon the existence or non-existence of undetermined or disputed facts raised against the insured. Cases that cite this headnote [6] Insurance Termination of duty; withdrawal 217 Insurance 217XXIII Duty to Defend 217k2930 Termination of duty; withdrawal Under Pennsylvania law, where a complaint raises a claim potentially within the scope of coverage of an insurance policy, the duty to defend remains with the insurer until the claim is narrowed to one patently outside the insurance policy coverage. Cases that cite this headnote [7] Insurance In general; standard 217 Insurance 217XXIII Duty to Defend 217k2912 Determination of Duty 217k2913 In general; standard Under Pennsylvania law, it is not the actual details of the injury, but the nature of the claim against the insured which determines whether the insurer is required to defend. Cases that cite this headnote [8] Insurance Pleadings 217 Insurance 217XXIII Duty to Defend 217k2912 Determination of Duty 217k2914 Pleadings Under Pennsylvania law, the particular causes of action in the complaint against an insured are not determinative of whether coverage under an insurance policy has been triggered; instead, it is necessary to look at the factual allegations contained in the complaint. Cases that cite this headnote [9] Insurance Pleadings 217 Insurance 217XXIII Duty to Defend 217k2912 Determination of Duty 217k2914 Pleadings Under Pennsylvania law, with regard to the duty to defend, the potential scope of coverage under an insurance policy must be examined before it can be determined whether a complaint against an insured is potentially covered by the policy. Cases that cite this headnote [10] Insurance In general; standard 217 Insurance 217XXIII Duty to Defend 217k2912 Determination of Duty 217k2913 In general; standard Under Pennsylvania law, the inquiry into coverage under an insurance policy is antecedent to ascertaining whether a duty to defend exists. Cases that cite this headnote [11] Insurance In general; standard 217 Insurance 217XXIII Duty to Defend 217k2912 Determination of Duty 217k2913 In general; standard Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 30 of 177 Desabato v. Assurance Company of America, --- F.Supp.3d ---- (2016) 2016 WL 5661745 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 Under Pennsylvania law, traditional principles of insurance policy interpretation control the inquiry into coverage, as an antecedent to ascertaining whether duty to defend exists. Cases that cite this headnote [12] Insurance Plain, ordinary or popular sense of language 217 Insurance 217XIII Contracts and Policies 217XIII(G) Rules of Construction 217k1822 Plain, ordinary or popular sense of language Under Pennsylvania law, if the language of an insurance policy is clear and unambiguous, it must be given its ordinary meaning. Cases that cite this headnote [13] Insurance Favoring coverage or indemnity; disfavoring forfeiture 217 Insurance 217XIII Contracts and Policies 217XIII(G) Rules of Construction 217k1836 Favoring coverage or indemnity; disfavoring forfeiture Under Pennsylvania law, if a provision of an insurance policy is ambiguous, the ambiguity is to be construed to afford coverage. Cases that cite this headnote [14] Insurance Ambiguity in general 217 Insurance 217XIII Contracts and Policies 217XIII(G) Rules of Construction 217k1808 Ambiguity in general Under Pennsylvania law, a provision in an insurance policy is ambiguous if, after considering it in the context of the entire policy, reasonable minds could differ as to its meaning. Cases that cite this headnote [15] Insurance Function of, and limitations on, courts, in general Insurance Ambiguity in general Insurance Plain, ordinary or popular sense of language 217 Insurance 217XIII Contracts and Policies 217XIII(G) Rules of Construction 217k1807 Function of, and limitations on, courts, in general 217 Insurance 217XIII Contracts and Policies 217XIII(G) Rules of Construction 217k1808 Ambiguity in general 217 Insurance 217XIII Contracts and Policies 217XIII(G) Rules of Construction 217k1822 Plain, ordinary or popular sense of language Under Pennsylvania law, strange or contrived readings of the language in an insurance policy are not to be undertaken to create an ambiguity where none exists, nor should a court attempt to rewrite policy language in a manner that conflicts with the plain meaning of the words employed. Cases that cite this headnote [16] Insurance Pleadings 217 Insurance 217XXIII Duty to Defend 217k2912 Determination of Duty 217k2914 Pleadings Under Pennsylvania law, with regard to the duty to defend, the question of whether a claim against an insured is potentially covered by an insurance policy is answered by comparing the four corners of the insurance policy to the four corners of the complaint. Cases that cite this headnote [17] Insurance Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 31 of 177 Desabato v. Assurance Company of America, --- F.Supp.3d ---- (2016) 2016 WL 5661745 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 Pleadings 217 Insurance 217XXIII Duty to Defend 217k2912 Determination of Duty 217k2914 Pleadings Under Pennsylvania law, only when it is clear from an examination of the allegations in a complaint against an insured and the language of the insurance policy that the claim does not potentially come within the coverage of the policy may the insurer refuse to defend a claim against its insured. Cases that cite this headnote [18] Insurance Defamation or disparagement 217 Insurance 217XVII Coverage--Liability Insurance 217XVII(B) Coverage for Particular Liabilities 217k2306 Personal Injury 217k2311 Defamation or disparagement Under Pennsylvania law, allegations in underlying complaint by former member of limited liability company (LLC) against insured members of LLC did not raise potential defamation claim, and, thus, did not fall within coverage of personal and advertising injury provision of insureds' commercial general liability (CGL) insurance policy, even if letter insureds gave to former member when they terminated his interests in LLC contained false statement about former member's lease of residential apartment, where provision granted coverage to oral or written “publication of material that slanders or libels,” and underlying complaint did not allege that letter was published or that any third party saw or learned of letter's contents. Cases that cite this headnote [19] Insurance Pleadings 217 Insurance 217XXIII Duty to Defend 217k2912 Determination of Duty 217k2914 Pleadings The duty to defend in Pennsylvania is triggered if the nature of the allegations and claims raised in the underlying complaint against the insured arise out of the torts enumerated in the insurance policy. Cases that cite this headnote [20] Libel and Slander Nature and elements of defamation in general 237 Libel and Slander 237I Words and Acts Actionable, and Liability Therefor 237k1 Nature and elements of defamation in general A plaintiff successfully proving a defamation claim in Pennsylvania must show: (1) the defamatory character of the communication; (2) its publication by the defendant; (3) its application to the plaintiff; (4) the understanding by the recipient of its defamatory meaning; (5) the understanding by the recipient of it as intended to be applied to the plaintiff; (6) special harm resulting to the plaintiff from its publication; and (7) abuse of a conditionally privileged occasion. Cases that cite this headnote [21] Insurance Misappropriation 217 Insurance 217XVII Coverage--Liability Insurance 217XVII(B) Coverage for Particular Liabilities 217k2297 Advertising Injury 217k2301 Misappropriation Under Pennsylvania law, allegations in underlying complaint by former member of limited liability company (LLC) against insured members of LLC did not raise potential misappropriation of advertising ideas claim, and, thus, did not fall within coverage of personal and advertising injury provision of insureds' commercial general liability (CGL) insurance policy, even if members continued to operate LLC under licenses in former member's name after he was terminated, where policy Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 32 of 177 Desabato v. Assurance Company of America, --- F.Supp.3d ---- (2016) 2016 WL 5661745 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 defined “advertisement” as notice that was “broadcast or published to the general public” for “purpose of attracting customers or supporters,” and underlying complaint did not allege that former member created any particular advertising idea or that LLC appropriated any such idea in manner injuring former member. Cases that cite this headnote [22] Antitrust and Trade Regulation Misappropriation 29T Antitrust and Trade Regulation 29TII Unfair Competition 29TII(A) In General 29Tk43 Misappropriation Under Pennsylvania law, the tort of misappropriation consists of three elements: (1) the plaintiff has made a substantial investment of time, effort, and money into creating the thing misappropriated such that the court can characterize that thing as a kind of property right; (2) the defendant has appropriated the thing at little or no cost, such that the court can characterize defendant's actions as reaping what it has not sown; and (3) the defendant has injured plaintiff by the misappropriation. Cases that cite this headnote [23] Insurance Matters beyond pleadings 217 Insurance 217XXIII Duty to Defend 217k2912 Determination of Duty 217k2915 Matters beyond pleadings Under Pennsylvania law, materials outside an underlying complaint against an insured are not to be considered when determining whether the insurer has a duty to defend. Cases that cite this headnote Attorneys and Law Firms Julian E. Neiser, Spilman Thomas & Battle, PLLC, Pittsburgh, PA, for Plaintiffs. Brigid Q. Alford, Marshall, Dennehey, Warner, Coleman & Goggin, Camp Hill, PA, for Defendants. OPINION David Stewart Cercone, United States District Judge I. INTRODUCTION *1 Paul DeSabato, Anthony Desimone, Benjamin Pusateri, Sr., and Bella Capelli Academy, LLC (“BCA”) (collectively “plaintiffs”) commenced this diversity action against Assurance Company of America, Northern Insurance Company of New York, and Maryland Casualty Company (“defendants”) on April 10, 2015. Plaintiffs seek monetary damages and declaratory relief, alleging defendants breached their duty to defend plaintiffs in an action filed against them in state court. Defendants counter that their duty to defend never arose. Presently pending are the parties' cross-motions for summary judgment. For the reasons set forth below, defendants' motion will be granted and plaintiffs' will be denied. II. STANDARD OF REVIEW Federal Rule of Civil Procedure 56 provides that “[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). Rule 56 “ ‘mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.’ ” Marten v. Godwin, 499 F.3d 290, 295 (3d Cir. 2007) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). Deciding a summary-judgment motion requires the court to view the facts, draw all reasonable inferences, and resolve all doubts in favor of the nonmoving party. Doe v. Cnty. of Centre, Pa., 242 F.3d 437, 446 (3d Cir. 2001). Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 33 of 177 Desabato v. Assurance Company of America, --- F.Supp.3d ---- (2016) 2016 WL 5661745 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 The moving party bears the initial burden of identifying evidence that demonstrates the absence of a genuine issue of material fact. When the movant does not bear the burden of proof on the claim, the movant's initial burden may be met by demonstrating the lack of record evidence to support the opponent's claim. Nat'l State Bank v. Fed. Reserve Bank of New York, 979 F.2d 1579, 1581-82 (3d Cir. 1992). Once that burden has been met, the non- moving party must set forth “specific facts showing that there is a genuine issue for trial,” or the factual record will be taken as presented by the moving party and judgment will be entered as a matter of law. Matsushita Elec. Indus. Corp. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (quoting Fed. R. Civ. P. 56(e)) (emphasis in Matsushita). An issue is genuine only if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In meeting its burden of proof, the “opponent must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita, 475 U.S. at 586, 106 S.Ct. 1348. The non-moving party “must present affirmative evidence in order to defeat a properly supported motion”...“and cannot simply reassert factually unsupported allegations.” Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d Cir. 1989). Nor can the opponent “merely rely upon conclusory allegations in [its] pleadings or in memoranda and briefs.” Harter v. GAF Corp., 967 F.2d 846, 852 (3d Cir. 1992); Sec. & Exch. Comm'n v. Bonastia, 614 F.2d 908, 914 (3d Cir. 1980) (“[L]egal conclusions, unsupported by documentation of specific facts, are insufficient to create issues of material fact that would preclude summary judgment.”). Likewise, mere conjecture or speculation by the party resisting summary judgment will not provide a basis upon which to deny the motion. Robertson v. Allied Signal, Inc., 914 F.2d 360, 382-83 n.12 (3d Cir. 1990). Summary judgment may be granted if the non-moving party's evidence is merely colorable or lacks sufficient probative force. Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505; see also Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir. 1992), cert. denied, 507 U.S. 912, 113 S.Ct. 1262, 122 L.Ed.2d 659 (1993) (although the court is not permitted to weigh facts or competing inferences, it is no longer required to “turn a blind eye” to the weight of the evidence). *2 The record as read in the light most favorable to plaintiffs establishes the background set forth below. III. FACTUAL BACKGROUND Anthony Vargo (“Vargo”), in 2002, decided to start a school focused on professions in which he had experience: hair styling, cosmetology, and similar services. (Docket No. 28, Ex. A, ¶ 9). To start the school, BCA, Vargo sought and received capital from DeSabato, Desimone, and Pusateri in exchange for equity in BCA. 1 (Docket No. 28, Ex. A., ¶¶ 10-11). Vargo procured the licenses required by the State Board of Cosmetology and ran BCA as its managing member. (Docket No. 28, Ex. A, ¶¶ 15-16). Vargo was an owner and employee of BCA; his designation was “Education Leader.” (Docket No. 28, Ex. A, ¶ 16). 1 Two other individuals, Nicholas D'Amico and Eugene Sciulli, also contributed capital to BCA (Docket No.28, Ex. A, ¶ 7). But they are not parties to this action. On March 9, 2009, Vargo attended a meeting with his fellow BCA members. (Docket No. 28, Ex. A, ¶ 17). There, the other members terminated Vargo's BCA employment and ownership interests without warning. (Docket No. 28, Ex. A, ¶ 17). The purported reason was Vargo's “gross misconduct.” (Docket No. 28, Ex. A, ¶ 17). A letter handed to Vargo at the meeting stated that he “entered into at least one agreement on behalf of BCA that [he was] not permitted to enter into under the BCA Operating Agreement.” (Docket No. 28, Ex. A, ¶ 17). Vargo had executed a residential lease for a Monroeville apartment on October 10, 2008; he told the landlord during the application process that he was a BCA part owner. (Docket No. 28, Ex. A, ¶ 18). The landlord mistakenly designated BCA as the lessee, rather than Vargo, but Vargo did not notice the mistake when he signed the lease. (Docket No. 28, Ex. A, ¶ 19). Nevertheless, Vargo personally paid all lease-related expenses without using any BCA funds. (Docket No. 28, Ex. A, ¶ 19). Running out of cash, Vargo, in his personal capacity, terminated the lease early. (Docket No. 28, Ex. A, ¶ 19). Vargo's landlord sent an invoice to BCA's offices requesting payment for Vargo terminating the lease early. (Docket No. 28, Ex. A, ¶ 20). Upon seeing that Vargo Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 34 of 177 Desabato v. Assurance Company of America, --- F.Supp.3d ---- (2016) 2016 WL 5661745 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 purportedly entered into a residential lease on BCA's behalf with an aggregate value over $5,000, the other BCA members determined that Vargo violated section 5.2(j) of the BCA Operating Agreement. (Docket No. 28, Ex. A, ¶ 21; Docket No. 28, Ex. 1 (attached to Ex. A), Sec. 5.2(j)). Even though Vargo told his fellow BCA members that BCA's designation as the lessee was a mistake and that he paid all lease-related expenses from his personal funds, they terminated Vargo's interests in BCA anyway. (Docket No. 28, Ex. A, ¶ 22). BCA's remaining members continued to operate the company using the licenses issued in Vargo's name. (Docket No. 28, Ex. A, ¶ 23). Vargo, as an individual and on BCA's behalf, filed an action against BCA and its remaining members on July 29, 2010, in the Court of Common Pleas of Allegheny County (the “Vargo action”). (Docket Nos. 1; 33, p. 6). Vargo pled several counts including: declaratory judgment, breach of fiduciary duty, conversion, breach of contract, breach of the duty of fair dealing, violations of the Consolidated Omnibus Budget Reconciliation Act of 1986 and the Employee Retirement Income Security Act of 1974, and requested an accounting. (Docket No. 33, pp. 6-7). The Vargo action entered arbitration; the arbitrator awarded Vargo $213,973.54. (Docket No. 33, pp. 6-7). *3 Defendants insured BCA 2 when the Vargo complaint was filed. (Docket No. 22, p. 1; Docket Nos. 5-6). Defendants refused to defend plaintiffs in the Vargo action. (Docket No. 1, ¶ 24). As a result, plaintiffs incurred legal fees and expenses “of not less than $100,103.70.” (Docket No. 1, ¶ 25). Plaintiffs then initiated this action, averring defendants breached their duty to defend. (Docket No. 1). 2 Defendant Maryland Casualty Company is the parent corporation of wholly owned subsidiaries Assurance Company of America and Northern Insurance Company of New York. (Docket Nos. 5- 6). Through their submissions on summary judgment, the parties narrowed their arguments regarding the duty to defend to the coverage for Personal and Advertising Injury Liability in the applicable Maryland Casualty Company insurance policy (the “Policy”). (Docket No. 27, pp. 1-2). The Policy's relevant sections provide: COVERAGE B. PERSONAL AND ADVERTISING INJURY LIABILITY 1. Insuring Agreement a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “personal and advertising injury” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “personal and advertising injury” to which this insurance does not apply. We may, at our discretion, investigate any offense and settle any claim or “suit” that may result.... 2. Exclusions This insurance does not apply to: a. “Personal and advertising injury”: (1) Caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict “personal and advertising injury”; (2) Arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity;... (6) Arising out of a breach of contract, except an implied contract to use another's advertising idea in your “advertisement”;... SECTION II-WHO IS AN INSURED 1. If you are designated in the Declarations as... c. A limited liability company, you are an insured. Your members are also insureds, but only with respect to the conduct of your business. Your managers are insureds, but only with respect to their duties as your managers. SECTION V-DEFINITIONS 1. “Advertisement” means a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.... 3. “Bodily injury” means bodily injury, sickness or disease sustained by a person. This includes mental Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 35 of 177 Desabato v. Assurance Company of America, --- F.Supp.3d ---- (2016) 2016 WL 5661745 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 8 anguish, mental injury, shock, fright or death resulting from bodily injury, sickness or disease.... 14. “Personal and advertising injury” means injury, including consequential “bodily injury,” arising out of one or more of the following offenses:... d. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;... f. Misappropriation of advertising ideas or style of doing business;... (Docket No. 12, Ex. 1). In a later endorsement, Maryland Casualty Company altered the definition of “Personal and advertising injury” in the following manner: PERSONAL AND ADVERTISING INJURY REDEFINED This endorsement modifies provisions in the following: COMMERCIAL GENERAL LIABILITY COVERAGE FORM *4 1. Paragraph f. of the definition of personal and advertising injury in SECTION V-DEFINITIONS is deleted and replaced by the following: f. The use of another's advertising idea in your “advertisement.” (Docket No. 12, Ex. 1). After evaluating the parties' submissions on summary judgment, it is clear that a pure issue of law dictates the outcome in this case. That issue is whether the Vargo action's complaint alleged facts within its four corners sufficient to raise potential claims within the coverage afforded by the Policy and trigger defendants' duty to defend. Plaintiffs contend the facts alleged in the Vargo complaint are sufficient to trigger defendants' duty to defend. They argue that the complaint shows that a false statement -that Vargo entered into a residential lease on BCA's behalf-was made in a March 9, 2009, letter from the BCA members to Vargo. (Docket No. 37, p. 7). Plaintiffs contend that, in reality, the landlord mistakenly substituted BCA's name for Vargo's as the lessee. (Docket No. 37, p. 7). Plaintiffs believe this allegation is enough to show that Vargo could have advanced a defamation claim against BCA and his former co-members. (Docket No. 12, Ex. 1). Plaintiffs additionally state that the Vargo complaint raises a potential claim that BCA used Vargo's advertising ideas after BCA terminated Vargo. The argument is that when BCA, which was Vargo's brainchild, expelled Vargo, BCA pilfered all of Vargo's BCA concepts by operating BCA without Vargo. (Docket No. 37, p. 9). Plaintiffs further posit that some of Vargo's ideas included advertising ideas falling under the Policy. (Docket No. 37, p. 9). Plaintiffs then argue that the definition of advertising in the Policy is ambiguous, requiring that the definition be liberally construed in Plaintiffs' favor. (Docket No. 37, p. 9). Plaintiffs therefore believe that the facts averred in the Vargo complaint match closely enough with the Policy's language to state a potential covered claim, even though the Vargo complaint does not contain or purport to state any defamation or misappropriation-like counts. Defendants contend that the facts averred in the Vargo complaint do not raise any potential claims within the Policy's four corners and therefore the duty to defend was not triggered. (Docket No. 33, p. 13). From their perspective, the Vargo complaint could not be construed to state a defamation claim because it does not allege that the March 9, 2009, letter was published to anyone outside BCA's members. (Docket No. 33, pp. 9-10). Furthermore, the Vargo complaint assertedly contains no allegation that any of Vargo's advertising ideas were used in BCA's advertisements. (Docket No. 33, p. 11). And the Policy's advertising definition is not ambiguous, precluding the court's ability to liberally construe it in plaintiffs' favor. (Docket No. 39, p. 14). Finally, defendants contend that even if the court were to find that the Vargo complaint's allegations are sufficient to trigger the duty to defend, the court must still rule in their favor because the Policy excludes coverage of the specific harms alleged by plaintiffs. (Docket No. 33, pp. 10, 12). IV. DISCUSSION *5 [1] [2] [3] The duty to defend is separate and distinct from the duty to indemnify under Pennsylvania law. Erie Ins. Exch. v. Transamerica Ins. Co., 516 Pa. 574, 533 A.2d 1363, 1368 (1987) (“[t]he duty to defend is a Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 36 of 177 Desabato v. Assurance Company of America, --- F.Supp.3d ---- (2016) 2016 WL 5661745 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 9 distinct obligation, separate and apart from the insurer's duty to provide coverage.”). An insurer's obligation to defend is fixed solely by the allegations in the underlying complaint(s). Aetna Cas. and Sur. Co., v. Roe, 437 Pa.Super. 414, 650 A.2d 94, 98 (1994); Stidham v. Millvale Sportsmen's Club, 421 Pa.Super. 548, 618 A.2d 945, 953- 54 (1993). An insurer has a duty to defend whenever the allegations in a complaint against its insured, when taken as true and construed in favor of the insured, set forth a claim which potentially falls within the coverage provided by the policy. Lucker Mfg. Inc., v. The Home Ins. Co., 23 F.3d 808, 821 (3d Cir. 1994); Cadwallader v. New Amsterdam Cas. Co., 396 Pa. 582, 152 A.2d 484, 488 (1959). [4] [5] [6] The duty to defend is triggered even if the allegations against the insured are groundless, false or fraudulent. D'Auria v. Zurich Ins. Co., 352 Pa.Super. 231, 507 A.2d 857, 859 (1986). It likewise arises when the potential for a covered claim exists and the determination of coverage depends upon the existence or non-existence of undetermined or disputed facts raised against the insured. Germantown Ins. Co., v. Martin, 407 Pa.Super. 326, 595 A.2d 1172, 1174 (1991). Where a complaint raises a claim potentially within the scope of coverage, the duty to defend remains with the insurer until the claim is narrowed to one patently outside the policy coverage. Id. (“[a]s long as the complaint comprehends an injury which may be within the scope of the policy, Germantown must defend Martin's estate until the claim is confined to a recovery the policy does not cover.”) (citing United Servs. Auto. Ass'n. v. Elitzky, 358 Pa.Super. 362, 517 A.2d 982 (1986), alloc. denied, 515 Pa. 600, 601, 528 A.2d 957 (1987)); Stidham, 618 A.2d at 953-54. [7] [8] “It is not the actual details of the injury, but the nature of the claim which determines whether the insurer is required to defend.” Aetna Cas. and Sur. Co., 650 A.2d at 98 (quoting D'Auria, 507 A.2d at 859). The particular causes of action in the complaint also are “not determinative of whether coverage has been triggered. Instead, it is necessary to look at the factual allegations contained in the complaint.” Mut. Benefit Ins. Co. v. Haver, 555 Pa. 534, 725 A.2d 743, 745 (1999). [9] [10] Moreover, the potential scope of coverage under an insurance policy must be examined before it can be determined whether a complaint potentially is covered by the policy. Lucker Mfg., Inc., 23 F.3d at 813. The inquiry into coverage is antecedent to ascertaining whether the duty to defend exists. Id. at 813-14 (citing Erie Ins. Exch. v. Transamerica Ins. Co., 516 Pa. 574, 533 A.2d 1363, 1368 (1987)). [11] [12] [13] [14] [15] “Traditional principles of insurance policy interpretation control the inquiry into coverage.” Lucker Mfg., Inc., 23 F.3d at 814. If the language of an insurance policy is clear and unambiguous, it must be given its ordinary meaning. Imperial Cas. and Indem. Co., v. High Concrete Structures, Inc., 858 F.2d 128, 131 (3d Cir. 1988). If a provision of the policy is ambiguous, the ambiguity is to be construed to afford coverage. Lucker Mfg., Inc., 23 F.3d at 814. A provision is ambiguous if, after considering it in the context of the entire policy, reasonable minds could differ as to its meaning. Imperial Cas. and Indem. Co., 858 F.2d at 131. However, strange or contrived readings of policy language are not to be undertaken to create an ambiguity where none exists, nor should a court attempt to rewrite policy language in a manner that conflicts with the plain meaning of the words employed. Lucker Mfg., Inc., 23 F.3d at 814; Elitzky, 517 A.2d at 986. A. Scope of Coverage *6 The first step in determining if defendants had a duty to defend is to examine what the Policy covered. The parties focus on two potential forms of injury that are covered: defamation and the use of one's advertising ideas in another's advertisement. (Docket No. 33, p. 8). As to these forms of injury, the Policy provides: d. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services; f. The use of another's advertising idea in your “advertisement.” (Docket No. 12, Ex. 1). The above grants of coverage provide the backdrop needed to determine if the Vargo complaint's averments triggered defendants' duty to defend. B. Duty-to-Defend Analysis [16] [17] A review of the Vargo complaint and the Policy's relevant provisions clearly reveals that defendants' duty to defend was not triggered. “The question of Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 37 of 177 Desabato v. Assurance Company of America, --- F.Supp.3d ---- (2016) 2016 WL 5661745 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 10 whether a claim against an insured is potentially covered is answered by comparing the four corners of the insurance contract to the four corners of the complaint.” Am. and Foreign Ins. Co. v. Jerry's Sport Ctr., Inc., 606 Pa. 584, 2 A.3d 526, 541 (2010). Only when “it is clear from an examination of the allegations in the complaint and the language of the policy that the claim does not potentially come within the coverage of the policy” may the insurer “refuse to defend a claim against its insured.” Id. No allegations in the Vargo complaint provided a basis for defendants to recognize or infer a potential defamation or misappropriation-of-advertising-idea claim. Therefore, defendants were not required to defend plaintiffs in the Vargo action. 1. Defamation [18] Plaintiffs' contention that an incorrect statement in a letter handed to Vargo on March 9, 2009, properly notifies defendants of a potential defamation claim is unavailing. The Vargo complaint states “[Vargo] was handed a letter identifying his “gross misconduct” as “entering into at least one agreement on behalf of BCA that [Vargo was] not permitted to enter into under the BCA Operating Agreement.” (Docket No. 28, Ex. A, ¶ 17). Plaintiffs conclude that the letter contained a false statement because it states that Vargo entered BCA into an agreement (Vargo's residential lease), even though Vargo alleged that his landlord mistakenly identified BCA as the lessee. (Docket No. 28, Ex. A, ¶¶ 17-22). Even if the March 9, 2009, letter contained a false statement about Vargo, this statement does not obligate defendants to defend. The Policy covers damages caused by “[o]ral or written publication of material that slanders or libels.” (Docket No. 12, Ex. 1). Thus, the Policy does cover defamation claims. [19] The duty to defend in Pennsylvania is triggered “if the nature of the allegations and claims raised in the underlying complaint...arise out of the torts enumerated in the policy.” Roman Mosaic & Tile Co. v. Aetna Cas. & Sur. Co., 704 A.2d 665, 669 (Pa. Super. 1997). A plaintiff successfully proving a defamation claim in Pennsylvania must show: [20] “(1) the defamatory character of the communication; (2) its publication by the defendant; (3) its application to the plaintiff; (4) the understanding by the recipient of its defamatory meaning; (5) the understanding by the recipient of it as intended to be applied to the plaintiff; (6) special harm resulting to the plaintiff from its publication; and (7) abuse of a conditionally privileged occasion.” *7 Elia v. Erie Ins. Exch., 430 Pa.Super. 384, 634 A.2d 657, 659-60 (1993) (quoting 42 Pa.C.S.A. § 8343(a) (emphasis removed)). Both the Policy and Pennsylvania defamation law require a defendant to “publish” an alleged defamatory statement before there can be liability. The specific grant of coverage in the Policy extends only to “[o]ral or written publication of material that slanders or libels.” (Docket No. 12, Ex. 1). It is appropriate to use a dictionary when construing words of common usage such as “publish.” See Am. Auto Ins. Co. v. Murray, 658 F.3d 311, 320 (3d Cir. 2011) (explaining how courts should evaluate the plain meaning of terms within insurance contracts under Pennsylvania law). Examining dictionary definitions of “publish” just eight years ago, Judge Nora Barry Fischer found that it means “made generally known, announced publically, disseminated to the public, or released for distribution.” Whole Enchilada, Inc. v. Travelers Prop. Cas. Co. of Am., 581 F.Supp.2d 677, 697 (W.D. Pa. 2008) (determining the definition of “publish” in a commercial general liability insurance policy's personal-and-advertising-injury section). This definition of “publish” is applicable here as well. The Vargo complaint does not allege that BCA or any of its members “published” the March 9, 2009, letter. It failed to set forth allegations that suggest or provide circumstances from which to infer that a publication occurred. At the very least, communications “must be expressed to a third party” to be published. Davis v. Res. For Human Dev., 770 A.2d 353, 358 (Pa. Super. 2001); see Gaetano v. Sharon Herald Co., 426 Pa. 179, 231 A.2d 753, 755 (1967) (defining “publication” as communicating a defamatory matter “intentionally or by a negligent act to one other than the person defamed.”). Nor is there any allegation that any third party saw or learned of the letter's contents. Thus, the Vargo complaint lacks any reference to or basis from which to infer publication, a necessary element for defamation claims under both the Policy and Pennsylvania law. Since the Policy only covers published material that “slanders or libels” (Docket No. 12, Ex. 1), the Vargo complaint did not trigger defendants' duty to defend with regard to a potential defamation claim. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 38 of 177 Desabato v. Assurance Company of America, --- F.Supp.3d ---- (2016) 2016 WL 5661745 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 11 Of course, an insurer's duty to defend a defamation claim does not necessarily require the underlying complaint to allege that someone published a slanderous or libelous statement. “Courts must analyze coverage on a case- by-case basis.” CAT Internet Sys., Inc. v. Providence Washington Ins. Co., 153 F.Supp.2d 755, 761 (E.D. Pa. 2001) aff'd sub nom 333 F.3d 138 (3d Cir. 2003). It is sufficient here to determine that the Vargo action did not present a purported basis from which to infer that the litigation would progress to include a defamation claim or that one already was subsumed within the claims presented. Therefore, the court need not venture into unknown territory by declaring the specific number of elements of an unsubstantiated tort that an underlying complaint must contain in order to trigger an insurer's duty to defend. 2. Misappropriation of Advertising Ideas *8 [21] The Vargo complaint likewise failed to contain factual allegations regarding the use of advertising ideas. The Policy covers damages from “[t]he use of another's advertising idea in your ‘advertisement.’ ” (Docket No. 12, Ex. 1). The Policy defines “advertisement” as “a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.” (Docket No. 12, Ex. 1). Pennsylvania courts describe an “ ‘advertising idea’ as an idea for advertising that is ‘novel and new,’ and ‘definite and concrete,’ such that it is capable of being identified as having been created by one party and stolen or appropriated by another.” Sorbee Int'l Ltd. v. Chubb Custom Ins. Co., 735 A.2d 712, 714 (Pa. Super. 1999) (quoting Thomas v. R.J. Reynolds Tobacco Co., 350 Pa. 262, 38 A.2d 61, 62-63 (1944)). The Third Circuit has opined that an “advertising idea” is a “method[ ] for gaining customers.” Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 748 (3d Cir. 1999) (differentiating between misappropriating advertising ideas and trade secrets in examining the scope of coverage under a standard commercial general liability policy). Allegations in the Vargo complaint must at least give rise to the contention that BCA used one of Vargo's advertising ideas in its advertisements without his permission. They do not. The Vargo complaint similarly fails to allege facts corresponding to any forms of covered advertising damages in the Policy. The cause of action best corresponding to using “another's advertising idea in your ‘advertisement’ ” (Docket No. 12, Ex. 1), is the common-law tort of misappropriation. Pennsylvania courts recognize this tort, which consists of three elements: [22] (1) the plaintiff has made a substantial investment of time, effort and money into creating the thing misappropriated such that the court can characterize that thing as a kind of property right, (2) the defendant has appropriated the thing at little or no cost, such that the court can characterize defendant's actions as reaping [what] it has not sown, and (3) the defendant has injured plaintiff by the misappropriation. Sorbee, 735 A.2d at 716 (internal quotation marks omitted). The Vargo complaint does not allege any misappropriation elements. It fails to contain any allegation about a particular advertising idea Vargo created, let alone one that BCA appropriated in a manner injuring Vargo. Thus, it lacks any reasonable basis to even infer that such a claim might surface in the underlying litigation. In their attempt to show that Vargo alleged his advertising ideas were snatched and used in BCA's advertisements, plaintiffs make a multi-step argument. They zero in on the Vargo complaint's allegations that Vargo: created the concept of “starting and operating a school for hair styling, cosmetology and related services”; used his “best efforts, skills and knowledge” to build BCA's business; procured the required licenses to open BCA's two schools; and was excluded from BCA beginning on March 9, 2009, which continued “to operate under licenses held in [Vargo's] name.” (Docket No. 28, pp. 6- 8, ¶¶ 9, 15, 23). Plaintiffs then make three assumptions. First, they assert that “[s]ome communication to the outside public reasonably must [have occurred] to sell BCA.” (Docket No. 37, p. 6). Second, plaintiffs add that “BCA, its licensure and all other things that constitute the outward appearance of BCA to the public allegedly belonged to or were created by Vargo.” (Docket No. 37, p. 6). Third, Plaintiffs posit that “[Vargo's] concepts are outward manifestations of BCA-otherwise an advertisement.” (Docket No. 37, p. 6). None of these Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 39 of 177 Desabato v. Assurance Company of America, --- F.Supp.3d ---- (2016) 2016 WL 5661745 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 12 assertions are made or even alluded to in the Vargo complaint. [23] Of course, materials outside the Vargo complaint are not to be considered when determining whether defendants had a duty to defend. The Pennsylvania Supreme Court's “well-established precedent...requir[es] that an insurer's duty to defend...be determined solely from the language of the complaint against the insured.” Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Comm. Union Ins. Co., 589 Pa. 317, 908 A.2d 888, 896 (2006) (reversing the Pennsylvania Superior Court for “looking beyond the allegations raised” in the underlying complaint in determining whether the duty to defend was triggered). Plaintiffs' assumptions regarding BCA improperly using Vargo's advertising ideas are beyond any reasonable reading of Vargo's complaint. (See Docket No. 37, p. 6). Because the advertising-idea assertions by plaintiffs are not in Vargo's complaint, they must be disregarded in the duty-to-defend context. *9 Plaintiffs characterize defendants as “demand[ing] that the [underlying] [c]omplaint contain magic language that fits squarely within” their interpretation of the policy language. (Docket No. 40, p. 3). But no talismanic formulas are needed. The factual allegations within the complaint must be sufficient to perceive a potentially coverable claim. See Am. and Foreign Ins. Co. v. Jerry's Sport Ctr., Inc., 606 Pa. 584, 2 A.3d 526, 541 (2010); Cadwallader v. New Amsterdam Cas. Co., 396 Pa. 582, 152 A.2d 484, 488 (1959). The Vargo complaint does not present such a scenario. Defendants, therefore, had no duty to defend based on the coverage afforded for advertising injury. V. CONCLUSION For the foregoing reasons, the complaint's allegations are insufficient to trigger defendants' duty to defend. It follows that defendants' motion for summary judgment must be granted and plaintiffs' motion for summary judgment must be denied. Appropriate orders will follow. All Citations --- F.Supp.3d ----, 2016 WL 5661745 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 40 of 177 Dogra v. Liberty Mutual Fire Insurance Company, Slip Copy (2016) 2016 WL 6573950 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2016 WL 6573950 Only the Westlaw citation is currently available. United States District Court, D. Nevada. Melinda Booth Dogra, as Assignee of The Claims of Susan Hiroko Liles; Jay Dogra, as Assignee of The Claims of Susan Hiroko Liles, Plaintiffs, v. Liberty Mutual Fire Insurance Company, Defendant. Case No. 2:14-cv-01841-GMN-GWF | Signed 11/04/2016 Attorneys and Law Firms Jennifer R. Andreevski, Ryan David Krametbauer, William R. Brenske, Law Office of William R. Brenske, Las Vegas, NV, for Plaintiff. Amy M. Samberg, Foran Glennon, Phoenix, AZ, Gregory J. Kerwin, Gibson, Dunn & Crutcher LLP, Denver, CO, Justin S. Hepworth, Foran Glennon, Las Vegas, NV, for Defendant. ORDER GEORGE FOLEY, JR. United States Magistrate Judge *1 This matter is before the Court on Plaintiffs' Motion to Compel Unredacted Copies of Documents Contained in Defendant's First Supplemental Disclosure Statement Pursuant to FRCP 26 and Copies of Certain Depositions (ECF No. 42), filed on September 23, 2016. Defendant filed its Opposition (ECF No. 47) on October 10, 2016 and Plaintiffs filed their Reply (ECF No. 50) on October 20, 2016. The Court conducted a hearing in this matter on October 24, 2016. BACKGROUND On August 22, 2008, Susan Liles was involved in a multi-car automobile accident. Ms. Liles was insured under an automobile liability insurance policy issued by Defendant Liberty Mutual Fire Insurance Company (“Liberty Mutual”). The insurance policy provided bodily injury damage limits of $100,000 per person and $300,000 per accident. The individuals injured in the accident, including Plaintiffs Melinda Booth Dogra and Jay Dogra (“the Dogras”), asserted bodily injury claims against Susan Liles. After some investigation, Liberty Mutual filed an action to interplead the $300,000 per accident policy limits and have them apportioned among the claimants. At one point, Liberty Mutual proposed that $160,000 be paid to claimant Jessica Flores. The other claimants objected and the court ultimately ordered that the policy proceeds be apportioned so that no one individual was allocated more than $100,000 of the policy proceeds. Although Liberty Mutual moved to deposit the policy proceeds into court, they were not so deposited. The Dogras allegedly notified Liberty Mutual that they would accept $100,000 in full settlement of their claims if the policy proceeds were deposited into court before the Dogras were required to file a lawsuit to prevent the running of the statute of limitations. Liberty Mutual deposited the funds after the Dogras and other claimants filed suit against Ms. Liles. The other claimants accepted their shares of the policy proceeds and dismissed their lawsuits. The Dogras, however, refused to settle for the $100,000 per person policy limit and they eventually proceeded to trial against Ms. Liles. Melinda Booth Dogra obtained a judgment of $2,945,604.48 and Jay Dogra obtained a judgment of $42,840.75. Ms. Liles subsequently dismissed her appeal from the judgments and assigned her rights against Liberty Mutual to the Dogras in exchange for a covenant not the execute. The Dogras, as assignees of the rights of Susan Liles, filed this action against Liberty Mutual on November 13, 2014. Complaint (ECF No. 1). The Dogras alleged causes of action for breach of contract, breach of the covenant of good faith and fair dealing (“insurance bad faith”) and violation of the Nevada Unfair Claims Practices Act, NRS 686A.310. The Dogras also alleged a claim for punitive damages. Id. In their cause of action for breach of contract, the Dogras alleged that Liberty Mutual breached numerous contractual duties owed to Ms. Liles, including “fail[ing] to attempt to enter into settlement negotiations before or after filing of the Interpleader and before the running of the statute of limitations.” Id. at pg. 15, ¶ 64. In their causes of action for insurance bad faith and violation of the unfair claims practices act, the Dogras likewise alleged that Liberty Mutual breached a number Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 41 of 177 Dogra v. Liberty Mutual Fire Insurance Company, Slip Copy (2016) 2016 WL 6573950 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 of duties owed to Ms. Liles, including the duty to attempt to obtain settlement within the available policy limits. Id. at pg. 20-23 ¶¶ 76, 77, 83. *2 On November 15, 2015, Liberty Mutual filed a motion for summary judgment on Plaintiffs' breach of contract claims. Motion for Summary Judgment (ECF No. 25). Liberty Mutual based its motion on Plaintiffs' answer to Defendant's Interrogatory No. 8 which asked Plaintiffs to “identify each and every provision of the Policy which you allege Liberty Mutual has breached.” Id. at pg. 5. Plaintiffs responded to this interrogatory by stating that Liberty Mutual “breached several provisions of its insurance policy with its insured. These include, but are not limited to: ...” Id. Plaintiffs then listed the following contractual duties that Defendant breached: (a) failing to pay appeal bond premiums, (b) proposing an allocation of the policy proceeds in the interpleader action that would have paid a claimant more than $100,000, and (c) failing to timely deposit the policy proceeds in court. Id. Liberty Mutual took the position that based on their answer to Interrogatory No. 8, Plaintiffs “have abandoned any breach of contract claims save [the three listed breaches].” Id. at pg. 6. Liberty Mutual argued that it had not breached its contractual duties with respect to the three alleged breaches. Id. at pgs. 6-10. In their opposition, Plaintiffs denied that they had abandoned any of their breach of contract claims. Opposition (ECF No. 28), pgs. 12-15. Plaintiffs argued that Defendant's breaches included: (1) unreasonable delay in payment, (2) failure to provide an unbiased defense, (3) failure to pay premiums on appeal bonds, and (4) failure to pay the limits of liability when given the opportunity to settle. Id. at pgs. 13-23. In its reply, Liberty Mutual noted that Plaintiffs “belatedly attempt to rewrite their discovery responses to resurrect abandoned contract claims.” Reply (ECF No. 29), pg. 1. 1 1 Plaintiffs filed a surreply in which they argued that Liberty Mutual had a duty to defend Ms. Liles against the Dogras' lawsuit even after it tendered its policy limits, and disputed Liberty Mutual's assertion that the claims did not settle before the running of the statute of limitations because the claimants could not agree on how the liability proceeds should be distributed. Surreply (ECF No. 30-1). Liberty Mutual filed a response to the surreply in which it disputed Plaintiffs' assertions. Response (ECF No. 31-1). In its order granting summary judgment, the Court also granted leave to file the surreply and the response thereto. Order (ECF No.44), pg. 1, n.1. On September 27, 2016, the Court granted Liberty Mutual's motion for summary judgment, stating as follows: Plaintiffs present a number of arguments to support their breach of contract claim, including that Liberty Mutual: (1) unreasonably delayed payments and failed to settle when given the opportunity; (2) failed to provide an unbiased defense; and (3) failed to pay premiums on appeal bonds. The Court finds that these arguments, along with the evidence presented, do not establish a genuine issue of material fact that Liberty Mutual breached the express terms of the insurance policy or a contractual duty arising from the agreement. Order (ECF No. 44), pg. 2. The Court ordered the parties to file a joint pretrial order on the remaining claims. Id. at pg. 9. On October 21, 2016, Liberty Mutual filed a motion for summary judgment on Plaintiffs' remaining claims. Motion for Summary Judgment (ECF No. 52). Defendant argues that “[t]o the extent Plaintiffs' bad faith claims are premised upon the investigation of the claim, the settlement negotiations, the interpleader action, and the time of depositing policy proceeds with the state court, there likewise is no genuine issue of material fact that has not already been determined by this Court. See id. Stated another way, Liberty Mutual cannot be liable for bad faith as a matter of law in the absence of a breach of contract.” Id. at pg. 6. Plaintiffs have not yet filed their response to this motion. On October 25, 2016, Plaintiffs moved for leave to file a motion for reconsideration of Order (ECF No. 44). Motion for Leave to File Motion for Reconsideration (ECF No. 55). In their proposed motion for reconsideration, Plaintiffs argue that Defendant filed its first motion for summary judgment before discovery was completed. While that motion was pending, the depositions of the Dogras' attorneys and the attorneys who represented Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 42 of 177 Dogra v. Liberty Mutual Fire Insurance Company, Slip Copy (2016) 2016 WL 6573950 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 the other claimants were taken. Plaintiffs argue that the depositions show that the Dogra's counsel informed Liberty Mutual's counsel that if the policy limits were deposited into court before the Dogras had to file a lawsuit to prevent the statute of limitations from running, they would accept their shares of the policy proceeds in full settlement of their claims. Plaintiffs also cite the testimony of the Dogras' attorney, Gerald McDermott, that Melinda Dogra would have accepted the $100,000 per person limit in full settlement of her claim if it had been offered before she filed suit. Plaintiffs argue that this testimony establishes that Defendant breached its duty to timely deposit the policy proceeds into court and to settle the Dogra's claims against Ms. Liles within the policy limits. Plaintiffs therefore request that the Court reconsider and set aside the order granting summary judgment on their breach of contract claims. Proposed Motion for Reconsideration (ECF No. 55-1). *3 Discovery in this action closed on July 11, 2016. The deadline to file dispositive motions expired on August 10, 2016. Order on Stipulation (ECF No. 27). On June 14, 2016, the parties stipulated to extend the time for taking certain depositions, but did not otherwise request an extension of the discovery deadline. Order on Stipulation (ECF No. 38). Plaintiffs filed their instant motion to compel on September 23, 2016-more than two months after discovery closed and more than one month after the deadline for filing dispositive motions. The motion to compel, however, was filed four days before Order (ECF no. 44) was entered. As discussed above, that order has engendered Defendant's filing of another motion for summary judgment and Plaintiffs' motion for leave to file a motion for reconsideration. Plaintiffs seek two things in their motion to compel. First, Plaintiffs seek production of unredacted copies of the billing records of the law firm of Barron & Pruitt relating to the interpleader action from August 9, 2010 through August 29, 2010. Barron & Pruitt represented Liberty Mutual in the interpleader action and it subsequently represented Ms. Liles in the lawsuit brought against her by the Dogras. In support of this request, Plaintiffs state that in January 2016, they took the deposition of the Dogras' former attorney Anastasia Noe. Ms. Noe testified that she spoke with Barron & Pruitt attorneys about the interpleader action in August 2009. She further testified that a few days after an August 10, 2010 hearing in the interpleader action, she told an attorney from Barron & Pruitt that the policy proceeds had not yet been deposited with the court and needed to be deposited before the statute of limitations ran. Ms. Noe also allegedly “told the lawyers that the Dogras would be willing to accept policy limits if the monies were deposited before the statute ran.” Motion to Compel (ECF No. 42), pg. 4:15-18. Barron & Pruitt attorneys Karen Hanks and Jared Christensen testified at their depositions that they either did not remember the alleged conversation with Ms. Noe or that the alleged conversation did not occur. They also testified that if they had spoken to Ms. Noe, it would be reflected in their billing records. Id. at pgs. 5:25 to 6:2. Plaintiffs argue that the Barron & Pruitt billing records from August 9 to August 29, 2010 may contain entries documenting Ms. Noe' conversations with Defendant's attorneys and may also indicate whether the attorneys informed Liberty Mutual of Ms. Noe's statements. Plaintiffs therefore request that Barron & Pruitt's unredacted billing records for this time period be produced. Defendant argues that Plaintiffs' request for the unredacted attorney billing records is irrelevant because the Court has already granted summary judgment on the Plaintiffs' breach of contract claims, which also precludes their claims for insurance bad faith or violations of the unfair claims practices act. Second, Defendant argues that Plaintiffs' motion is untimely because it was filed after the discovery cutoff date. Defendant also argues that Plaintiffs did not serve formal requests for production of the unredacted billing records until September 21, 2016, more than two months after the end of discovery. Opposition (ECF No. 47), pg.5:7-10; 5:23-24, 6:18-22; Appendix to Motion (ECF No. 48), Exhibit 2. Defendant notes that in an earlier order, the Court did not require Defendant to disclose Barron & Pruitt's unredacted billing records for the period that preceded its representation of Ms. Liles' in the bodily injury action. Opposition (ECF No. 47), pg 5:23-24. Third, Defendant states that it offered to produce the unredacted attorney billing records if Plaintiffs agreed to produce attorney Anastasia Noe's contemporaneous notes regarding her communications with Barron & Pruitt attorneys. Plaintiffs, however, allegedly refused to produce Ms. Noe's notes. Fourth, Defendant also objects to production of the unredacted billing records to the extent they contain privileged attorney-client communications or attorney work product. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 43 of 177 Dogra v. Liberty Mutual Fire Insurance Company, Slip Copy (2016) 2016 WL 6573950 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 *4 Plaintiffs also seek an order authorizing them to obtain transcripts of three depositions given by Defendant's insurance bad faith expert witness Paul Hamilton in other cases. Defendant disclosed Mr. Hamilton's prior trial and deposition testimony as required by Fed. R. Civ. P. 26(a)(2)(B)(v). According to Plaintiffs, Mr. Hamilton primarily testifies on behalf of insurers, but testified on behalf the insureds in the following cases: (1) Giannulli v. DWC General Contractors, et al., (California) Superior Court, Riverside Indio Branch; (2) Scarpa v. Travelers Property Casualty Company, United States District Court for the District of Nevada, and (3) Liberty Mutual v. California Auto. Assigned Risk Plan, United States District Court for the Northern District of California. Plaintiffs state that Mr. Hamilton may have given testimony on the insurer's duty of good faith or on proper claims handling practices that contradicts his testimony in this case and therefore constitutes impeachment evidence. Defendant states that neither Mr. Hamilton nor Defendant have copies of the deposition transcripts. Defendant argues that the depositions are also irrelevant and that Plaintiffs' motion to compel and request for production of the deposition transcripts are untimely. Defendant further argues that courts do not require production of transcripts of prior deposition testimony given by a party's expert witness in other cases. Defendant also states that Mr. Hamilton's depositions in other cases are or may be subject to protective orders in those cases. DISCUSSION Rule 26(b)(1) of the Federal Rules of Civil Procedure provides that “[p]arties 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, and the importance of the discovery in resolving the issues, and whether the burden and expense of the proposed discovery outweighs its likely benefit. Information within the scope of discovery need not be admissible in evidence to be discoverable.” The 2015 amendments to Rule 26(b) encourage trial courts to exercise their broad discretion to limit and tailor discovery to avoid abuse and overuse, and to actively manage discovery to accomplish the goal of Rule 1 to secure the just, speedy, and inexpensive determination of every action and proceeding. Roberts v. Clark County School District, 312 F.R.D. 594, 601-04 (D. Nev. 2016). Defendant argues that a bad faith claim cannot stand as a matter of law in the absence of a breach of contract. Opposition (ECF No. 47), pg. 7, citing Henderson v. Prop. & Cas. Co. of Hartford, 2012 WL 3730533, *4 (D.Nev. Aug. 28, 2012) and Cook v. United Serv. Auto Ass'n, 169 F.R.D. 359, 261 (D.Nev. 1996). While this statement is generally true, the law, not the insurance contract, imposes the covenant of good faith and fair dealing on an insurer. Allstate Insurance Company v. Miller, 125 Nev. 300, 212 P.3d 318, 324 (2009). A bad faith action can apply to more than just an insurer's denial or delay in paying a claim. Id. at 325, citing Guaranty Nat'l Ins. Co. v. Potter, 112 Nev. 199, 206, 912 P.2d 267, 272 (1996). An insurer's failure or refusal to settle a liability claim within the policy limits when it has an opportunity to do so, as well as its failure to adequately inform an insured of a settlement offer, may provide grounds for a bad faith claim. Id. The viability of Plaintiffs' claims for insurance bad faith and violation of the unfair claims practices act is uncertain. In granting summary judgment, the Court held that Plaintiffs' arguments did not establish a genuine issue of material fact that Liberty Mutual breached the express terms of the insurance policy or a contractual duty arising from the agreement. Order (ECF No. 44), pg. 2. Because Plaintiffs only moved for summary judgment on the contract claims, the order did not reach the insurance bad faith and statutory violations claims. Although Defendant has now moved for summary judgment on those claims, Plaintiffs also seek leave to file a motion for reconsideration of the summary judgment order on the contract claims. It is possible that the Court will grant summary judgment and dismiss Plaintiffs' bad faith and statutory violation claims. It is also possible that the Court will grant reconsideration of its previous order and allow the breach of contract, bad faith and statutory violations claims to proceed. *5 This Court could deny Plaintiffs' motion to compel pending the outcome of Defendant's new motion for summary judgment and Plaintiffs' request for reconsideration. Requiring Defendant to produce the requested billing records at this time, however, will not be particularly burdensome or prejudicial to Defendant Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 44 of 177 Dogra v. Liberty Mutual Fire Insurance Company, Slip Copy (2016) 2016 WL 6573950 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 even if Plaintiffs' claims are ultimately dismissed. If Plaintiffs are allowed to proceed with their lawsuit, the Barron & Pruitt's billing records, together with Ms. Noe's contemporaneous notes, if they exist, could clarify what communications occurred between the parties' counsel regarding the deposit of the policy proceeds or the settlement of the Dogras' claims. Defendant also argues that Plaintiffs' motion to compel and requests for production of documents are untimely. In so far as the requests for production are concerned, they should have been served at least 30 days before the discovery cutoff date. Christmas v. MERS, 2010 WL 2695662,*2 (D.Nev. July 2, 2010), citing Smith v. Principal Cas. Ins. Co., 131 F.R.D. 104, 105 (S.D.Miss. 1990) and Thomas v. Pacificcorp., 324 F.3d 1176, 1179 (10th Cir. 2003). Plaintiffs served the requests for production more than two months after the expiration of discovery. The requests are clearly untimely and need not be responded to. However, Plaintiffs previously requested production of Barron & Pruitt's billing records during discovery. In regard to an earlier motion to compel by Plaintiffs, the Court ordered Defendant to produce billing records for the time period in which Barron & Pruitt represented Ms. Liles in the lawsuit filed against her by the Dogras, but did not order production of the billing records for the period in which Barron & Pruitt solely represented Liberty Mutual in the interpleader action. See Defendant's Opposition (ECF No. 47), pg. 5 and Appendix (ECF No. 48), Exhibit 3. Arguably, Plaintiffs' instant motion to compel production of Barron & Pruitt's unredacted billing records can be considered a follow-up to its earlier motion. See Motion to Compel (ECF No. 14). In Gault v. Nabisco Biscuit Co., 184 F.R.D. 620, 622 (D. Nev. 1999), the court stated that a motion to compel may be filed after the close of discovery, but should generally be filed before the scheduled date for dispositive motions. In Days Inn Worldwide Inc. v. Sonia Investments, 237 F.R.D. 395, 397 (N.D. Tex. 2006), the court identified several factors that courts should consider in determining whether a motion to compel filed after the discovery deadline is untimely. These include (1) the length of time since the expiration of the deadline, (2) the length of time the moving party has known about the discovery, (3) whether the discovery deadline has been extended, (4) the explanation for the tardiness or delay, (5) whether dispositive motions have been scheduled or filed, (6) the age of the case, (7) any prejudice to party from whom the late discovery is sought, and (8) disruption of the court's schedule. Id. at 237 F.R.D. at 398. Most of the factors listed in Days Inn support a finding that Plaintiffs' motion to compel is untimely. It was filed more than two months after the close of discovery and more than one month after the expiration of the dispositive motion deadline. Plaintiffs' counsel should have recognized the potential relevance of the Barron & Pruitt's billing records at or about the time of Ms. Noe's deposition in January 2016. Plaintiffs' explanation for the delay in filing the motion is not persuasive. The discovery deadlines have been extended four times. The factors favoring production of the unredacted billing records, even at this late date, is that they may help resolve the factual issue regarding communications between the Dogras' counsel, Ms. Noe, and the Barron & Pruitt attorneys. The production of these records, in and of themselves, is not likely to effect the Court's decision on Defendant's pending motion for summary judgment or Plaintiffs' request for reconsideration of the summary judgment order on the contract claims. Plaintiffs have already raised Ms. Noe's testimony and the testimony of the other claimants' attorneys as grounds for reconsidering Order (ECF No. 44). They will no doubt assert that same testimony in opposition to Defendant's motion for summary judgment on the bad faith and statutory violation claims. If Ms. Noe's testimony is material to whether Defendant breached its duties under the policy, then it should defeat summary judgment regardless of whether Defendant disputes the truthfulness of her testimony. *6 Also favoring production of the billing records is the fact that Defendant previously offered to produced the Barron & Pruitt billing records if Plaintiff agreed to produce Ms. Noe's records or notes regarding her alleged conversations with Barron & Pruitt. As stated above, production of the attorneys' contemporaneous records or notes relating to their communications with each other serves the interests of justice. Production of these records will not disrupt the Court's schedule. The Court will therefore order Defendant to produce Barron & Pruitt's billing records between August 9 and 29, 2010 that refer to and/or set forth the substance of the communications between Barron & Pruitt attorneys and Ms. Noe. This includes billing notes pertaining to communications between Barron & Pruitt and Liberty Mutual which discuss the attorney's communications with Ms. Noe. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 45 of 177 Dogra v. Liberty Mutual Fire Insurance Company, Slip Copy (2016) 2016 WL 6573950 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 If Defendant asserts that any of the records contain privileged communications or information, Defendant may submit those portions of the billing records to the Court for in camera review, together with an explanation of the basis for the claim of privilege which shall also be provided to Plaintiffs' counsel. Plaintiffs shall also produce to Defendant any billing records or contemporaneous notes of Ms. Noe between August 9 and 29, 2010 that refer to and/or set forth the substance of her communications with Barron & Pruitt attorneys. If Ms. Noe does not possess such records or notes, Plaintiffs shall serve a declaration by her so stating. The Court will deny Plaintiffs' motion to compel production of the transcripts of depositions given by Mr. Hamilton in other lawsuits. Neither Mr. Hamilton nor Defendant have possession or control of the deposition transcripts and therefore cannot be compelled to produce them. 2 See Roberts v. Printup, 2007 WL 1201461, *1-2 (D. Kan. April 23, 2007) (“The court cannot compel a party to produce documents that are not in his possession or control.”); see also Jefferson v. Delphi Automotive Systems, LLC, 2015 WL 8479066, *2 (S.D. Tex. Dec. 10, 2015). Plaintiffs' counsel attempted to obtain the deposition transcripts from the court reporters who prepared them. The reporters, however, refused to provide them without authorization from the parties or the court in the lawsuits in which the depositions were taken. Plaintiffs did not serve subpoenas on the parties in other cases to obtain the deposition transcripts. Nor is there any indication that Plaintiffs contacted those parties to request copies of the depositions. Finally, to the extent that the depositions are subject to protective orders which preclude their disclosure to third persons, Plaintiffs would have to file motions with the courts that issued the protective orders to obtain release of the transcripts. 2 Although a Liberty Mutual company is a party in one of the cases, Defendant represents that it is a different and independent corporate entity over which the Defendant has no control. Defendant also argues that a party is not entitled to obtain deposition testimony given by an opposing party's expert witness in other litigation. Although Rule 26(a)(2) does not require the disclosing party to produce transcripts of its expert's prior deposition or trial testimony, it does not preclude a party from obtaining such testimony through other discovery tools such as a subpoena duces tecum. Expeditors International of Washington, Inc. v. Vastera Inc., 2004 WL 406999, *3 (N.D. Ill. Feb. 26, 2004) and United States v. Bazaarvoice, Inc., 2013 WL 3784240, *2-3 (N.D. Cal. July 18, 2013). Court decisions are somewhat divided, however, as to whether a party is entitled to discover an opposing expert's prior deposition or trial testimony. Jefferson v. Delphi Automotive Systems states that parties are entitled to explore the factual and legal bases of an opposing expert's opinions, including potential inconsistencies between opinions expressed by the expert in the pending litigation with testimony or opinions he has given and the theories or methodologies he has used in prior cases. 2015 WL 8479066, at *2, citing Expeditors International of Washington, Inc. v. Vastera Inc., 2004 WL 406999, at *2. The court in Expeditors ordered the plaintiff to produce transcripts of its expert's prior deposition and trial testimony, and expert reports in similar trade secret cases. Id. The court in Quaile v. Carol Cable Company, Inc., 1992 WL 277981, *2 (E.D. Pa. Oct. 5, 1992) authorized discovery of an expert's prior testimony on issues that were substantially similar to those in the pending litigation. In In re Air Crash Disaster at Stapleton Intern. Airport, 720 F.Supp. 1442, 1444 (D.Colo. 1988), however, the court stated that “[a] finding that conclusions and opinions offered in unrelated litigation fall within the scope of Rule 26 discovery would unnecessarily burden technical litigation with pre-trial inquiry into facts and issues wholly irrelevant to the case at hand. Defendant's general contention that they are entitled to develop material to be used during cross- examination does not convince this court to articulate a new general rule favoring burdensome production and discovery.” *7 Plaintiffs have not shown that Mr. Hamilton's testimony in the three cases involved issues substantially similar to those in this case. Plaintiffs argue only that Mr. Hamilton may have offered opinions on an insurer's duties that might be used to impeach him in this case. This is a questionable basis upon which to compel production of an expert's prior testimony. In any event, Plaintiffs failed to diligently pursue production of the deposition transcripts prior to the close of discovery. Accordingly, IT IS HEREBY ORDERED that Plaintiffs' Motion to Compel Unredacted Copies of Documents Contained in Defendant's First Supplemental Disclosure Statement Pursuant to FRCP 26 and Copies of Certain Depositions (ECF No. 42) is granted, in part, as follows: Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 46 of 177 Dogra v. Liberty Mutual Fire Insurance Company, Slip Copy (2016) 2016 WL 6573950 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 1. Within fourteen (14) days of the filing of this order, Defendant shall produce to Plaintiffs any Barron & Pruitt billing records between August 9 and 29, 2010 that refer to, and/or which set forth the substance of, communications between Barron & Pruitt attorneys and Ms. Noe. This includes billing notes pertaining to communications between Barron & Pruitt and Liberty Mutual which discuss the attorney's communications with Ms. Noe. If Defendant asserts that any of the subject billing records contain privileged communications or information, Defendant may submit those portions of the billing records to the Court for in camera review, together with an explanation of the basis for the claim of privilege which shall also be provided to Plaintiffs' counsel. 2. Within fourteen (14) days of the filing of this order, Plaintiffs shall produce to Defendant any billing records or contemporaneous notes that Plaintiffs' former counsel Anastasia Noe has regarding her communications with Barron & Pruitt from August 9-29, 2010. If Ms. Noe does not have such records or notes, Plaintiffs shall submit a sworn declaration from her so stating. Likewise, if Plaintiffs assert that Ms. Noe's records or notes contain privileged communications or information, Plaintiffs may submit those portions of the records or notes to the Court for in camera review, together with an explanation of the basis for the claim of privilege which shall also be provided to Defendant's counsel. IT IS FURTHER ORDERED that Plaintiffs' motion to compel production of Defendant's expert witness's testimony given in other cases is denied. All Citations Slip Copy, 2016 WL 6573950 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 47 of 177 Fassett v. Sears Holdings Corporation, Slip Copy (2017) 2017 WL 386646 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2017 WL 386646 Only the Westlaw citation is currently available. United States District Court, M.D. Pennsylvania. Daniel Fassett and Leslie Fassett, husband and wife, individually and as parents and natural guardians of J.F., an minor, Plaintiffs, v. Sears Holdings Corporation, Sears, Roebuck and Co., Sears Hometown and Outlet Stores, Inc., Sears Authorized Hometown Stores, LLC, Kenmore Craftsman Diehard Intellectual Property, LLC, Briggs & Stratton Corporation, Simplicity Manufacturing and Kohler Co., Defendants. and Briggs & Stratton Power Products Group, LLC, Defendant/Third-Party Plaintiff, v. Bemis Manufacturing Company, a Foreign Corporation, Third-Party Defendant. No. 4:15-cv-00941 | Filed 01/27/2017 Attorneys and Law Firms Matthew A. Casey, Roberta A. Golden, Ross Feller Casey, LLP, Philadelphia, PA, for Plaintiffs. Frederick B. Tedford, Karey P. Pond, Kathryn C. Rivet, Tedford & Pond, LLP, Hartford, CT, Michael J. Domanish, William J. Ferren & Associates, Moosic, PA, for Third-Party Defendant. Brian Lowenberg, McElroy, Deutsch, Mulvaney & Carpenter, LLP, John Michael Kunsch, Warren E. Voter, Sweeney & Sheehan, Philadelphia, PA, Donald H. Carlson, Eric C. Carlson, Crivello Carlson S.C., Milwaukee, WI, Norman D. Namey, Bennett, Bricklin & Saltzburg, LLC, Blue Bell, PA, Ryan C. Blazure, Thomas, Thomas & Hafer, LLP, Wilkes-Barre, PA, for Defendants/Third-Party Plaintiff. MEMORANDUM Matthew W. Brann, United States District Judge *1 Some personal injury cases spring from highly questionable circumstances, and others from undeniably life-altering events. Setting aside ultimate questions of liability and damages, this litigation is tragically one of the latter. When Plaintiff Daniel Fassett heard sputtering sounds emitting from his lawnmower, he attempted to relieve the pressure in its fuel tank by loosening the cap. As he did so, gasoline sprayed from the machine onto his body, igniting in flames. Mr. Fassett sustained serious injuries and shortly thereafter initiated this products liability action. Although the litigation has progressed in a timely fashion since its inception in May 2015, the parties have recently reached a rather technical impasse. That quandary involves, among other questions, the extent to which material about alternative fuel cap designs and distinct lawnmower layouts may be discoverable. In other words, the parties have struggled to define the outer bounds of discovery in this case: what, if anything, can be discovered about parts or mowers not involved in the subject fire? By presenting such a question, this dispute necessarily calls upon the Court to apply the proportionality provision of recently amended Federal Rule of Civil Procedure 26 to the case's technologically nuanced facts. As explained more fully below, I hold that in a products liability suit such as this one, faithful adherence to amended Rule 26(b)(1)'s renewed proportionality mandate is furthered considerably by implementation of a sliding scale analysis: material corresponding to alternative designs or components that exhibit significant similarities to the design or component at issue should be discoverable in the greatest quantities and for the most varied purposes; however, material corresponding to alternative designs or components that share less in common with the contested design or component should be incrementally less discoverable-and for more limited purposes-as those similarities diminish. I. BACKGROUND The alleged mechanism by which Mr. Fassett sustained his injuries, though difficult to recount, is central to an appropriate disposition. Mr. Fassett had been operating a Sears Craftsman “Zero Turn” riding lawnmower in May 2013 for about one hour when he heard what he described Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 48 of 177 Fassett v. Sears Holdings Corporation, Slip Copy (2017) 2017 WL 386646 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 as “spitting” or “sputtering” in the gas tank. ECF No. 105 at 3. The noise reminded him of the sound of water having seeped into the gas. See id. After moving the lawnmower into his garage and turning it off, Mr. Fassett lifted the seat so that he could reach the fuel tank. Id. Upon visualizing the tank, he observed that the hissing was coming from underneath the gas cap, and he saw that the gas tank had visibly expanded. Id. In an effort to release what he believed was built-up pressure in the tank, he began to turn the gas cap. Id. While the cap rotated, gasoline sprayed from the tank and “doused” his clothes and body. Id. As he turned away from the machine to run, the gas cap burst off the tank, and more gasoline sprayed from within. See id. Almost immediately, Mr. Fassett “heard the gas ignite and knew he was on fire.” Id. Flames covered his back and the left side of his body, traveling as high as the back of his head and portions of his face. See id. *2 Two years later, on May 13, 2015, Plaintiffs filed the instant lawsuit. Averments central to their complaint identified “gas geysering from the mower” and “pressurized gas exploding from the gas tank” as alleged defects. Id. at ¶¶ 32, 34, 39. In particular, Plaintiffs brought claims for ordinary and gross negligence, strict liability, breach of warranty, loss of consortium, and negligent infliction of emotional distress. ECF No. 1. On August 28, 2015, this Court granted Defendants' motion to dismiss as to the claims for breach of implied warranties and negligent infliction of emotional distress. See ECF Nos. 37-38. Importantly, however, I concluded that a punitive damages claim could survive the motion to dismiss stage, as Plaintiffs alleged sufficient facts plausibly suggesting that the Defendants continued to design, manufacture, and sell the subject lawnmower “despite knowledge of the dangers.” ECF No. 37 at 7. During the spring of 2016, counsel for Plaintiffs brought to the Court's attention what might initially have been described as a percolating discovery dispute. In essence, the parties disagreed about the extent to which material related to gas cap or lawnmower designs other than those specific ones involved in the accident should be discoverable. See ECF Nos. 68, 72, 78, 106. The Court held telephonic status conferences on May 5, July 26, and November 9 of that year. During each conference, I provided the parties with applicable legal citations upon which I would likely rely in reaching a determination and encouraged the parties to attempt to sort out the dispute without further judicial intervention. After that guidance proved unsuccessful in resolving the pending disputes in their entirety, Plaintiffs filed the instant motions to compel. One motion seeks discovery primarily as to alternative cap designs from Bemis Manufacturing Company, the manufacturer of the gas cap at issue. ECF No. 94. The other seeks similar but more numerous discovery from Briggs & Stratton Corporation and Briggs & Stratton Power Products Group, LLC (referred to collectively as the Briggs & Stratton Defendants), the manufacturers of the lawnmower in question. ECF No. 93. Plaintiffs' motions to compel are granted in part and denied in part in accordance with the reasoning that follows. II. LAW “It is well established that the scope and conduct of discovery are within the sound discretion of the trial court ... and that after final judgment of the district court ... our review is confined to determining if that discretion has been abused.” Marroquin-Manriquez v. I.N.S., 699 F.2d 129, 134 (3d Cir. 1983) (Aldisert, J.). “To find such abuse it is usually necessary to conclude that there has been an interference with a substantial right ... or that the discovery ruling is seen to be a gross abuse of discretion resulting in fundamental unfairness in the trial of the case.” Id. Thus, the United States Court of Appeals for the Third Circuit has forewarned litigants that it “will not interfere with a trial court's control of its docket except upon the clearest showing that the procedures have resulted in actual and substantial prejudice to the complaining litigant.” In re Fine Paper Antitrust Litig., 685 F.2d 810, 817-18 (3d Cir. 1982) (Aldisert, J.). “Discovery need not be perfect, but discovery must be fair.” Boeynaems v. LA Fitness Int'l, LLC, 285 F.R.D. 331, 333 (E.D. Pa. 2012) (Baylson, J.). “The responses sought must comport with the traditional notions of relevancy and must not impose an undue burden on the responding party.” Hicks v. Arthur, 159 F.R.D. 468, 470 (E.D. Pa. 1995). “[T]he scope of [ ] discovery is not without limits.” Kresefky v. Panasonic Commc'ns & Sys. Co., 169 F.R.D. 54, 64 (D.N.J. 1996). As such, “[d]iscovery should be tailored to the issues involved in the particular case.” Id. As amended Federal Rule of Civil Procedure 26(b)(1) states: Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 49 of 177 Fassett v. Sears Holdings Corporation, Slip Copy (2017) 2017 WL 386646 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 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. *3 “To determine the scope of discoverable information under Rule 26(b)(1), the Court looks initially to the pleadings.” Trask v. Olin Corp., 298 F.R.D. 244, 263 (W.D. Pa. 2014) (Fischer, J.). In ascertaining which materials are discoverable and which are not, a district court must further distinguish between requests that “appear[ ] reasonably calculated to lead to the discovery of admissible evidence,” Bell v. Lockheed Martin Corp., 270 F.R.D. 186, 191 (D.N.J. 2010), and demands that are “overly broad and unduly burdensome.” Miller v. Hygrade Food Products Corp., 89 F. Supp. 2d 643, 657 (E.D. Pa. 2000). “[T]he discovery rules are meant to be construed quite liberally so as to permit the discovery of any information which is relevant and is reasonably calculated to lead to the discovery of admissible evidence.” Fid. Fed. Sav. & Loan Ass'n v. Felicetti, 148 F.R.D. 532, 534 (E.D. Pa. 1993). “As an initial matter, therefore, all relevant material is discoverable unless an applicable evidentiary privilege is asserted. The presumption that such matter is discoverable, however, is defeasible.” Pearson v. Miller, 211 F.3d 57, 65 (3d Cir. 2000). Federal Rule of Civil Procedure 37(a)(3)(B) states that “[a] party seeking discovery may move for an order compelling an answer, designation, production, or inspection.” “In order to succeed on a motion to compel discovery, a party must first prove that it sought discovery from its opponent.” Petrucelli v. Bohringer & Ratzinger, 46 F.3d 1298, 1310 (3d Cir. 1995) (Cowen, J.) (citing Fed. R. Civ. P. 37(a)(1)). In addition, “[t]he party seeking the discovery has the burden of clearly showing the relevancy of the information sought.” Caver v. City of Trenton, 192 F.R.D. 154, 159 (D.N.J. 2000). III. ANALYSIS The starting point is amended Federal Rule of Civil Procedure 26(b)(1). From the outset, I note that the Court is mindful of Defendants' concerns about the mounting expense of unbridled discovery. Nevertheless, I cannot agree with the threshold assertion that what is discoverable is strictly limited to material that is ultimately relevant or otherwise admissible. As the parties well know, Rule 26(b)(1) envisions a broader universe of discoverable material than that. It makes clear, for instance, that “[i]nformation within this scope of discovery need not be admissible in evidence to be discoverable.” At the same time, however, “[t]his concept of relevance is tempered ... by principles of proportionality.” Cope v. Brosius, No. 4:12-CV-2382, 2016 WL 5871157, at *2 (M.D. Pa. Oct. 7, 2016) (Carlson, Mag. J.). Accord Stabilus, A Div. of Fichtel & Sachs Indus., Inc. v. Haynsworth, Baldwin, Johnson & Greaves, P.A., 144 F.R.D. 258, 265 (E.D. Pa. 1992) (“While the scope of relevance in discovery is far broader than that allowed for evidentiary purposes, it is not without limits.”) (internal citations omitted). As amended Rule 26(b)(1)'s proportionality mandate provides: 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. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 50 of 177 Fassett v. Sears Holdings Corporation, Slip Copy (2017) 2017 WL 386646 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 *4 Thus, it has been said that the amended rule “restores the proportionality factors to their original place in defining the scope of discovery.” Wertz v. GEA Heat Exchangers Inc., No. 1:14-CV-1991, 2015 WL 8959408, at *2 (M.D. Pa. Dec. 16, 2015) (Mehalchick, Mag. J.). See also Summy-Long v. Pennsylvania State Univ., No. 1:06- CV-1117, 2016 WL 74767, at *8 (M.D. Pa. Jan. 7, 2016) (quoting Fed. R. Civ. P. 1) (“[I]t is now unmistakable that the Court and the parties in any federal civil action must constantly strive to resolve unsettled disputes with the ultimate end of a ‘just, speedy, and inexpensive determination of every action and proceeding.’ ”). Considering the factors set forth at Rule 26(b)(1), the parties' access to relevant information is undeniably lop- sided in this case: Defendants are repeat players in this genre of litigation, and they consequently enjoy the benefits of sweeping protective orders. See ECF No. 105 at 11-12 n.3. On the other hand, the Plaintiffs lack nearly all avenues other than judicially-sanctioned ones to obtain the requisite records that rest in Defendants' possession. Moreover, the importance of the issues at stake in the litigation militates slightly in Plaintiffs' favor. Although this is not a case involving, for instance, constitutional rights or matters of national significance, to these particular litigants, it is a matter of grave import. Further, its outcome may impact the marketability of a widely sold piece of home machinery or some of its components. Just as important, I believe that the utility of the proposed discovery outweighs its attendant expenses. Certainly, the Defendants can readily produce electronically stored records relevant to the aforementioned models and can engage in a good faith effort to gather whatever data might not have been documented electronically. In the same vein, I am confident that production of the requested material will bear directly upon resolution of the cores issues in this case. It may also clarify any lingering issues as to the most appropriate defendants. Turning now to Rule 26(b)(1)'s application in product liability cases, the Plaintiffs here allege negligence and strict liability claims, two theories whose proof necessarily entails such questions as: what the Defendants knew or foresaw, Phillips v. Cricket Lighters, 576 Pa. 644, 657 (2003); what safety tests they conducted, Tincher v. Omega Flex, Inc., 628 Pa. 296, 313 (2014); and what designs they considered. Berrier v. Simplicity Mfg., Inc., 563 F.3d 38, 41 (3d Cir. 2009) (quoting Habecker v. Clark Equipment Co., 36 F.3d 278, 281 (3d Cir. 1994) (“The determination of whether a product was negligently designed turns on whether ‘an alternative, feasible, safer design would have lessened or eliminated the injury plaintiff suffered.’ ”)). The touchstone used to distinguish discoverable inputs from others in products liability cases was set forth in Fine v. Facet Aerospace Prods. Co., 133 F.R.D. 439 (S.D.N.Y. 1990), and reiterated by this Court in Horner v. Cummings, No. 1:14-CV-00639, 2015 WL 4590959, at *4 (M.D. Pa. July 29, 2015) (Saporito, Mag. J.). The Fine decision outlined the following test: In product liability actions it is frequently difficult to judge which of a manufacturer's products are sufficiently similar to the allegedly defective product to be subject to discovery. Generally, different models of a product will be relevant if they share with the accident- causing model those characteristics pertinent to the legal issues raised in the litigation. For example, where a plaintiff alleged that three-wheel all-terrain vehicles are inherently unstable, he was entitled to discovery with respect to each of the manufacturer's models. See Culligan v. Yamaha Motor Corp., 110 F.R.D. 122, 124, 126 (S.D.N.Y. 1986). Similarly, an injured party who contended that the redesigned motor mounts that had failed in his vehicle had not eliminated the defects of earlier models was granted discovery concerning the predecessor versions. See Swain v. General Motors Corp., 81 F.R.D. 698, 699-700 (W.D. Pa. 1979). Finally, a plaintiff arguing that the left front spring main leaf on his vehicle failed could obtain discovery regarding all types of vehicles with that component, not merely the identical model. See Uitts v. General Motors Corp., 58 F.R.D. 450, 452 (E.D. Pa. 1972) (“Uitts I”). Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 51 of 177 Fassett v. Sears Holdings Corporation, Slip Copy (2017) 2017 WL 386646 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 *5 Id. at 441. Moreover, the Fine court explained that “a plaintiff who raises a design defect claim is entitled to broader discovery than, for example, if the claim were solely one of negligent manufacture,” so long as the requested materials “are truly alternatives and that they are potentially safer.” Id. at 442-43. This does not require the moving party to prove its case on the merits at the discovery stage. See id. at 443. Instead, this threshold showing might be satisfied by, for example, the affidavit of an expert in engineering. See id. The United States District Court for the Western District of Louisiana, confronted a strikingly similar discovery dispute to the instant one in Bourque v. CNH America, LLC. No. 6:10-CV-01347, 2011 WL 4904430, at *2 (W.D. La. Oct. 14, 2011), aff'd, No. CIV.A. 10-1347, 2012 WL 393620 (W.D. La. Feb. 6, 2012). The plaintiff in Bourque alleged that the gas cap on his tractor's fuel tank spewed gasoline and ignited. Id. at *1. Thus, he alleged that the gas cap designs were defective “in that they allowed for ‘geysering’ of gasoline when pressure built up in the fuel tank due to heating from the engine.” Id. The defendant contended that material relating to gas gaps of “a different size” were not discoverable, but the court rejected that argument. Id. at *2. Instead, it emphasized the underlying claimed defective event (geysering due to pressurization), explaining as follows: However, even if the gas cap is of a different size as maintained by CNH, the undersigned cannot find that the information sought can have “no possible bearing” on the claims of the plaintiff given that the same type of event, “geysering,” occurred in the same or similar model tractors, with the same or similar fuel systems at about the same period in time as the subject tractor was on the market. If there existed an alternative design that would have prevented the claimant's accident that came about through the recall/Mandatory Modification Program, it may certainly have a bearing on the plaintiff's claims. Id. Acknowledging that the Bourque decision was more precisely premised on differences in size rather than differences in design, its inclination toward functional analysis rather than restrictive, formalistic notions of discoverable material in such cases is well taken. I will now proceed to consider the particular types of material requested, keeping in mind the factors set forth in Rule 26, including the importance of the discovery to the issues in dispute relative to the expenses that the Defendants would likely incur with production. Although the hallmark factor in my analysis is the extent to which the sought-after discovery shared those relevant characteristics with the accident-causing component, I also weighed several additional factors in arriving at what I determined was the appropriate scope of discovery. Those factors included: (1) the extent to which the contested discovery can achieve the same functionality as the accident-causing part, despite facial design distinctions; (2) the extent to which the contested discovery could be safety tested using the same procedures and standards as would be used for the accident-causing part; (3) whether, compared with the accident-causing part, the contested discovery was an interchangeable component or a distinct system; and (4) the extent to which the moving party has supported its technical assertions with testimony by a witness who possesses adequate knowledge of the design, development, and functionality of the contested components. 1 1 This Court's use of the term “accident-causing” is in no way meant as an assignment of fault. Rather, it is merely the way I distinguish the unit or component used by the complainant at the time of the accident from other units or components under consideration. *6 The first factor-the extent to which the contested discovery can achieve the same functionality as the accident-causing part-speaks, in many ways, directly to the core issue here. In particular, Bemis contends that the only type of gas cap design about which the Plaintiffs may discover information is the open design, because that is the cap design used on Mr. Fassett's lawnmower. Although not outlandish, that suggestion is likely overly restrictive. “[A] party should not be limited by its opponent's theory of the case in determining what is discoverable.” Trask v. Olin Corp., 298 F.R.D. 244, 265 (W.D. Pa. 2014) (Fischer, J.). Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 52 of 177 Fassett v. Sears Holdings Corporation, Slip Copy (2017) 2017 WL 386646 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 Of great weight is the deposition testimony of Michael J. Holtz, a corporate designee and the gas cap's product design and engineering manager. See ECF No. 105 at 4, 15-20. In addition to the open style vent cap, Mr. Holtz identified three other variations: the screw vent cap, the duckbill cap, and the covered vent cap. See Holtz Dep. 17:17-21. Although the three variations are distinguishable from an open vent cap in that they possess different structural designs, all of these caps could function at a partly open setting. See id. at 18:06-08; 22:09-13; 26:04-12. In fact, Mr. Holtz testified that each cap was designed to be placed on an open setting while the lawnmower was activated, but closed while it was shut off and being transported. See id. at 18:16-18; 22:09-13. The second factor that I considered was the extent to which the contested discovery could be safety tested using the same procedures and standards as would be used for the accident-causing part. That was true here, and in my view, that fact goes a long way in making the test results as to all of those design caps discoverable. As the reasoning goes, testing using the same protocol makes the results comparable and therefore relevant to such issues as the existence of a safer alternative design and the Defendants' prior knowledge. In fact, as Mr. Holtz explained, his company had previously conducted a type of test that measured airflow through orifices with or without foam baffles. See id. at 106:13-24. This protocol could be applied to all free venting caps, including screw, closed, and duckbill designs. The third factor I considered was whether, compared with the accident-causing part, the contested discovery was an interchangeable component or a distinct system. As to the discovery sought from Bemis, the requested discovery materials are components that could be easily interchanged with the accident-causing parts. Their use on the accident-causing model would not require, for instance, wholesale refurbishing of the entire lawnmower or total replacement of its fuel unit. Barring some surface- level adjustments, distinct fuel cap designs can easily be substituted. This factor is highly relevant in cases such as these: if the various components are readily interchangeable, then the cost of exchanging dangerous parts with safer ones is comparatively low. The final factor that I evaluated was the extent to which the moving party supported its technical assertions with testimony by a witness who possesses adequate knowledge of the design, development, and functionality of the contested components. Again, as to the Bemis requests, the considerations underlying that factor have been satisfied as by Plaintiffs' citations to the deposition testimony of Michael J. Holtz, a corporate designee and the gas cap's product design and engineering manager. With that analysis in mind, Plaintiffs' motion seeks the following information from Defendant Bemis: *7 [A]ll previously demanded documents, including claims, litigation, warranty, testing data, or any other materials evidencing overpressurization and/or geysering, spewing, fountaining or other hazardous or catastrophic release of gasoline from a tank that has become overpressurized due to inadequate venting. Plaintiffs therefore demand that Kelch/Bemis produce previously demanded documents for any of its free venting caps. ECF No. 94 at 5 ¶ 17. Because application of all of the aforementioned factors reveals that warranty information, testing data, and any other materials evidencing over-pressurization or geysering corresponding to each of the enumerated free venting caps designs (open, screw, covered, and duckbill) are relevant to a number of Plaintiffs' theories, those materials are discoverable so long as they are not work product. See Serrano v. Chesapeake Appalachia, LLC, 298 F.R.D. 271, 277 (W.D. Pa. 2014) (“[E]ven if documents were prepared for a different case, work product protection may apply as long as the cases ‘are closely related in parties or subject matter.’ ”). My conclusion is different, however insofar as Plaintiffs' requests for claims and other litigation material in all cases involving every variety of the free venting cap. “In products liability cases evidence of prior accidents involving the same product under similar circumstances is admissible to show notice to the defendant of the danger, to show existence of the danger, and to show the cause of the accident.” Gumbs v. Int'l Harvester, Inc., 718 F.2d 88, 97 (3d Cir. 1983) (Becker, J.). That being said, “[t]he almost universal requirement, however, is that the prior occurrence must involve facts and circumstances which Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 53 of 177 Fassett v. Sears Holdings Corporation, Slip Copy (2017) 2017 WL 386646 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 are substantially similar to those involved in the case under consideration or they will be excluded.” Barker v. Deere & Co., 60 F.3d 158, 162 (3d Cir. 1995) (Cowen, J.). At a superficial level, it appears that all of the contested cap designs could be characterized generally as “free venting caps” because they contain a specified orifice that allows air to permeate them in some fashion or another. See id. at 107:01-108:02. Nevertheless, based upon Mr. Holtz's characterization of the different cap designs, the screw and covered vent caps appear most like the open vent cap in design and operation, with the duckbill being the most distinct as a consequence of its unique shaping. The notion that information relating to all prior free venting claims is discoverable because all of those accidents involved failed venting is much too high a level of abstraction. As for screw, covered, and duckbill caps, the differences in design and what tend to be the distinct factual circumstances render them beyond the scope of discovery. Specifically, each prior claim is capable of differing on a number of grounds: the age and prior history of the lawnmower; whether the lawnmower was a riding or push unit; the period of time for which lawnmower had been running on the date of the accident; the atmospheric conditions at the site of the accident; and the varied actions of the accident victims. In fact, Mr. Holtz recalled that at least one of the prior claims involved a missing gas cap altogether. See Holtz Dep. at 14:13-18. In my view, then, Plaintiffs have not met their burden of showing substantial similarity as to the accidents involving these other designs. Accordingly, although material unprotected by the work product doctrine in prior claims involving the open gas cap design is discoverable, the same is not true of prior claims or litigation involving screw, cover, or duckbill caps. *8 I consider this outcome to be an amenable compromise between the two overbroad and underinclusive proposals that have been presented. So often, discovery is not properly construed as an all- or-nothing game. Rather, it is a means for uncovering truth-the strengths and weaknesses of one's case- rationally bounded by efficiency and cost concerns. It is that dynamic that makes discovery a trade-off between knowledge and expenditure. The district court's role under Rule 26, then, is to discern that middle ground between two countervailing pressures, the optimal solution to the information-cost equations. It is my belief that the reasoning outlined above fulfills that dictate. The parties have also raised a dispute regarding production of privilege logs. Consistent with the foregoing analysis, Defendants shall produce a privilege log detailing with sufficient specificity any items that would be discoverable but for the claiming of a valid privilege or protection. Obviously, Defendants need not log any items that fall beyond the scope of the discovery as detailed herein. Further, work product privilege should not be claimed for performance or testing results that were not truly prepared in preparation for litigation. However, Plaintiffs must also accept that materials shielded by good faith work product claims are likely beyond reach. It is this Court's belief and expectation that this Memorandum and the accompanying Order will sufficiently aid all parties in pinpointing the bounds of discovery and should thereby eliminate the need for subsequent motions to compel on these issues. I now turn to the discovery requested from the Briggs & Stratton Defendants, those entities responsible for manufacturing the lawnmower at issue. Accordingly, the primary issue as to this subsequent motion is not the similarity of individual components but that of whole lawnmower units themselves. That being said, the applicable factors are largely similar, allowing, of course, for differences in scale. The motion also raises certain issues as to documents that came to light in connection with recent depositions. Plaintiffs' first two requests deal with field and pressure testing documents relating to the fuel tank or gas cap used on the instant lawnmower model or on any of Defendants' other products. I tend to agree with the Defendants, however, that Plaintiffs fail to provide any information as to what constitutes a similar or comparable mower to the one at issue. See ECF No. 110 at 6. According to the Briggs & Stratton Defendants, they have already provided or are in the process of providing documentation for four other lawnmowers that share similar characteristics with Mr. Fassett's mower. Id. Those models are the Simplicity Axion, the Snapper 150Z, the Craftsman ZT7000, and the Craftsman ZT75000. Id. In persuasive fashion, those Defendants explain that the lawnmower models they selected “have the same gas cap, Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 54 of 177 Fassett v. Sears Holdings Corporation, Slip Copy (2017) 2017 WL 386646 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 8 same tank, same frame, the same engine/gas tank layout, and the same heat shielding.” Id. at 6-7. In my view, those are particularly useful decision metrics for a district court sitting in precisely this discovery posture. In fact, were I to compile a list of factors similar to that above, it would necessarily include such inquiries as: (1) whether the product shared the same accident-causing component; (2) whether the product shared the same general layout as the defective product; (3) whether the product is the same general type of equipment as the defective product; (4) in fire cases, whether the product's heating, shielding, and exhaust systems are similar to that of the defective product; and (5) whether the moving party has supported its motion with effective technical testimony as to these similarities. *9 “[W]here there has been no suggestion that the other models share pertinent characteristics with the products at issue, discovery relating to those models will be disallowed.” Horner, 2015 WL 4590959, at *3-4 (quoting Fine, 133 F.R.D. at 441-42 (S.D.N.Y. 1990)). “[S]uch a showing could have been made, for example, through the affidavit of an expert in [ ] engineering.” Fine, 133 F.R.D. at 443. In essence, the parties dispute whether having the same gas cap, tank, frame, and general layout are pertinent characteristics for “similar” products. I believe that in a case such as this, where the alleged injuries stemmed from the geysering and ignition of gasoline, similar products must share those attributes with the accident-causing product. This appears to be the case for several reasons: the layout and the frame dictate both the proximity of the tank to heat-emitting components and the space available for expansion of the gas tank. They control how easily the tank and cap may be accessed, or conversely, to what extent those parts are exposed. In my view, they also influence the likelihood of fire, given that they determine the closeness of the fuel cap and any attendant gasoline spills to the components of the lawnmower that are typically heated, such as a muffler or other exhaust component. Plaintiffs' first two requests, as enumerated in their proposed order, seek discoverable material on “any other of Defendants products.” An affidavit filed by a Briggs & Stratton representative indicates that this request could reasonably be read to include upwards of one hundred products. See ECF No. 110 at 9 (citing Petraszak Aff.). I therefore agree that Plaintiffs' first two discovery requests of the Briggs & Stratton Defendants are overbroad, unsupported by sufficient technical backing, and out of proportion with the needs of this case. The Briggs & Stratton Defendants should produce or continue to produce only those non-privileged records associated with the Simplicity Axion, the Snapper 150Z, the Craftsman ZT7000, and the Craftsman ZT75000. They have also indicated that they are producing similar documents that correspond to the Coronet model, which documents they should also continue to produce. See ECF No. 110 at 7. Accordingly, Defendants need not produce those documents requested in Categories 1 and 2, except and to the extent that they pertain to the five lawnmower models identified above. Plaintiffs' Category 3 request seeks information relating to the Dortch/Reaves, Oliff, Milner, Reynolds, Steve Johnson, Timothy Johnson, James Thomas, O. Alexander, Ron Sheets, or Earl Vinson mowers and lawsuits, including all prior warranty claims. ECF No. 93 Ex. 2 at 1. The Category 4 request seeks all “In Depth Investigation” (IDI) records from the Briggs & Stratton liability claims system. Consistent with my prior reasoning, those requests are denied, except and to the extent that any of the previously named actions or requests involved any of the five enumerated lawnmower models about which material has been deemed discoverable (the Simplicity Axion, the Snapper 150Z, the Craftsman ZT7000, the Craftsman ZT75000, and the Coronet). To the extent that the Defendants believe that any of these materials are protected by the work product doctrine or other rule or privilege, a log setting forth those protections in good faith and with sufficient specificity should be provided to counsel for Plaintiffs. *10 The next two requests (Categories 5 and 6) seek releases obtained by Thomas Wise, a Briggs & Stratton products safety and compliance manager, including drafts and any markups by Mr. Wise related to claims of venting clogging of fuel caps, fires, or near misses, as well as cover letter or cover email communications between Mr. Wise and claimants/owners from whom Mr. Wise obtained releases regarding such claims. See ECF No. 93 Ex. 2 at 2. These documents are beyond the scope of discovery, pursuant to Federal Rule of Evidence 408, which bars the introduction of evidence of offers or statements (accepted or otherwise) made in the settlement context when such Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 55 of 177 Fassett v. Sears Holdings Corporation, Slip Copy (2017) 2017 WL 386646 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 9 evidence is offered to prove, among other things, “the validity ... of a disputed claim.” Though the Plaintiffs contend that such material would be admissible for the alternative purpose of establishing the Defendants' knowledge, I cannot agree that the claimed admissible purpose is readily extricable from the inadmissible ones. I also remain wary of piercing the sanctity of settlement negotiations for fear that doing so would discourage extrajudicial resolution in future cases. This is particularly true where, as here, the Plaintiffs also have the opportunity to establish prior knowledge through a number of parallel avenues, such as internal testing and reports. Likewise, as Defendants point out, “numerous factors play a role in parties' decisions to settle claims, including risks and expenses of litigation, a party's policy towards settlement, and the confidentiality assured by settlement.” ECF No. 110 at 13. This is an eerily similar observation to one that this Court recently made in a matter involving a good faith insurance claim: [C]overage of some claims and denial of others is not per se evidence of bad faith [ ] practices. For example, consider a hypothetical set of five claims, all of which are “similar” but none of which the insurer believes in good faith it is legally bound to offer coverage. The insurer could, if it wanted, offer coverage in none or all or two or three of those cases. Denial would not be made in bad faith under the law. Rather, it would be made based upon a calculated business judgment, risk avoidance, litigation forecasts, etc. The point is that “similarity” among claims is a poor predictor of bad faith denials in cases where either the claims' alleged similarity or the claims' coverage under the policy is not clearly established. Westfield Ins. Co. v. Icon Legacy Custom Modular Homes, No. 4:15-CV-00539, 2016 WL 4502456, at *8 (M.D. Pa. Aug. 29, 2016). Given the relatively low need for the material, their highly confidential nature, and their tendency to lack in probative value, the Category 5 and 6 requests are therefore denied. A related request is Category 7, which seeks records of the claims review/warranty trend meetings with or claims personnel. Defendants suggest that these items were not requested in Plaintiffs' initial requests for production. That being said, I believe the initial requests were sufficiently broad enough to put Defendants on notice these materials would be sought. In addition, the fact that certain documents were disclosed comparatively late or raised for the first time during recent depositions also confirms for me that these records should likely be discoverable. Accordingly, Plaintiffs may obtain the Category 7 information, subject to the earlier limitation set as to the five enumerated models, as well as any valid claim of privilege or related protection. Category 8 seeks the Defendants' purchase order file for the gas cap that was used in the accident-causing mower. According to the Defendants, it is unable to locate that file. ECF No. 110 at 14. I would encourage the Defendants to engage in a reasonably broad search, but absent the requisite showing of bad faith destruction or failure to preserve, I do not believe there is much for the Court to contribute as to this request. *11 Category 9 seeks claims, warranty, or other litigation files for the Coronet riding lawnmower. Defendants attest that they have already provided all of the warranty claims for the gas cap that was on the Coronet lawnmowers and are attempting to locate any claims files or litigation involving a Coronet lawnmower under similar circumstances. See id. at 14. The Court encourages the Defendants to complete those productions, subject to the standard disclaimers reiterated throughout this Memorandum. Category 10 requests the production of materials for all Briggs & Stratton gasoline engine products, whether they be lawnmowers, snowthrower, leafblowers, etc. For the reasons set forth above, I believe those requests are overly broad. Layout, frame, and other design specifications are critical to the propensities to heat and ignite in a case such as this, and even despite generalized similarities as to fueling, the entirely distinct patterns of usage among various power tools therefore render adequate comparison suspect as a matter of law. If similarity in fueling systems was the proper guideline for this Court to follow, it would seem exceptionally difficult to exclude just about any power tool from the scope of discovery. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 56 of 177 Fassett v. Sears Holdings Corporation, Slip Copy (2017) 2017 WL 386646 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 10 The line must be more acutely drawn than that. As such, the Category 10 request is denied, as Plaintiffs' discovery is appropriately limited to the five lawnmower models enumerated above. Another issue central to this discussion is the proper temporal scope of discovery. In particular, Plaintiffs' proposed order seeking discovery from Bemis requests discovery from as early as 1970. Mr. Fassett purchased the subject lawnmower on or around March 2, 2007, ECF No. 1 at 6 ¶ 18, and the Defendants approximate that this particular mower was manufactured between February 16, 2005 and June 29, 2005. ECF No. 110 at 2. As such, requiring the production of documents dating back to the 1970s would appear excessive in comparison with the needs of the case. As the Honorable Richard A. Posner of the United States Court of Appeals for the Seventh Circuit has described this dynamic generally: In most suits against corporations or other institutions, and in both Twombly and Iqbal-but also in the present case-the plaintiff wants or needs more discovery of the defendant than the defendant wants or needs of the plaintiff, because the plaintiff has to search the defendant's records (and, through depositions, the minds of the defendant's employees) to obtain evidence of wrongdoing. With the electronic archives of large corporations or other large organizations holding millions of emails and other electronic communications, the cost of discovery to a defendant has become in many cases astronomical. And the cost is not only monetary; it can include, as well, the disruption of the defendant's operations. If no similar costs are borne by the plaintiff in complying with the defendant's discovery demands, the costs to the defendant may induce it to agree early in the litigation to a settlement favorable to the plaintiff. Swanson v. Citibank, N.A., 614 F.3d 400, 411 (7th Cir. 2010) (Posner, J., dissenting) (internal citations omitted). Thus, other courts have noticed that the lack of reasonable temporal bounds in a discovery request may render it “abusive” and “facially objectionable.” N.U. v. Wal-Mart Stores, Inc., No. 15-4885-KHV, 2016 WL 3654759, at *5 (D. Kan. July 8, 2016). “[R]elevant information, which is otherwise discoverable, may be limited both ‘geographically’ and ‘temporally’ in order to avoid overly broad and unduly burdensome requests.” Briddell v. Saint Gobain Abrasives Inc., 233 F.R.D. 57, 60 (D. Mass. 2005). “Thus, the task of the trial court is to balance the clear relevance of the information against the burden on the defendant.” Owens v. Sprint/ United Mgmt. Co., 221 F.R.D. 649, 655 (D. Kan. 2004). Though the appropriate bounds will vary depending on the specific circumstances of each case, courts in this Circuit have often taken the default position of limiting discovery to no earlier than five years from the date on which the allegedly tortious conduct occurred. See Grayson v. Dewitt, No. 1:15-CV-453, 2016 WL 5801699, at *6 (M.D. Pa. Oct. 5, 2016) (Carlson, Mag. J.) (citing Miller v. Hygrade Food Prod. Corp., 89 F. Supp. 2d 643, 657 (E.D. Pa. 2000) (collecting cases)). *12 I find this tendency to follow the so-called “five- year rule” instructive, though I would modify it slightly for its application in the products liability setting. In regard to such lawsuits where a defendant is alleged to have knowingly designed, manufactured, or sold a defective product when safer, feasible alternatives existed, I hold that the temporal bounds of discoveries should be set not from the date of the accident but from the time period during which the product was manufactured and sold. I believe that this determination rightly conforms to the nature of such actions. For instance, the tortious conduct is more properly construed as having occurred at the point of defective manufacture, design, or sale than at the point of injury. Further, a plaintiff should be able to gather information regarding a defendant's decision- making process, as the propriety of that risk-utility analysis occupies the core of such disputes. However, each case will present its own unique circumstances, and a defendant's showing that its production lines, components, or designs have materially changed during that same timeframe would perhaps justify a narrower tailoring of the discovery period. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 57 of 177 Fassett v. Sears Holdings Corporation, Slip Copy (2017) 2017 WL 386646 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 11 Nevertheless, the timeline here is relatively clear: the lawnmower was manufactured sometime in the spring of 2005; it was purchased in 2007; the accident occurred in 2013; and this suit was filed in 2015. I will extend the discovery period to five years from the approximate time of its manufacture, thereby limiting the discovery of information and material relating to the manufacture, design, or sale of the subject lawnmower or its parts (or those comparable models and parts) to no earlier than January 1, 2000. See also N.U., 2016 WL 3654759, at *1 (limiting discovery to no earlier than 2008 in a products lability case involving children's clothing that caught fire and was sold in Wal-Mart stores during the 2012-2013 timeframe); Bates v. Michelin N. Am., Inc., No. 1:09- CV-3280-AT, 2012 WL 453233, at *2 (N.D. Ga. Jan. 13, 2012) (restricting discovery in products liability case to “a four year period surrounding the date the [defective] tire was manufactured”); Gassaway v. Jarden Corp., 292 F.R.D. 676, 682 (D. Kan. 2013) (upholding a discovery request seeking information from as early as 2000 to 2003 about an allegedly defective heater eventually purchased in 2009). As to an unrelated issue, Plaintiffs also request that their papers be unsealed. Because Plaintiffs' briefing contained direct excerpts from party depositions, out of an overabundance of caution and in what might be an excessive showing of deference toward the parties' stipulated protective order, my preference is to leave those documents sealed at this time. Moreover, I believe that this Memorandum itself, which need not be sealed, serves a commensurate public purpose while simultaneously avoiding any disclosure as contemplated by the protective order. See Pansy v. Borough of Stroudsburg, 23 F.3d 772, 787 (3d Cir. 1994) (Cowen, J.). I also will point out for the record that the Defendants themselves elected not to seal their own papers after raising the issue with the Court in the first place. Finally, I would caution that the purpose of this Memorandum is solely to resolve the instant discovery dispute and not to assess liability. Specifically, nothing herein should be read as concluding that the subset of similar components or designs for the purposes of discovery is coterminous with that subset of feasible alternative components or designs for the purposes of a merits determination. In fact, strong arguments can likely be made that merely as a consequence of the breadth of discovery, the former subset is typically more populous than the latter. IV. CONCLUSION *13 Consistent with the foregoing reasoning, Plaintiffs' motions to compel are granted in part and denied in part. An appropriate Order follows, which enumerates my rulings by motion and by individual requests. That Order also includes renewed case management deadlines. All Citations Slip Copy, 2017 WL 386646 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 58 of 177 First Liberty Insurance Corporation v. Anderson, Slip Copy (2016) 2016 WL 2958831 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2016 WL 2958831 Only the Westlaw citation is currently available. United States District Court, E.D. Pennsylvania. The First Liberty Insurance Corporation, Plaintiff, v. John A. Anderson, Defendant. CIVIL ACTION NO. 14-2966 | Signed 05/23/2016 MEMORANDUM PAPPERT, J. *1 The First Liberty Insurance Corporation (“First Liberty”) brings this declaratory judgment action asking the Court to hold that First Liberty has no obligation to defend or indemnify John A. Anderson (“Anderson”) under a series of insurance policies. The parties have filed cross-motions for summary judgment. The Court grants First Liberty's motion, denies Anderson's motion and enters judgment in favor of First Liberty. I. On October 1, 2013, Lawrence Krieger and Helen Anderson, as parents/guardians of D.A.K., a minor, filed a personal injury lawsuit against Anderson in the Philadelphia County Court of Common Pleas, I.D. No. 130903784 (the “Underlying Action”). The action arose from allegations that Anderson sexually abused D.A.K. Specifically, the complaint in that case alleges that: On multiple occasions between the years of 2007-2010, when the Minor Plaintiff, was ages nine through twelve, the Defendant sexually abused, molested, and indecently assaulted the Minor Plaintiff and grabbed Minor Plaintiff's genital area and holding said area for several seconds at a time before releasing, all of which constitutes forcible compulsion under Pennsylvania law. (Pl.'s Mot. Summ. J., Ex. A (“Underlying Compl.”), ¶ 7.) On or about March 11, 2013, before the Honorable Robert P. Coleman, Defendant, John A. Anderson, entered a pleas of guilty to the Corruption of Minors - 18 § 6301 §§ A1. (Id. ¶ 10.) As a result of Defendant, John A. Anderson's conduct and actions, Minor Plaintiff, was forced to endure, and sustained damages...(Id. ¶ 12.) Defendant's actions and conduct, including but not limited to, sexual molestation, indecent assault, and sexual assault of Minor Plaintiff, was committed with the full intent and capability to cause great bodily, emotional, and mental harm to Minor Plaintiff, D.A.K., and was committed through the use of forcible compulsion on and/or upon Minor Plaintiff. (Id. ¶ 17.) Defendant, John A. Anderson's conduct constituted intentional physical battery upon Minor Plaintiff, and was undertaken deliberately and with actual malice. (Id. ¶ 23.) The occurrence was directly and proximately caused by the reckless and wanton conduct of Defendant, John A. Anderson, in his role as a close family member, and as an adult in loco parentis to Minor Plaintiff, owed a duty of care to protect and care for Minor Plaintiff, which he breached, causing harm to Minor Plaintiff, and consisted of, among other things, the following:...(b) knowingly and intentionally engaging in sexual molestation of Defendant's great-nephew; (c) knowingly and intentionally forcing Minor Plaintiff to engage in lewd sexual acts...(Id. ¶ 26.) Based on these allegations, the complaint (“Underlying Complaint”) claimed damages for assault, battery, negligence/recklessness, and negligent and intentional infliction of emotional distress. (Id. ¶¶ 15-35.) In connection with the Underlying Action, Anderson sought both defense and indemnification from First Liberty based on four homeowners insurance policies First Liberty issued to Anderson between 2007 and 2010. The four policies (collectively, the “Policy”) contain numerous identical provisions. First, the Policy defines the scope of coverage as follows: SECTION II - LIABILITY COVERAGES COVERAGE E - Personal Liability Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 59 of 177 First Liberty Insurance Corporation v. Anderson, Slip Copy (2016) 2016 WL 2958831 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 *2 If a claim is made or a suit is brought against an “insured” for damages because of “bodily injury” or “property damage” caused by an “occurrence” to which this coverage applies, we will: 1. Pay up to our limit of liability for the damages for which the “insured” is legally liable. Damages include prejudgment interest awarded against the “insured”; 2. Provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent. We may investigate and settle any claim or suit that we decide is appropriate. Our duty to settle or defend ends when the amount we pay for damages resulting from the “occurrence” equals our limit of liability. (Pl.'s Mot. Summ. J., Ex. A, Insurance Policy (“Policy”), at 11.) “Occurrence,” as used in that provision, is defined as follows: “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period, in: a. “Bodily injury”; or b. “Property damage.” (Policy at 1.) The Policy sets forth two relevant exclusions: SECTION II - EXCLUSIONS Coverage E - Personal Liability and Coverage F - Medical Payments to Others do not apply to “bodily injury” or “property damage”: a. Which is expected or intended by the “insured” (Policy at 11.)That provision is amended by way of an attached “Amendatory Endorsement.” SECTION II - EXCLUSIONS Item 1.a under Coverage E - Personal Liability and Coverage F - Medical Payments to Others is amended is follows: Which is expected or intended by the “insured”, even if the resulting “bodily injury” or “property damage” (1) is of a different kind, quality, or degree than initially expected or intended; or (2) is sustained by a different person, entity, real or personal property, than initially expected or intended. However, this exclusion does not apply to “bodily injury” resulting from the use of reasonable force to protect persons or property. 1 (Policy, at Amendatory Endorsement form FMHO 2493, p. 2.) The second relevant exclusion states: Coverage E - Personal Liability and Coverage F - Medical Payments to Others do not apply to “bodily injury” or “property damage”:... k. Arising out of sexual molestation, corporal punishment or physical or mental abuse; (Id. at 11-12.) 1 In arguing that First Liberty misquotes the Policy language, (see Def.'s Mem. Supp. Summ. J. 6 n.1), Anderson fails to consider the Amendatory Endorsement to the Policy. First Liberty provided a defense to Anderson in the Underlying Action subject to a reservation of rights. On May 27, 2015, First Liberty sought a declaratory judgment that it has neither a duty to defend nor indemnify Anderson under the Policy. The Underlying Action ultimately settled, and First Liberty and Anderson reserved their respective rights to litigate coverage. First Liberty filed its motion for summary judgment on February 16, 2016, Anderson responded and filed a cross- motion for summary judgment on March 15, 2016 and First Liberty responded to the cross-motion on March 31, 2016. II. Summary judgment is proper “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 60 of 177 First Liberty Insurance Corporation v. Anderson, Slip Copy (2016) 2016 WL 2958831 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 material fact and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c)(2). A factual dispute is “material” only if it might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). For an issue to be “genuine,” a reasonable fact- finder must be able to return a verdict in favor of the non- moving party. Id. *3 On summary judgment, the moving party has the initial burden of identifying evidence that it believes shows an absence of a genuine issue of material fact. Conoshenti v. Pub. Serv. Elec. & Gas Co., 364 F.3d 135, 145-46 (3d Cir. 2004). It is not the court's role to weigh the disputed evidence and decide which is more probative, or to make credibility determinations. Boyle v. Cnty. of Allegheny, 139 F.3d 386, 393 (3d Cir. 1998) (citing Petruzzi's IGA Supermkts., Inc. v. Darling-Del. Co. Inc., 998 F.2d 1224, 1230 (3d Cir. 1993)). Rather, the court must consider the evidence, and all reasonable inferences which may be drawn from it, in the light most favorable to the non- moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir. 1987). If a conflict arises between the evidence presented by the parties, the court must accept as true the allegations of the non-moving party. Anderson, 477 U.S. at 255. Although the moving party must establish an absence of a genuine issue of material fact, it need not “support its motion with affidavits or other similar materials negating the opponent's claim.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). It can meet its burden by “pointing out...that there is an absence of evidence to support the nonmoving party's claims.” Id. at 325. If the non-moving party “fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden at trial,” summary judgment is appropriate. Celotex, 477 U.S. at 322. The mere existence of some evidence in support of the non-movant will not be adequate to support a denial of a motion for summary judgment; there must be enough evidence to enable a jury to reasonably find for the non- movant on that issue. Anderson, 477 U.S. at 249-50. These summary judgment rules do not apply any differently where there are cross-motions pending. Lawrence v. City of Phila., 527 F.3d 299, 310 (3d Cir. 2008). “ +‘Cross-motions are no more than a claim by each side that it alone is entitled to summary judgment, and the making of such inherently contradictory claims does not constitute an agreement that if one is rejected the other is necessarily justified or that the losing party waives judicial consideration and determination whether genuine issues of material fact exist.’ +” Id. (quoting Rains v. Cascade Indus., Inc., 402 F.2d 241, 245 (3d Cir. 1968)). III. A. Duty to Defend “An insurance company's duty to defend a suit against an insured is determined solely on the basis of the allegations of the complaint in the underlying action.” 2 Nat'l Fire Ins. Co. of Hartford v. Robinson Fans Holdings, Inc., No. Civ.A.10-1054, 2011 WL 1327435, at *1 (W.D. Pa. Apr. 7, 2011); see also Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888, 896 (Pa. 2006). In other words, the duty to defend an insured in a suit brought by a third party depends upon a determination of whether the third party's complaint triggers coverage. Kvaerner, 908 A.2d at 896 (citing Mut. Benefit Ins. Co. v. Haver, 725 A.2d 743, 745 (Pa. 1999)). That duty “is broader than the duty to indemnify, in that the former duty arises whenever an underlying complaint may ‘potentially’ come within the insurance coverage.” The Frog, Switch & Mfg. Co., Inc. v. Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir. 1999). “In determining the existence of a duty to defend, the factual allegations of the underlying complaint against the insured are to be taken as true and liberally construed in favor of the insured.” Id. at 746. “[A]n insurer is not required to defend a claim when it is apparent on the face of the complaint that none of the injuries fall within the purview of the insurance policy.” Peerless Ins. Co. v. Brooks Sys. Corp., 617 F. Supp. 2d 348, 356 (E.D. Pa. 2008). 2 The parties agree that the insurance contract is governed by Pennsylvania law. See Frog. Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir. 1999) (Pennsylvania conflict of laws principles dictate that an insurance contract is guided by the law of the state in which it is delivered) (citing Travelers Indem. Co. v. Fantozzi ex rel. Fantozzi, 825 F. Supp. 80, 84 (E.D. Pa. 1993)). *4 First Liberty alleges that it has no duty to defend Anderson because the allegations of sexual abuse in the Underlying Complaint do not meet the definition of Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 61 of 177 First Liberty Insurance Corporation v. Anderson, Slip Copy (2016) 2016 WL 2958831 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 “occurrence” under the Policy. Additionally, it asserts that the Underlying Action falls within both (a) the exclusion for “expected” or “intentional” conduct; and (b) the exclusion for allegations of sexual abuse. 1. Whether the Allegations of the Underlying Complaint Constitute an “Occurrence” In Pennsylvania, the insured bears the burden of proving facts that bring its claim within the policy's affirmative grant of coverage. Koppers Co., Inc. v. Aetna Cas. and Sur. Co., 98 F.3d 1440, 1446 (3d Cir. 1996). “To qualify for coverage in the first place, the insured's underlying complaint must contain allegations of an ‘occurrence’ under the policy.” Allstate Ins. Co. v. Hopfer, 672 F. Supp. 2d 682, 686 (E.D. Pa. 2009). In this case, “ +‘[o]ccurrence’ means an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period, in: a. ‘Bodily injury’; or b. ‘Property damage.’ +” (Policy at 1 (emphasis added).) The Pennsylvania Supreme Court has defined “accident,” as used in an insurance policy, as follows: An accident, simply stated, is merely an unanticipated event; it is something which occurs not as the result of natural routine but as the culmination of forces working without design, coordination or plan. And the more disorganized the forces, the more confusedly they operate, the more indiscriminately haphazard the clash and intermingling, the more perfect is the resulting accident. Brenneman v. St. Paul Fire & Marine Ins. Co., 192 A.2d 745, 747 (Pa. 1963). “[T]he fortuity of the events in question is the key factor to consider” in determining whether there has been an “accident.” State Farm Fire & Cas. Co. v. Estate of Mehlman, 589 F.3d 105, 111 (3d Cir. 2009). “Qualification of a particular incident as an accident seems to depend on two criteria: 1. the degree of foreseeability, and 2. the state of mind of the actor in intending or not intending the result.” State Farm Fire & Cas. Co. v. Estate of Mehlman, 589 F.3d 105, 111 (3d Cir. 2009) (quoting Black's Law Dictionary 16 (9th ed. 2009) (quoting John F. Dobbyn, Insurance Law in a Nutshell 128 (3d ed. 1996))). “The vantage point of the insured, not that of the person who committed the injurious act, determines whether an injury is caused by an accident.” Melrose Hotel Co. v. St. Paul Fire and Marine Ins. Co., 432 F. Supp. 2d 488, 507 (E.D. Pa. 2006), aff'd, 503 F.3d 339 (3d Cir. 2007). 3 3 Anderson's brief defines “occurrence” solely by reference to the Webster Merriam Dictionary and Black's Law Dictionary. He offers no analysis of how “occurrence” has been defined in the specific context of Pennsylvania insurance law. No accident occurs when the conduct of the insured is alleged to be intentional. Id. A complaint's pleading of an intentional tort, such as a willful and malicious assault, sets forth an intentional act and not an “accident.” Id. at 506; see also Westfield Ins. Co. v. Granese, No. 10- 795, 2011 WL 346593, at *4 (E.D. Pa. Feb. 4, 2011) (finding insurer did not have a duty to defend or indemnify insured in the underlying civil action against the insured for assault and battery). “[W]hile the allegations in the underlying complaint will trigger a duty to defend, ‘the particular cause of action that a complainant pleads is not determinative of whether coverage has been triggered. Instead, it is necessary to look at the factual allegations contained in the complaint.’ +” Whole Enchilada, Inc. v. Travelers Prop. Cas. Co. of Am., 581 F. Supp. 2d 677, 694 (W.D. Pa. 2008) (citingMutual Benefit Insurance Co. v. Haver, 725 A.2d 743, 745 (Pa. 1999)); see also Nationwide Mut. Fire Ins. Co. v. Malofiy, No. Civ.A.10-2410, 2011 WL 1050050, at *6 (E.D. Pa. Mar. 22, 2011) (“It is only the factual allegations and not the cause of action pled that determines policy coverage.”). *5 The Underlying Complaint alleges intentional acts. It states that over the course of several years, (1) Anderson “sexually abused, molested, and indecently assaulted the Minor Plaintiff and grabbed Minor Plaintiff's genital area and holding said area for several seconds at a time before releasing, all of which constitutes forcible compulsion under Pennsylvania law;” (2) Anderson regularly got into bed with Minor Plaintiff while he was sleeping; and (3) Anderson pled guilty to the charge of Corruption of Minors in connection with these occurrences. (Underlying Compl. ¶¶ 7, 8, 10.) It further alleges that, as a result of Anderson's actions, the Minor Plaintiff endured sexual abuse, sexual assault, and indecent aggravated assault. (Id. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 62 of 177 First Liberty Insurance Corporation v. Anderson, Slip Copy (2016) 2016 WL 2958831 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 ¶ 12.) The causes of action include, in part, assault, battery and intentional infliction of emotional distress. (Id. ¶¶ 15- 20, 21-24, 30-35.) While Anderson concedes that the Underlying Complaint's allegations of intentional torts “would not entitle Mr. Anderson to a defense or indemnity under his homeowners' polices,” he argues that “Counts III and IV of the Complaint allege negligence and recklessness, both of which necessarily infer elements of accidental, expected conduct and/or unintentional consequences.” (Def.'s Mem. Supp. Summ. J., 6.) As noted above, however, when examining a complaint to determine duty to defend, “the court should focus its analysis on the substance of the allegations rather than on ‘the particular cause of action that a complainant pleads.’ +” Westport Ins. Corp. v. Black, Davis & Shue Agency, Inc., 513 F. Supp. 2d 157, 165 (M.D. Pa. 2007) (quotations omitted); see also Erie Ins. Exchange v. Muff, 851 A.2d 919, 931 (Pa. Super. Ct. 2004) (“We are mindful of the danger that an artfully-drafted pleading may attempt to circumvent the ‘expected or intended’ personal injury limitation on a homeowner's insurance policy by ‘liberally sprinkling’ the word negligence throughout the complaint.”). The allegations forming the basis of the negligence causes of action in the Underlying Complaint specifically rely on intentional behavior by Anderson including: “failing to provide Minor Plaintiff with a safe environment, free from the known risks of being sexually and/or physically abused;” “knowingly and intentionally engaging in sexual molestation of Defendant's great-nephew;” “knowingly and intentionally forcing Minor Plaintiff to engage in lewd sexual acts;” “failure to disclose Defendant's sexual molestation tendencies to Minor Plaintiff's Parents and Natural Guardians;” “failure to take reasonable safety and security measures to ensure the safety and well being of Minor Plaintiff;” and “failure to take reasonable measures against foreseeable assaults and/or sexually lewd and/or sexual attacks on Minor Plaintiff.” (Underlying Compl. ¶ 26; see also id. at ¶ 32.) Although styled as negligence claims, these counts rest solely on Anderson's intentional acts. Alternatively, Anderson contends that to determine if his conduct amounted to intentional sexual abuse or molestation, the Court must consider his and D.A.K.'s deposition testimony in the Underlying Action, as well as the guilty plea colloquy from his criminal case. He concedes that “Anderson's alleged conduct was described in the underlying Complaint in a manner that was calculated to plead a legally sustainable cause of action for sexual assault,” but the depositions and guilty plea colloquy show that “the actual nature and substance of his actions are more clearly revealed...as being akin to immature adolescent horseplay consisting of stomach slapping; wrestling; crotch grabbing; crude locker room commentary on genital size; ignoring bathroom privacy expectations; and occasionally sleeping the in the same bed as his nephew, all of which were without sexual overtones.” (Def.'s Mem. Supp. Summ. J. 7-8.) Anderson fills the remainder of his summary judgment motion with cumulative and inherently inimical (to his argument) passages from the depositions and plea colloquy. Anderson's point is that “[n]otwithstanding the allegations in the underlying Complaint, Anderson's juvenile behavior, while inappropriate, clearly did not rise to the level of sexual assault, molestation, corporal punishment, physical abuse, mental abuse, or other conduct reasonably intended or expected to cause bodily harm within the meaning of the homeowners' policies.” (Id. at 17.) *6 This argument advocates, among other things, an incorrect standard of review. Again, in Pennsylvania an insurer's duty to defend its insured in a lawsuit brought by a third party is “determined solely from the language of the complaint against the insured.” Kvaerner, 908 A.2d at 896; see also Coregis Ins. Co. v. Harrisburg, No. Civ.A.03-920, 2006 WL 860710, *4 (M.D. Pa. Mar. 30, 2006). A party may not use “factual averments contained in discovery evidence but not reflected in the complaint itself” to establish a duty to defend. Scopel v. Donegal Mut. Ins. Co., 698 A.2d 602, 607 (Pa. Super. Ct. 1997); see also I.C.D. Indus., Inc. v. Federal Ins. Co., 879 F. Supp. 480, 487 (E.D. Pa. 1995) (“[E]xtrinsic evidence, such as discovery requests or questions asked by counsel at a deposition, need not be considered when determining whether a particular claim falls within the scope of the policy.”). The Underlying Complaint alleges intentional actions by Anderson against D.A.K..These acts do not constitute an “accident,” as required to fall within the definition of “occurrence” under the Policy. Since Anderson fails to meet his burden of identifying any factual allegation in the Underlying Complaint that could potentially bring his claim within the scope of coverage, First Liberty has no obligation to provide a defense for Anderson. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 63 of 177 First Liberty Insurance Corporation v. Anderson, Slip Copy (2016) 2016 WL 2958831 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 2. Whether the Anderson's Conduct Fell Within Policy Exclusions Under Pennsylvania law, “[e]ven if a court finds that the underlying event constitutes an occurrence, the insurer may still establish that it is not required to defend because the underlying action falls under a policy exclusion precluding coverage for intentional acts.” Allstate Ins. Co. v. Hopfer, 672 F. Supp. 2d 682, 686 (E.D. Pa. 2009). “[T]he insurer bears the burden of proving the applicability of any exclusions or limitations on coverage, since disclaiming coverage on the basis of an exclusion is an affirmative defense.” Koppers Co., Inc. v. Aetna Cas. and Sur. Co., 98 F.3d 1440, 1446 (3d Cir. 1996). “[E]xclusions are always strictly construed against the insurer and in favor of the insured.” Nationwide Mut. Ins. Co. v. Cosenza, 258 F.3d 197, 206-07 (3d Cir. 2001). Here, even assuming the Underlying Complaint's allegations could reasonably be read as an “occurrence,” First Liberty contends that Anderson's conduct fell into two separate exclusions in the Policy: (1) the “expected” or “intentional” conduct exclusion, and (2) the “sexual molestation” or “physical or mental abuse” exclusion. a. The “Expected” or “Intentional” Conduct Exclusion The “expected” or “intended” exclusion in the Policy provides that coverage for personal liability and medical payments to others does not apply to “bodily injury” or “property damage” [w]hich is expected or intended by the “insured”, even if the resulting “bodily injury” or “property damage” (1) is of a different kind, quality, or degree than initially expected or intended; or (2) is sustained by a different person, entity, real or personal property, than initially expected or intended. However, this exclusion does not apply to “bodily injury” resulting from the use of reasonable force to protect persons or property. (Policy, at Amendatory Endorsement form FMHO 2493, at 2.) As a general rule in Pennsylvania, a clause excluding coverage for intended or expected events “is ambiguous as a matter of law and must be construed against the insurer.” United Servs. Auto. Ass'n v. Elitzky, 517 A.2d 982, 989 (Pa. Super. 1986). “Although [Pennsylvania law] mandates a ‘subjective intent’ analysis for determining coverage under an exclusionary clause in most Pennsylvania insurance cases, a different analysis is applied in ‘those exceptional cases involving sexual child abuse.’ +” Aetna Life and Cas. Co. v. Barthelemy, 33 F.3d 189, 191 (3d Cir. 1994) (quoting Wiley v. State Farm Fire & Cas. Co., 995 F.2d 457, 460 (3d Cir. 1993)). In child sex abuse cases, Pennsylvania has adopted the “inferred intent” rule, which “allows a court to infer an actor's intent from the nature and character of his or her acts” and to “establish conclusively the existence of intent to harm as a matter of law.” Wiley, 995 F.2d at 460. The presumption is conclusive “notwithstanding the insured's assertion of an absence of subjective intent to harm” and regardless of whether the sexual abuse was “nonviolent” or “unaccompanied by penetration.” Id. at 463; see also Aetna Cas. and Sur. Co. v. Roe, 650 A.2d 94, 102 (Pa. Super. Ct. 1994) (adopting the inferred intent rule and holding that “harm to children in sexual molestation cases is inherent in the very act of sexual assault committed on a child, regardless of the motivation for or nature of such assault, and that the resulting injuries are, as a matter of law, intentional”) (quotations omitted). *7 The Underlying Complaint clearly describes sexual abuse of a minor. Indeed, Anderson concedes that his “alleged conduct was described in the underlying Complaint in a manner that was calculated to plead a legally sustainable cause of action for sexual assault.” (Pl.'s Mem. Supp. Summ. J. 7.) Under Pennsylvania law, such allegations give rise to an irrebuttable presumption of intentional conduct. Anderson's claim for coverage is excluded under the Policy. 4 4 Even absent the “inferred intent” presumption, the Policy would still likely exclude coverage under the “expected” or “intentional” exclusion. Anderson does not dispute that he intentionally engaged in the alleged acts, but argues only that he had no intent to sexually arouse either himself or D.A.K. with his admittedly “inappropriate behavior.” (Def.'s Mem. Supp. Summ. J. 17.) Typical “expected” or “intentional” exclusion clauses in insurance policies Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 64 of 177 First Liberty Insurance Corporation v. Anderson, Slip Copy (2016) 2016 WL 2958831 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 exclude “only injury and damage of the same general type which the insured intended to cause... [and an] insured intends an injury if he desired to cause the consequences of his act or if he acted knowing that such consequences were substantially certain to result.” Elitzky, 517 A.2d at 989. The Policy language in this case, however, explicitly excludes coverage for injury caused by the insured's “expected” or “intentional” conduct “even if the resulting injury “(1) is of a different kind, quality, or degree than initially expected or intended; or (2) is sustained by a different person, entity, real or personal property, than initially expected or intended.” (Policy, at Amendatory Endorsement from FMHO 2493, at 2.) b. The Sexual Molestation or “Physical or Mental Abuse” Exclusion Finally, First Liberty asserts that even if the “expected” or “intentional” conduct exclusion does not apply, Anderson's claims are barred under the Policy provision excluding coverage for “bodily injury” or “property damage” that arises out of “sexual molestation, corporal punishment or physical or mental abuse.” (Policy at 11- 12.) The Court agrees. “Pennsylvania courts have not been opposed to enforcing molestation exclusions within policies.” Westfield Ins. Co. v. Holland, No. Civ.A.07-5496, 2008 WL 5378267, at *7 (E.D. Pa. Dec. 19, 2008) (citing Neff v. Alterra Healthcare Corp., No. Civ.A.05-01421, 2006 WL 3490816 (E.D. Pa. Dec. 4, 2006), aff'd, No. Civ.A.06-5130, 2008 WL 821070 (3d Cir. March 28, 2008); 12th Street Gym Inc. v. Phila. Indemnity Ins. Co., No. Civ.A.031931, 2006 WL 1652690 (Pa. Com. Pl. June 12, 2006)). Even broad molestation exclusions have been enforced as unambiguous. See Nat'l Cas. Co. v. Young, No. Civ.A.07-4836, 2009 WL 2170105, at *6 (E.D. Pa. July 17, 2009) (enforcing policy exclusion stating that “[c]overage is not afforded to the individual who is alleged to have directly committed such ‘sexual abuse or molestation.’ +” which is defined as “any action or behavior or any physical contact or touching which is intended to or which culminates in any sexual act.”). The complaint in the Underlying Action states that as a result of Anderson's conduct and actions, D.A.K. endured “a) sexual abuse; b) sexual assault; c) indecent aggravated assault; d) post traumatic stress disorder; e) extreme anxiety and dysfunction; f) past and future anxiety; g) past and future stress; h) past and future grief; i) past and future nervousness; j) past and future loss of appetite; k) past and future mental anguish; l) past and future humiliation; m) past and future embarrassment; n) past and future loss of life's pleasures; o) need for psychologic and/or psychiatric care; and p) past and future emotional distress.” (Underlying Compl. ¶ 12.) Such allegations fit squarely within the exclusion of coverage for “bodily injury” or “property damage” “[a]rising out of sexual molestation, corporal punishment or physical or mental abuse.” Anderson makes no attempt to address this exclusion or explain how it is inapplicable. The exclusion obviates First Liberty's obligations to defend. B. Duty to Indemnify *8 “[T]he duty to indemnify...arises only if it is established that the insured's damages are actually covered by the terms of the policy.” Allstate Ins. Co. v. Drumheller, 185 Fed.Appx. 152, 154 n.2 (3d Cir. 2006). In other words, an insurer “must indemnify its insured only if liability is found for conduct that actually falls within the scope of the policy.” Britamco Underwriters, Inc. v. C.J.H., Inc., 845 F. Supp. 1090, 1094 (E.D. Pa.), aff'd, 37 F.3d 1485 (3d Cir. 1994). Although a duty to defend can exist without a duty to indemnify, a duty to indemnify cannot exist without a duty to defend. Regent Ins. Co. v. Strausser Enters., Inc., 902 F. Supp. 2d 628, 636 (E.D. Pa. 2012) (citing The Frog, Switch & Mfg. Co., Inc. v. The Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir. 1999)). “Thus, once a court finds that there is no duty to defend, it must necessarily hold that there is no duty to indemnify either.” Westfield Ins. Co. v. Bellevue Holding Co., 856 F. Supp. 2d 683, 702 (E.D. Pa. 2012) (citing Meridian Mut. Ins. Co. v. James Gilligan Builders, No. Civ.A.08-1995, 2009 WL 1704474, at *6 (E.D. Pa. June 18, 2009)). All Citations Slip Copy, 2016 WL 2958831 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 65 of 177 Graziano Const. and Development Co., Inc. v...., Not Reported in A.3d... 2011 WL 2409883 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 KeyCite Yellow Flag - Negative Treatment Distinguished by Burchick Const. Co., Inc. v. Harleysville Preferred Ins. Co., Pa.Super., March 10, 2014 2011 WL 2409883 Only the Westlaw citation is currently available. Superior Court of Pennsylvania. GRAZIANO CONSTRUCTION AND DEVELOPMENT COMPANY, INC., Appellant v. PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE COMPANY, Dennis C. Champion, Susan Champion, University of Pittsburgh-of The Commonwealth System of Higher Education, a/ k/a University of Pittsburgh at Bradford of The Commonwealth System of Higher Education, a/k/a Pitt at Bradford, and Carl E. Swanson & Sons, Inc., a/k/a Carl Swanson & Sons, Appellee. No. 1876 WDA 2009. | Filed May 26, 2011. Appeal from the Order entered October 6, 2009, In the Court of Common Pleas of Allegheny County, Civil No.: GD-09-007408. BEFORE: DONOHUE, OLSON, and FITZGERALD, * JJ. * Former Justice specially assigned to the Superior Court. Opinion MEMORANDUM: *1 Appellant, Graziano Construction and Development Company, Inc. (“Graziano”), appeals from the order entered in the Court of Common Pleas of Allegheny County sustaining the preliminary objections in the form of a demurrer filed by Appellee Pennsylvania National Mutual Casualty Insurance Company (“Penn National”) and dismissing the complaint with prejudice. 1 We affirm. 1 Graziano also sued Dennis C. Champion (“Champion”), Susan Champion, and University of Pittsburgh-of the Commonwealth System of Higher Education (“U.Pittsburgh”), and Carl E. Swanson & Sons, Inc. (“Swanson”) as indispensable parties but did not seek relief against them. See Second Am. Compl. in Decl. J., 7/9/09, at ¶ 26; R.R. at 714a. Thus, only Penn National filed an appellate brief. On January 14, 2004, U. Pittsburgh contracted with Graziano to build student housing. Graziano subcontracted with, inter alia, Swanson and non-party Quattrone Masonry & Construction, Ltd. (“Quattrone”). The subcontract between Graziano and Quattrone required Quattrone to maintain insurance naming Graziano and U. Pittsburgh as “additional insured[s]” such that the insurance will pay on behalf of the insured all sums which the insured, by reason of liability assumed by [Quattrone] under this Contract and caused by, resulting from, arising [sic] of the work provided for in this Contract would ... be legally obliged to pay. Ex. A. to Am. Compl. in Decl. J., 6/1/09; R.R. at 358a- 59a. Quattrone maintained insurance through Penn National. The insurance policy, effective January 1, 2005 through January 1, 2006, provided the following: A. The following provision is added to SECTION II- WHO IS AN INSURED 5. Any person(s) or organizations(s) [sic] ... with whom you are required in a written contract or agreement to name as an additional insured, but only with respect to liability for “bodily injury” ... caused, in whole or in part, by: (1) Your [Quattrone's] acts or omissions; or (2) The acts or omissions of those acting on your behalf; In the performance of your ongoing operations for the additional insured(s) at the location or project described in the contract or agreement. Ex. B to Am. Compl. in Decl. J.; R.R. at 456a. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 66 of 177 Graziano Const. and Development Co., Inc. v...., Not Reported in A.3d... 2011 WL 2409883 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 On February 11, 2005, Champion allegedly suffered injuries while working on the aforementioned student housing project. Am. Compl. in Decl. J., at ¶ 14; R.R. at 346a. Champion filed suit in the Court of Common Pleas of McKean County against U. Pittsburgh and Swanson. He claimed that Swanson was hired to design and build a scaffold, but Swanson negligently performed those tasks. Id. at ¶¶ 6-7; R.R. at 154a. Champion contended that accumulated snow and ice caused the scaffold to buckle, an unknown party reinforced the scaffold with wooden planks, and one of those planks caused him to fall. Id. at ¶¶ 8-9; R.R at 155a. In sum, he alleged that Swanson and U. Pittsburgh were negligent. Id. at ¶¶ 21, 29; R.R. at 158a- 61a. This complaint did not reference Quattrone. U. Pittsburgh joined Graziano as an additional defendant in the underlying action, alleging that Graziano had agreed to take sole responsibility for the construction project and to hold U. Pittsburgh harmless from all “claims, damages, losses and expenses.” Ex. E to Am. Compl. in Decl. J., ¶¶ 8, 9, 19; R.R. at 507a-08a, 511a. Subsequently, Graziano requested Penn National to defend and indemnify it as an additional insured pursuant to Penn National's insurance contract with Quattrone. Am. Compl. in Decl. J ., ¶ 16; R.R. at 346a. Penn National refused. Id. at ¶ 17; R.R. at 346a. *2 As a result, Graziano filed the instant declaratory judgment action seeking a declaration that Penn National had a duty to defend and indemnify it in Champion's underlying suit. Second Am. Compl. in Decl. J.; R.R. at 706a. Graziano alleged, inter alia: 20. It is averred that any bodily injuries sustained by [Champion] were caused ... by the acts or omissions of [Quattrone] in the performance of operations for [Graziano] at the project described in the contract entered into between Quattrone ... and [Graziano]. 21. It is averred that the scaffold was constructed by [Quattrone] and that the wooden plank was placed on the scaffolding by [Quattrone]. * * * 25. [Graziano] avers that [Penn National] has an obligation to defend and indemnify [Graziano] with respect to the action filed by [Champion] as [Graziano] was named as an additional insured on the policies of insurance issued by [Penn National] to [Quattrone]. Id. at ¶¶ 20-21, 25; R.R. at 713a-14a. Penn National responded by filing preliminary objections in the nature of a demurrer, arguing that Graziano failed to allege a cause of action upon which relief may be granted. Prelim. Objections to Second Am. Compl., 7/31/09, at ¶ 5; R.R. at 725a. Penn National contended that despite these new factual allegations made by Graziano in this action, it remains true that the pleadings filed in the underlying action, whether by plaintiff Champion, by Graziano or by any co-defendant in that action, do not contain any claim or factual allegation that Champion's harm was caused by the acts or omission of Quattrone. Id. at ¶ 4; R.R. at 724a. The trial court sustained Penn National's preliminary objections and dismissed the complaint on October 6, 2009. Graziano timely filed a notice of appeal and a court-ordered Pa.R.A.P.1925(b) concise statement. Graziano argues that the trial court erred when it sustained Penn National's preliminary objections, thereby dismissing Graziano's declaratory action. Appellant's Brief at 4. Specifically, Graziano argues it was named as an additional insured on the insurance policy issued by Penn National to Quattrone, that the complaint filed by Champion alleged facts which could trigger coverage, and that Penn National must therefore defend and indemnify Graziano in the underlying Champion action. Id. at 8-9. We hold Graziano is not entitled to the requested relief. In dismissing Graziano's declaratory judgment action, the trial court recognized that Graziano would qualify as an insured under the automatic additional insured endorsement on Quattrone's policy only if “the alleged liability of Graziano arose from the acts or omissions of ... Quattrone.” Trial Ct. Op., at 2; R.R. at 766a. The trial court stated that nothing in Graziano's second amended complaint contained a “factual allegation that Champion's injuries in the underlying action were caused by the acts or omissions of Quattrone.” Id. Further, it noted that the pleadings in Champion's underlying lawsuit lacked any mention of Quattrone; Champion alleged Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 67 of 177 Graziano Const. and Development Co., Inc. v...., Not Reported in A.3d... 2011 WL 2409883 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 that his harm was caused by either U. Pittsburgh or Swanson. Id.; R.R. at 767a. The court concluded that it was “obvious that there are no factual assertions that have been made against Quattrone that would obligate Penn National in any way to indemnify Graziano in this matter.” Id. at 3. *3 “The [Pennsylvania] Declaratory Judgments Act may be invoked to interpret the obligations of the parties under an insurance contract, including the question of whether an insurer has a duty to defend and/or a duty to indemnify a party making a claim under the policy.” Gen. Accident Ins. Co. of Am. v. Allen, 692 A.2d 1089, 1095 (Pa.1997) (“Allen ”); accord Genaeya Corp. v. Harco Nat. Ins. Co., 991 A.2d 342, 346 (Pa.Super.2010). 2 Our standard of review of an order sustaining preliminary objections in the nature of a demurrer is de novo. Ins. Adjustment Bureau, Inc. v. Allstate Ins. Co., 905 A.2d 462, 468 n. 4 (Pa.2006). Our Supreme Court has stated: 2 In contrast, in some federal jurisdictions, questions regarding an insurer's duty to indemnify are not ripe for adjudication in a declaratory judgment action. See, e.g., Nationwide Mut. Fire Ins. Co. v. Dillard House, Inc., 651 F.Supp.2d 1367, 1372- 73 (N.D.Ga.2009) (citing cases); Canal Ins. Co. v. Sherman, 430 F.Supp.2d 478, 491 (E.D.Pa.2006). Thus, if those federal precedents applied in this case, it appears the trial court could not have resolved whether Penn National had a duty to indemnify. a demurrer tests the legal sufficiency of the complaint. A trial court may sustain a demurrer, and thereby dismiss a claim, only when the law is clear that a plaintiff is not entitled to recovery based on the facts alleged in the complaint.... In reviewing a trial court's decision on a demurrer, the appellate court uses these same standards. Id. at 468 (citations and footnote omitted). Accordingly, to dispose of a demurrer, the court must examine the complaint to determine whether it sets forth a cause of action that, if proven, would vest the plaintiff with a right to relief.... Any doubt should be resolved by a refusal to sustain the objections. State Farm Mut. Auto. Ins. Co. v. Ware's Van Storage, 953 A.2d 568, 571 (Pa.Super.2008) (citations omitted). “The duty to defend is broader than the insurer's duty to indemnify.” Telecomms. Network Design v. Brethren Mut. Ins. Co., 5 A.3d 331, 335 (Pa.Super.2010); accord Am. & Foreign Ins. Co. v. Jerry's Sport Center, Inc., 2 A.3d 526, 541, 543-44 (Pa.2010). An insurer's duty to indemnify “follow [s] the duty to defend.” Am. States Ins. Co. v. State Auto Ins. Co., 721 A.2d 56, 63 (Pa.Super.1998). Once the duty to defend is established, that duty carries “a conditional obligation [i.e., duty] to indemnify in the event the insured is held liable for a claim covered by the policy.” Allen, 692 A.2d at 1095; Am. States Ins. Co., 721 A.2d at 63. Thus, if an insurer has no broad duty to defend, then the insurer has no narrower duty to indemnify. See Telecomms. Network Design, 5 A.3d at 335; Am. States Ins. Co., 721 A.2d at 63. The Pennsylvania Supreme Court, in resolving a declaratory judgment action, aptly summarized this principle: [B]ecause the duty to defend is broader, a finding that it is not present will also preclude a duty to indemnify. Although, however, the duty to defend is separate from and broader than the duty to indemnify, both duties flow from a determination that the complaint triggers coverage. Thus, if [an insurer] does not have a duty to defend [the insured] in this suit, neither does it have the duty to indemnify. Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888, 896 n. 7 (Pa.2006) (“Kvaerner ”) (emphases added and citations omitted); see also Erie Ins. Exchange v. Claypoole, 673 A.2d 348, 356 n. 3 (Pa.Super.1996) (en banc ). 3 In other words, the two duties are separate and distinct, but under Pennsylvania law, the existence of one duty is dependent on, and not independent of, the existence of the other duty. See Kvaerner, 908 A.2d at 896 n. 7; see generally 14 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 200:3 (3d ed.2009). 4 Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 68 of 177 Graziano Const. and Development Co., Inc. v...., Not Reported in A.3d... 2011 WL 2409883 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 3 See, e.g., Health Care Indus. Liab. Ins. Program v. Momence Meadows Nursing Ctr., Inc., 566 F.3d 689, 693 (7th Cir.2009) (asserting, in declaratory judgment action, “[w]here, as here, the duty to defend is broader than the duty to indemnify, a finding of no duty to defend necessarily precludes a finding of a duty to indemnify.”); Farmers Texas County Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 84 (Tex.1997) (holding, in declaratory judgment matter, “the same reasons that negate the duty to defend likewise negate any possibility the insurer will ever have a duty to indemnify.”). The Illinois Supreme Court similarly resolved a declaratory judgment action: [W]here no duty to defend exists and the facts alleged do not even fall potentially within the insurance coverage, such facts alleged could obviously never actually fall within the scope of coverage. Under no scenario could a duty to indemnify arise. Clearly, where there is no duty to defend, there will be no duty to indemnify. Crum and Forster Managers Corp. v. Resolution Trust Corp., 620 N.E.2d 1073, 1081 (Ill.1993). Over a decade later, the Texas Supreme Court, however, has suggested that in a declaratory judgment action, a question resolving the duty to indemnify is not ripe for adjudication and that one duty may exist independently of the other duty. See, e.g., D.R. Horton-Texas, Ltd. v. Market Intern. Ins. Co., Ltd., 300 S.W.3d 740, 745 (Tex.2009). 4 For example, if the law or insurance policy excludes indemnification for a particular claim, then an insurer has no obligation to defend it. See Allen, 692 A.2d at 1094 (discussing Wilson v. Md. Cas. Co., 105 A.2d 304 (Pa.1954)). *4 An insurer's obligation to defend an insured is fixed solely by the allegations in the underlying complaint. As long as a complaint alleges an injury which may be within the scope of the policy, the insurer must defend its insured until the claim is confined to a recovery the policy does not cover. QBE Ins. Corp. v. M & S Landis Corp., 915 A.2d 1222, 1225 (Pa.Super.2007) (citations and quotation marks omitted). Furthermore, the obligation to defend arises whenever the complaint filed by the injured party may potentially come within the coverage of the policy. Moreover, if the complaint filed against the insured avers facts which would support a recovery that is covered by the policy, it is the duty of the insurer to defend until such time as the claim is confined to a recovery that the policy does not cover. Am. States Ins., 721 A.2d at 59 (citations and quotation marks omitted). Our Supreme Court has stated that [w]here a claim potentially may become one which is within the scope of the policy, the insurance company's refusal to defend at the outset of the controversy is a decision it makes at its own peril. In some circumstances, an insurance company may face a difficult decision as to whether a claim falls, or potentially falls, within the scope of the insurance policy. However, it is a decision the insurer must make. If ... the insurer is uncertain about coverage, then it should provide a defense and seek declaratory judgment about coverage. Am. & Foreign Ins. Co., 2 A.3d at 542 (citations and punctuation omitted). Pennsylvania courts follow a two-step analysis for determining whether a complaint triggers an insurer's duty to defend: The first step in a declaratory judgment action concerning insurance coverage is to determine the scope of the policy's coverage. After determining the scope of coverage, the court must examine the complaint in the underlying action to ascertain if it triggers coverage. Am. States Ins. Co., 721 A.2d at 59-60 (citations and punctuation omitted). Pennsylvania construes liberally the factual allegations contained in the underlying complaint in determining whether an insurer's duty to defend is triggered. Am. & Foreign Ins. Co., 2 A.3d at 541. Pennsylvania courts, Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 69 of 177 Graziano Const. and Development Co., Inc. v...., Not Reported in A.3d... 2011 WL 2409883 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 however, are not permitted to examine anything outside the underlying complaint. Kvaerner, 908 A.2d at 896. In Kvaerner, the plaintiff in the underlying suit brought an action against Kvaerner alleging claims of breach of contract and breach of warranty. Kvaerner, 908 A.2d at 891. The complaint alleged that Kvaerner had contracted with the plaintiff to provide a battery meeting certain specifications and that Kvaerner breached this agreement by delivering a non-conforming product. Id. Kvaerner sought defense from its insurer, National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“National Union”), who denied coverage on the grounds that the plaintiff's claims did not fall within the coverage provisions of the insurance policy. Id. at 891-92. Kvaerner sought a declaratory judgment that National Union had a duty to defend and to indemnify. Id. at 892. *5 National Union moved for summary judgment on the grounds that the insurance agreement covered only property damage caused by an “occurrence,” which the policy defined as an accident. Id. Further, National Union argued the underlying plaintiff had not alleged that the battery was damaged by an occurrence. Id. Kvaerner countered that the battery was damaged due to periods of heavy rains, which affected how the bricks in the battery's roof were grouted. Id. at 892-93. In support, Kvaerner submitted an expert report opining that the damages alleged could have been caused by the heavy rains. Id. at 893. Kvaerner thus argued that the heavy rains and consequential effects thereof satisfied the “occurrence” or accident requirement of the policy. Id. The trial court granted National Union's motion for summary judgment on the grounds that the underlying complaint alleged only breach of contract. Id. On appeal, the Superior Court reversed, holding that it was appropriate in that instance to look beyond the four corners of the underlying complaint to the expert report filed in opposition to summary judgment. Id. Based on the report, the Superior Court concluded that the damage to the battery could have been caused by heavy rains and this would have constituted an occurrence under the policy. Id. at 894. Our Supreme Court reversed, explaining that the Superior Court erred by examining “information not contained in the underlying complaint.” Id. at 896. The Kvaerner Court criticized this Court for “looking beyond the allegations raised in [the underlying] Complaint to determine whether National Union had a duty to defend Kvaerner.” Id. In conducting its own coverage analysis, the Supreme Court held that National Union was obligated to defend Kvaerner only if there was an “occurrence” or accident, and those terms exclude claims based on faulty workmanship. Id. at 899. The Court then examined the underlying complaint and ruled that because it alleged only property damage from poor workmanship, the complaint failed to trigger coverage. Id. 5 In sum, Kvaerner buttresses the principle that an underlying complaint may be insufficient to trigger an insurer's duty to defend. Id. 5 Presumably, we observe, coverage could have been triggered if the underlying complaint included the conclusions of the expert report. Instantly, we begin by identifying the circumstances under which Graziano would qualify as an insured pursuant to Quattrone's contract with Penn National. See Am. States Ins. Co., 721 A.2d at 59-60. Under section A, paragraph five of the policy, any organization that Quattrone was required by contract to name as an additional insured becomes an insured if a person suffers bodily injury resulting from an act or omission by Quattrone or by someone acting on Quattrone's behalf. Ex. B to Am. Compl. in Decl. J.; R.R. at 456a. Quattrone was required by its subcontract with Graziano to carry insurance qualifying Graziano as an additional insured. Ex. A. to Am. Compl. in Decl. J.; R.R. at 358a, 359a. *6 Next, we examine the language of the underlying Champion complaint to determine whether the facts alleged “may potentially” trigger Penn National's duty to defend Graziano. See Am. States Ins., 721 A.2d at 59; see also QBE Ins. Corp., 915 A.2d at 1225. As our Supreme Court cautioned in Kvaerner, we limit our examination to the four corners of the underlying complaint and do not consider the allegations in Graziano's instant complaint. See Kvaerner, 908 A.2d at 899. Champion alleged Swanson was hired to design and build a temporary scaffold enclosure to protect workers from the weather. Am. Compl., ¶ 6; R.R. 154a. He claimed that Swanson negligently designed and built the scaffold in a manner that permitted it to buckle under accumulated snow and ice. Id. at ¶ 7; R.R. 154a. Champion asserts that an unidentified party shored up the scaffold with wooden planks and that he was injured when one of those planks became dislodged and caused him to fall. Id. at ¶¶ 8- Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 70 of 177 Graziano Const. and Development Co., Inc. v...., Not Reported in A.3d... 2011 WL 2409883 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 9; R.R. 155a. We cannot reasonably construe these and other similar allegations in the underlying complaint as suggesting Quattrone is liable for Champion's injuries, thus triggering Penn National's duty to defend. Champion does not, for example, claim or suggest Quattrone controlled or supervised the scaffolding and that his injuries resulted from an act or omission by Quattrone. Similar to the Kvaerner Court's conclusion that the facts alleged did not trigger coverage, we agree with the trial court that the facts alleged in the underlying complaint did not invoke coverage. Cf. Kvaerner, 908 A.2d at 899. Thus, even construing the instant complaint in Graziano's favor, the law is clear Graziano has no right to relief because the underlying complaint fails to trigger Penn National's duty to defend and concomitant duty to indemnify. See State Farm Mut. Auto. Ins. Co., 953 A.2d at 571; Ins. Adjustment Bureau, Inc., 905 A.2d at 468. Accordingly, we affirm the order sustaining preliminary objections. 6 See Ins. Adjustment Bureau, Inc., 905 A.2d at 468 n. 4. 6 According to the docket of the underlying matter, on December 23, 2010, the McKean County Court of Common Pleas granted summary judgment in favor of U. Pittsburgh and Graziano and against Champion. Order affirmed. Judge DONOHUE Concurs in the Result. All Citations Not Reported in A.3d, 2011 WL 2409883 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 71 of 177 Houston Specialty Insurance Company v. Titleworks of Southwest..., Slip Copy (2016) 2016 WL 7130939 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2016 WL 7130939 Only the Westlaw citation is currently available. United States District Court, M.D. Florida, Fort Myers Division. Houston Specialty Insurance Company, Plaintiff, v. Titleworks of Southwest Florida, Inc., Mikhail Trakhtenberg and Westcor Land Title Insurance Company, Defendants. Case No: 2:15-cv-219-FtM-29MRM | Signed 07/19/2016 Attorneys and Law Firms Clifford L. Rostin, James M. Kaplan, Rachel Kelman, Kaplan Zeena, LLP, Miami, FL, for Plaintiff. William DeForest Thompson, Jr., William DeForest Thompson , Jr., P.A., Justin B. Mazzara, Kristen Dana Perkins, Phillip Brandon Perkins, Rogers Towers, P.A., Ft. Myers, FL, David L. Boyette, Jason T. Gaskill, Adams & Reese, LLP, Sarasota, FL, for Defendants. ORDER MAC R. MCCOY, UNITED STATES MAGISTRATE JUDGE *1 Pending before the Court are the following motions and responses: 1) Mikhail Trakhtenberg's Motion to Compel Responses to Interrogatories and Request for Production of Documents (Doc. 61) filed on April 21, 2016; and Plaintiff Houston Specialty Insurance Company's Response thereto (Doc. 66) filed on May 5, 2016. 2) Mikhail Trakhtenberg's Amended Motion to Compel Responses to Interrogatories and Request for Production of Documents (Doc. 82) filed on June 17, 2016; and Plaintiff's Response thereto (Doc. 87) filed on July 1, 2016; 3) Westcor Land Title Insurance Company's Motion to Compel Discovery Responses and Documents From Plaintiff and for Sanction (Doc. 67) filed on May 9, 2016; and Plaintiff's Response thereto (Doc. 70) filed on May 23, 2016. The issues raised are now ripe for review. I. Background Plaintiff, Houston Specialty Insurance Company (“Houston”), issued a Professional Liability Policy (“Policy”) to Defendant, Titleworks of Southwest Florida, Inc. (“Titleworks”). (Doc. 51 at ¶ 9). The Policy was effective from August 2, 2014 through August 2, 2015 with a Retroactive Date to August 2, 2005, and Prior and Pending Litigation Date of August 2, 2014. (Doc. 51 ¶ 10). Mikhail Trakhtenberg allegedly used Titleworks as a closing agent and title examiner for certain property he was purchasing in Lee County, Florida. (Doc. 51 ¶ 12). On August 22, 2014, Trakhtenberg filed a lawsuit in state court against Titleworks alleging that Titleworks failed to conduct a title search in a reasonable manner and failed to communicate defects in title to the property prior to closing. (Doc. 51 ¶ 11-12). The real property was encumbered with over $2 million in liens. (Doc. 51 ¶ 12). Titleworks tendered the state-court complaint to Houston, requesting that Houston provide Titleworks with a defense to the claims. (Doc. 51 at ¶ 13). Houston is providing a defense in the state-court matter. (Doc. 51 at ¶ 15). In the state-court action, Houston propounded interrogatories to Trakhtenberg. (Doc. 51 at ¶ 14). Trakhtenberg responded to Interrogatory No. 13, stating that he contacted Titleworks in July 2014 and spoke to Michael J. Rich, informing Rich of the problems with the title to the property. (Doc. 51 ¶ 14). Through its agent, Titleworks, Westcor issued a title insurance policy that affords coverage for claims of clouded title on the real property purchased by Trakhtenberg. (Doc. 51 ¶ 16). Westcor has a duty under its policy to clear title to the subject property. (Doc. 51 at ¶ 16). In state court, Westcor is pursuing a Quiet Title Action on behalf of Trakhtenberg to clear title to the subject real property. (Doc. 51 at ¶ 18). To issue title policies on behalf of Westcor, Titleworks signed an agency agreement that allows Westcor to seek recovery Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 72 of 177 Houston Specialty Insurance Company v. Titleworks of Southwest..., Slip Copy (2016) 2016 WL 7130939 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 from Titleworks of the amounts paid in connection with clearing title to the subject property. (Doc. 51 at ¶ 22). Thus, Westcor is alleged to have contractual and common-law rights against Titleworks for any loss incurred in clearing title to the subject property. (Doc. 51 at ¶ 23). *2 Here, Houston brings a claim for declaratory relief asserting that it is not obligated to defend or indemnify Titleworks from the claims raised in the state-court action by Trakhtenberg because Titleworks had actual knowledge of the encumbrances prior to the Policy's inception. (Doc. 51 at ¶ 28). In addition, Houston asserts that it is not obligated to defend or indemnify Titleworks for any claims asserted by Westcor against Titleworks. (Doc. 51 at ¶ 29). II. Applicable Standards for Discovery The purpose of discovery is to require disclosure of relevant information so that the resolution of the civil action is based upon a full and accurate understanding of the facts. Anglin v. Maxim Healthcare Servs., Inc., No. 6:08-CV-689-ORL-22DA, 2009 WL 928305, at *2 (M.D. Fla. Apr. 3, 2009) (citing United States v. Procter & Gamble Co., 356 U.S. 677, 682 (1958)). Federal Rule of Civil Procedure 26(b)(1) provides that 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). The scope of discovery is broad. Anglin, 2009 WL 928305, at *2 (citations omitted). The information must be relevant to a claim or defense, but need not be admissible at trial. Id. The initial burden is on the proponent of a motion to compel to prove that the information is relevant. Moore v. Lender Processing Servs. Inc., No. 3:12- CV-205-J, 2013 WL 2447948, at *2 (M.D. Fla. June 5, 2013). If the relevancy of the information sought cannot be discerned from the discovery request itself, then the party seeking to compel discovery must demonstrate relevancy. Sanchez v. Cardon Healthcare Network, LLC, No. 3:12- CV-902-J-34JBT, 2013 WL 2352142, at *2 (M.D. Fla. May 29, 2013) (citing S.E.C. v. BankAtlantic Bancorp, Inc., 285 F.R.D. 661, 666 (S.D. Fla. 2012)). In addition to relevancy, discovery must be proportional “to the needs of the case.” Fed. R. Civ. P. 26(b)(1). In making this determination, the Court is guided by the non-exclusive list of factors set forth in Rule 26(b)(1). The analysis as to proportionality begins with a review of the actual claims and defenses in the case, “and a consideration of how and to what degree the requested discovery bears on those claims and defenses.” Koster v. Landmark Am. Ins. Co., No. 5:14-CV-689-OC-37PRL, 2016 WL 3014605, at *2 (M.D. Fla. May 20, 2016). In considering the objections to the discovery, boilerplate objections “may border on a frivolous response to discovery requests.” Steed v. EverHome Mortgage Co., 308 Fed.Appx. 364, 371 (11th Cir. 2009). Objections that the discovery request is vague, overbroad, or unduly burdensome standing alone without explanation are meaningless. Martin v. Zale Delaware, Inc., No. 8:08- CV-47-T-27EAJ, 2008 WL 5255555, at *1 (M.D. Fla. Dec. 15, 2008). Pursuant to Rule 34, a party may serve on any other party requests to produce documents within the scope of Rule 26(b). Fed. R. Civ. P. 34(a)(1). In responding to requests for production, parties must provide the grounds with specificity for objecting to a request, and include the reasons therefor. Fed. R. Civ. P. 34(b)(2)(B). Interrogatories may “relate to any matter that may be inquired into under Rule 26(b).” Fed. R. Civ. P. 33(a)(2). Interrogatories are not objectionable merely because they ask for an opinion or contention “that relates to fact or application of law to fact.” Fed. R. Civ. P. 33(a)(2). III. Discovery Issues Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 73 of 177 Houston Specialty Insurance Company v. Titleworks of Southwest..., Slip Copy (2016) 2016 WL 7130939 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 *3 Westcor and Trakhtenberg have fundamental disagreements with Houston as to the scope of discovery. Westcor and Trakhtenberg claim that some of the terms of the Policy at issue are ambiguous. They also contend that the issues concerning the ambiguity are raised in Defendants' affirmative defenses. (Doc. 82 at 8; Doc. 67 at 3-4 (citing Doc. 57 ¶¶ 3-4; Doc. 58 ¶¶ 4-8; Doc. 60 ¶ 1, 4-5)). 1 They, therefore, propounded discovery seeking documents and information as to these alleged ambiguous terms. Specifically, Westcor and Trakhtenberg claim that the following terms are ambiguous: (1) “Renewal of Policy;” and (2) “the Inception Date.” (Doc. 54-1 at 3, 9; Doc. 67 at 2-3; Doc. 82 at 8, 11). 2 Whereas, Houston contends that the terms of the Policy are not ambiguous and these parties are not entitled to discovery on these issues. 1 The Court notes that Westcor does not appear to raise an affirmative defense based on a possible ambiguity in the language of the Policy. The affirmative defenses Defendants point to for Westcor (Doc. 57 at 3-4) do not appear to raise ambiguity. Trakhtenberg, on the other hand, expressly raised the issue of ambiguity in the terms of the Policy in its Fifth Affirmative Defense. (Doc. 57 at 3-4; Doc. 58 at 6). 2 Although unclear, Westcor and Trakhtenberg may also be alleging an ambiguity as to the language relating to the term “broker.” (See Doc. 67 at 2; Doc. 82 at 10). A. State law versus federal law The first issue the Court must address is which law applies to these discovery disputes. In diversity matters, state law generally applies to substantive issues, whereas federal law applies to procedural issues. Kirkland v. Guardian Life Ins. Co. of Am., 352 Fed.Appx. 293, 297 (11th Cir. 2009). Westcor and Trakhtenberg relied on federal law for their arguments, whereas Houston relied on both Federal law and Florida state law in its Responses. Upon consideration of relevant precedent, the Court finds that federal trial courts in Florida are inconsistent on this point. Federal District courts in Florida have held that “while state law controls substantive issues in a diversity action, the admissibility of evidence is governed by federal law.” The Atrium on the Ocean II Condo. Ass'n, Inc. v. OBE Ins. Corp., No. 06-14326-CV, 2007 WL 2972937, at *2 (S.D. Fla. Oct. 9, 2007); Milinazzo v. State Farm Ins. Co., 247 F.R.D. 691, 695 (S.D. Fla. 2007). Applying this principal, courts have found that whether a claim file may be discoverable in a case including a first-party breach-of- contract claim is determined by federal law and not state law. The Atrium on the Ocean II Condo. Ass'n, Inc., 2007 WL 2972937, at *2; see also Milinazzo v. State Farm Ins. Co., 247 F.R.D. at 696. Conversely, in a diversity action, this Court relied upon state law to determine whether discovery requests concerning extrinsic evidence were relevant to create or prove an ambiguity in an insurance policy. See Evanston Ins. Co. v. Francks Lab, Inc., No. 5:12-CV-603-OC- UAMH, 2013 WL 5556225, at *2 (M.D. Fla. Oct. 8, 2013) (Lammens, J.). Another decision of this Court applied Florida Supreme Court precedent to determine whether extrinsic evidence was relevant for discovery purposes to resolve ambiguities in insurance contracts. See Nationwide Mut. Fire Ins. Co. v. Kelt, Inc., No. 6:14-CV-749-ORL-41, 2015 WL 1470971, at *5 (M.D. Fla. Mar. 31, 2015) (Smith, J). Based upon these conflicting approaches, whether a court must look to federal law or state law to resolve discovery matter in these types of cases appears to be an unsettled issue. For their part, Westcor and Trakhtenberg rely on federal law to determine whether discovery requests arising from cases involving insurance policies are relevant, citing to The Atrium on the Ocean II Condo. Ass'n, Inc., 2007 WL 2972937, at *2 and Milinazzo, 247 F.R.D. at 696. (Doc. 67 at 11-12; Doc. 82 at 5). These cases relied in turn upon Peat, Inc. v. Vanguard Research, Inc., 378 F.3d 1154 (11th Cir. 2004) to reach a decision. In Peat, plaintiff brought a breach of contract action alleging defendant appropriated plaintiff's trade secret in violation of the Alabama Trade Secrets Act. Id. at 1156-57. Defendant appealed, arguing that the trial court improperly admitted certain evidence regarding the trade secrets. Id. at 1158. Noting that Alabama law controlled the substantive issues in a diversity action, the court held that federal law applies to the admissibility of evidence in federal courts. Id. at 1159 (emphasis added). Thus, Peat addresses only the admissibility of evidence at trial. It does not address whether state or federal law applies to the issue of relevance for discovery purposes. *4 This Court sees no issue with the general proposition that federal law applies to issues of whether evidence is admissible for trial purposes. However, the Court does Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 74 of 177 Houston Specialty Insurance Company v. Titleworks of Southwest..., Slip Copy (2016) 2016 WL 7130939 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 not agree that federal law applies to the determination of relevance for discovery purposes here. As stated previously, Rule 26 provides that a party may obtain discovery that is “relevant to any party's claim or defense.” Fed. R. Civ. P. 26. Rule 26 also specifically provides that “[i]nformation within this scope of discovery need not be admissible in evidence to be discoverable.” Fed. R. Civ. P. 26(b)(1) (emphasis added). Thus, a distinction is drawn between relevance for discovery purposes and admissibility. Further, discovery must be relevant to a claim or defense. Fed. R. Civ. P. 26(b)(1). In this diversity action, the contours of the claims and defenses asserted are governed by state law. Thus, to determine whether discovery is relevant to a claim or defense, the Court concludes that it is appropriate to consider the application of state law. This result is consistent with prior decisions by this Court in which state law was applied to issues of discoverability. See Evanston and Nationwide. The issue becomes which state's law applies. In a footnote in the Amended Motion to Compel, Trakhtenberg mentions for the first time-without citation to the Policy or case law- that Houston improperly cited to Florida law in its original response to Trakhtenberg's first Motion to Compel. (Doc. 82 at n.6). Trakhtenberg indicates that the Policy has a choice-of-law provision, which states that New York law applies to the interpretation of the Policy. Id. The Policy at Section VI, paragraph H provides, “All matters arising hereunder including questions related to the validity, interpretation, performance and enforcement of this Policy shall be determined in accordance with the law and practice of the State of New York notwithstanding New York's conflicts of law rules.” (Doc. 51-1 at 14 (emphasis added)). The choice-of-law provisions of the forum state will determine which state's substantive law applies in diversity matters. RSUI Indem. Co. v. Desai, No. 8:13-CV-2629- T-30TGW, 2014 WL 4347821, at *2 (M.D. Fla. Sept. 2, 2014). Said a different way here, Florida law will determine whether the choice-of-law provision in the insurance policy is enforceable. Pursuant to Florida law, courts will enforce an express choice-of-law provision in an insurance policy. Id. Thus, the choice-of-law provision in the Policy here is enforceable and, if state law applies, then New York state law applies to the substantive issues in this case. None of the parties cited to New York law in their submissions. The Court finds that the Motions to Compel must be denied for that reason alone. In an abundance of caution, however, the Court attempts to analyze how New York law applies in the context of this discovery dispute. B. Analysis Based upon the parties' failure to address New York law in their submissions, the Court has attempted to determine what New York law provides concerning to the issues raised. It appears that “[u]nder New York Law, the initial interpretation of a contract is a matter of law for the court to decide.” Alexander & Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, London, 136 F.3d 82, 86 (2d Cir. 1998) (quotation omitted). The unambiguous portions of an insurance contract “ ‘must be given their plain and ordinary meaning [ ] and the interpretation of such provisions is a question of law for the court.’ ” Essex Ins. Co. v. Laruccia Const., Inc., 71 A.D.3d 818, 819, 898 N.Y.S.2d 558, 559 (2010) (citation omitted). When interpreting a contract, a court must consider the whole agreement and try to give meaning to all of the contract's provisions. See RLI Ins. Co. v. Smiedala, 96 A.D.3d 1409, 947 N.Y.S.2d 850, 853 (2012). When the language of a contract is susceptible to more than one meaning, then the language is ambiguous. Demetrio v. Stewart Title Ins. Co., 124 A.D.3d 824, 826, 3 N.Y.S.3d 75, 77 (N.Y. App. Div.), leave to appeal denied, 25 N.Y.3d 906, 32 N.E.3d 962 (2015). *5 As a preliminary matter, this Court has difficulty agreeing that the disputed terms are, in fact, ambiguous- i.e., that they are susceptible to more than one meaning. Beginning with the term “Renewal,” Trakhtenberg and Westcor contend that the face of the Policy indicates that the Policy is a “Renewal.” Houston, on the other hand, claims factually that the policy is not a renewal policy. The factual issue presented, then, is whether the term “renewal” is correct, not whether it is ambiguous- i.e., susceptible to more than one meaning. Nevertheless, based upon Houston's denial that the policy is a renewal, Trakhtenberg and Westcor leap to the conclusion that the term “Renewal” is ambiguous and characterize it as such. Taking the issue of ambiguity one step further, Westcor and Trakhtenberg argue that if the Policy is a “Renewal,” then the meaning of the term “Renewal” also affects the proper calculation of the “Inception Date” as that term is defined under the Policy. Westcor and Trakhtenberg argue that the actual inception date of the Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 75 of 177 Houston Specialty Insurance Company v. Titleworks of Southwest..., Slip Copy (2016) 2016 WL 7130939 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 Policy is dependent upon whether the Policy is, in fact, a renewal or whether it is the first policy issued between Titleworks and Houston. The Court finds that Westcor and Trakhtenberg failed to make a threshold showing that the Policy terms in question are subject to more than one meaning under the circumstances alleged such that discovery concerning an ambiguity is permissible. Neither of these parties have proposed more than one meanings for the terms “Renewal” or “Inception Date.” Instead, they have argued that the use of the term “Renewal” to describe the Policy is factually incorrect. That is something very different from ascribing more than one meaning to the term renewal. Moreover, the argument appears to be that the calculation of the “Inception Date” is different depending on whether the Policy is a first policy or a renewal. Again that is a purely factual question that does not hinge upon an ambiguity in the term “Inception Date” or the definition of that term as set out in the Policy. 3 Even if the Court could find some threshold showing of ambiguity with the terms at issue, the Court finds that Westcor and Trakhtenberg failed to explain how the requested discovery would resolve that ambiguity. 3 Other responses to Requests for Production served by Westcor on Houston assist in resolving the factual issue of whether the instant Policy was a renewal. Specifically, Request No. 5 requested, “Complete copies of any insurance policies, other than the Policy, issued by Houston to Titleworks.” (Doc. 70 at 4). Houston responded, “None.” (Doc. 70 at 4). Further, Request No. 13 requested, “Any and all documents related to any renewal of any insurance policy where Titleworks is identified as insured or additional insured.” (Doc 70 at 5). Houston responded, “None.” (Doc. 70 at 5). Under New York law, if an ambiguity is found, parties are permitted to submit extrinsic evidence of their intent at the time of entering into the contract. Demetrio v. Stewart Title Ins. Co., 124 A.D.3d 824, 826, 3 N.Y.S.3d 75, 77 (N.Y. App. Div.), leave to appeal denied, 25 N.Y.3d 906, 32 N.E.3d 962 (2015). As stated above, in this case Trakhtenberg and Westcor failed to show for discovery purposes that the terms, “Renewal” and “Inception Date” are subject to more than one meaning. Thus, the plain meaning of the Policy will govern as a matter of law and Westcor and Trakhtenberg are not entitled to discovery on the issue of a purported ambiguity in the Policy terms. 4 Therefore, Westcor's Motion to Compel as to Request Nos. 2, 3, and 12, and Trakhtenberg's Motion to Compel as to Request Nos. 3 and 4, and Interrogatory Nos. 2, 3, 4, 5, and 9 are denied. 4 Even if the Court assumes, arguendo, that federal law applies to the discoverability of the claims and underwriting files, the movants failed to show how any documents contained in the claims file would be relevant to resolving any alleged ambiguity. See Koster, 2016 WL 3014605 at *3 (holding that claims file was not relevant in a duty to defend action). Further, absent an allegation as to an underwriting issue or a prima facie showing of an ambiguity in the insurance policy terms, the underwriting file is not discoverable. Id. (citing Milinazzo, 247 F.R.D. at 703-03). C. Westcor Requests Relating to Houston's Sixth Affirmative Defense *6 In Westcor's Request Nos. 19, 20, 21, 22, and 23, Westcor seeks information concerning Houston's Sixth Affirmative Defense. As drafted, these Requests are overbroad because they request “any and all documents related to” a subject. The Court deems the Middle District of Florida's Discovery Handbook persuasive on this issue. The Discovery Handbook states that a request for production must be “clear, concise, and reasonably particularized.” See Middle District Discovery (2015) at 11. The specific example in the Discovery Handbook provides that “a request for ‘each and every document supporting your claim’ or a request for ‘the documents you believe support Count I’ is objectionably broad in most cases.” Id. In this case, the Court finds that the requests at issue are not sufficiently particularized. Requesting “any and all documents” that support a contention in an affirmative defense is not sufficiently particularized and is facially overbroad. However, the Court will reformulate these document requests to call for the production of all documents upon which Houston presently intends to rely for summary judgment purposes or at trial to prove the referenced affirmative defense. Houston shall produce all non-privileged documents responsive to these requests, as reformulated by the Court, within fourteen (14) days. As for the documents Houston apparently thought it produced, Westcor footnotes throughout its Motion to Compel that no documents were actually produced. (See Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 76 of 177 Houston Specialty Insurance Company v. Titleworks of Southwest..., Slip Copy (2016) 2016 WL 7130939 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 Doc. 67 n.3-8). If Houston has failed to produce the documents it agreed to provide, then within seven (7) days from the date of this Order, Houston must produce the documents that it failed to attach to its responses. The parties are ordered to confer immediately in good faith to determine if any documents Houston intended to produce are, in fact, missing from the attempted production. Further, Houston shall comply with Fed. R. Civ. P. 34(b)(2)(E). For the documents Houston has produced, within seven (7) days from the date of the Order, Houston's counsel shall state in writing to opposing counsel whether the documents were produced as they were kept in the “usual course of business.” If not, Houston shall “organize and label them to correspond to the categories in the request.” Fed. R. Civ. P. 34(b)(2)(E). Accordingly, IT IS HEREBY ORDERED: 1) For the reasons states above, Trakhtenberg's Amended Motion to Compel Responses to Interrogatories and Request for Production of Documents (Doc. 82) is DENIED as stated above. 2) Trakhtenberg's Motion to Compel Responses to Interrogatories and Requests for Production of Documents (Doc. 61) is DENIED. 3) For the reasons states above, Westcor's Motion to Compel Discovery Responses and Documents From Plaintiff and for Sanctions (Doc. 67) is GRANTED in part and DENIED in part as stated above. 4) The Court does not find that an award of fees or costs is justified. The parties shall each bear their own fees and costs. DONE AND ORDERED in Fort Myers, Florida on July 19, 2016. All Citations Slip Copy, 2016 WL 7130939 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 77 of 177 Koster v. Landmark American Insurance Company, Slip Copy (2016) 2016 WL 3014605 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2016 WL 3014605 Only the Westlaw citation is currently available. United States District Court, M.D. Florida, Ocala Division. Donald Koster, Yvonne Koster, Judith Hulsander, Richard Vermillion and Patricia Vermillion, Plaintiffs, v. Landmark American Insurance Company, Defendant. Case No: 5:14-cv-689-Oc-37PRL | Signed 05/20/2016 ORDER PHILIP R. LAMMENS, United States Magistrate Judge *1 Before the Court is Plaintiffs' renewed motion to compel. (Doc. 56). On July 17, 2015, Plaintiffs filed a motion to compel Defendant's response to Plaintiffs' outstanding discovery requests. (Doc. 21). Two months later, I denied the motion to compel without prejudice pending the resolution of this Court's jurisdiction. (Doc. 33). On January 25, 2016, the Plaintiffs filed their second amended complaint, resolving the jurisdictional issue. (Doc. 39). On March 10, 2016, Plaintiffs filed their renewed motion to compel (Doc. 56). Then, Defendant timely filed its memorandum opposing the motion to compel (Doc. 58) and Plaintiffs have filed a reply to Defendant's memorandum (Doc. 65). Upon due consideration, Plaintiffs' motion (Doc. 56) is due to be denied in large part and granted in part as set forth below. I. BACKGROUND This 28 U.S.C. § 1332 diversity jurisdiction case is a breach of contract action brought by Plaintiffs Donald Koster, Yvonne Koster, Donald Hulslander, Judith Hulslander, Richard Vermillion, and Patricia Vermillion (the “Plaintiffs”) against Defendant Landmark American Insurance Company (the “Defendant”). In early 2010, Defendant issued a Professional Liability Insurance Policy (the “Policy”) to Mills, Potoczak & Company (“MPC”), an Ohio accounting firm. The Plaintiffs then brought two state-court actions against, inter alia, MPC, alleging claims for the sale of unregistered securities, breach of fiduciary duty, and unjust enrichment (the “Koster and Hulslander actions”). Based on the Policy, MPC asserted that Defendant had a duty to defend and indemnify MPC against the Koster and Hulslander actions. However, Defendant declined to do so. MPC subsequently entered a settlement agreement with the Plaintiffs and assigned its purported breach of Policy claim against Defendant to Plaintiffs. Plaintiffs now seek damages for breach of contract based on that assigned right, and Defendant has answered. II. LEGAL STANDARD Motions to compel discovery under Rule 37(a) of the Federal Rules of Civil Procedure are committed to the sound discretion of the trial court. See Commercial Union Ins. Co. v. Westrope, 730 F.2d 729, 731 (11th Cir. 1984). Pursuant to Rule 26(b), “[p]arties 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.” Fed. R. Civ. P. 26(b)(1). “The overall purpose of discovery under the Federal Rules is to require the disclosure of all relevant information so that the ultimate resolution of disputed issues in any civil action may be based on a full and accurate understanding of the true facts, and therefore embody a fair and just result.” Oliver v. City of Orlando, No. 6:06- cv-1671-Orl-31DAB, 2007 WL 3232227, * 2 (M.D. Fla. Oct. 31, 2007) (citing United States v. Proctor & Gamble Co., 356 U.S. 677, 682 (1958)). The moving party “ ‘bears the initial burden of proving that the information sought is relevant.’ ” Douglas v. Kohl's Dep't Stores, Inc., No. 615CV1185ORL22TBS, 2016 WL 1637277, at *2 (M.D. Fla. Apr. 25, 2016) (quoting Moore v. Lender Processing Servs. Inc., No. 3:12-CV-205-J, 2013 WL 2447948, at *2 (M.D. Fla. June 5, 2013)). “Relevancy is determined based on the ‘tendency to make a fact more or less probable than it would be without the evidence, and the fact is of consequence in determining the action.’ Fed. R. Evid. 401” Hankinson v. R.T.G. Furniture Corp., No. 15-81139- Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 78 of 177 Koster v. Landmark American Insurance Company, Slip Copy (2016) 2016 WL 3014605 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 civ-Cohn/Seltzer, 2016 WL 1182768, at *1 (S.D. Fla. Mar. 28, 2016) (quoting Garcia v. Padilla, No. 2:15-cv-735- FtM-29CM, 2016 WL 881143, at *2 (M.D. Fla. Mar. 8, 2016)). *2 Proportionality requires counsel and the court to consider whether relevant information is discoverable in view of the needs of the case. In making this determination, the court is guided by the non-exclusive list of factors in Rule 26(b)(1). Graham & Co., LLC v. Liberty Mut. Fire Ins. Co., No. 2:14-cv-2148-JHH, 2016 WL 1319697, at *3 (N.D. Ala. April 5, 2016). “Any application of the proportionality factors must start with the actual claims and defenses in the case, and a consideration of how and to what degree the requested discovery bears on those claims and defenses.” Id. (quoting Witt v. GC Servs. Ltd. P'ship, 307 F.R.D. 554, 569 (D. Colo. 2014)). When objecting to a discovery request, the “[p]arties are not permitted to assert ... conclusory, boilerplate objections that fail to explain the precise grounds that make the request objectionable.” Martin v. Zale Delaware, Inc., No. 8:08-CV-47-T-27EAJ, 2008 WL 5255555, at *1 (M.D. Fla. Dec. 15, 2008). Indeed, an objecting party “must explain its reasoning in a specific and particularized way” and “an objection that a discovery request is irrelevant ... must include a specific explanation describing why.” Id. at *1-2. Finally, “[o]bjections based on privilege or work product protection must be made expressly.” Nationwide Mut. Fire Ins. Co. v. Kelt, Inc., No. 6:14- CV-749-ORL-41, 2015 WL 1470971, at *4 (M.D. Fla. Mar. 31, 2015) (noting that “[a] party cannot assert a privilege by saying that responsive documents might be privileged”). III. DISCUSSION A. Requests For Production Under Rule 34, a party may serve, on any other party, a document request seeking information within the scope of Rule 26(b). Fed. R. Civ. P. 34(a). Any objection to a request must “state with specificity the grounds for objecting to the request, including the reasons” and state “whether any responsive materials are being withheld on the basis of that objection.” Fed. R. Civ. P. 34(b)(2)(B-C). At issue here are eleven requests for production in which Plaintiffs seek, among other things, Defendant's claims file, underwriting file, and claims handling protocols. At the most basic level, the parties dispute whether the requested documents are relevant to this breach of contract action. Defendant argues that the requested documents are irrelevant to whether it breached the Policy, which is the sole issue in this lawsuit. Defendant further states that the documents sought are only relevant to how it handled MPC's claims for defense and indemnification and, thus, these requests are premature until (and if) Plaintiffs allege that Defendant denied coverage in bad faith. In contrast, Plaintiffs argue that the requested documents are relevant, as the documents will help clarify two Policy exclusions that Defendant relies upon as affirmative defenses-namely, the “prior litigation” and “professional services” exclusions. (Doc. 65, pp. 4-5). According to Plaintiffs, given the parties differing yet reasonable interpretations of these undefined exclusions, they are ambiguous. However, a mere dispute over the applicability of policy terms “does not, in and of itself, make the term[s] ambiguous,” Milinazzo v. State Farm Ins. Co., 247 F.R.D. 691, 703 (S.D. Fla. 2007). Further, upon review of Plaintiffs' argument, they fail to explain how the requested documents would clarify these purported ambiguities; instead, they simply conclude that the documents will help explain why Defendant denied coverage. (Doc. 65, pp. 4-5). Yet, to the extent Plaintiffs argue the documents at issue will elucidate Defendant's interpretation of the “prior litigation” and “professional services” exclusions, this argument is unpersuasive as Defendant has already produced several documents that describe the legal and factual basis for why it believes the exclusions apply. (Doc. 65, Exs. 2-4). Absent a further showing that the requested documents are relevant to this lawsuit, the Court sustains, to the extent set forth below, Defendant's relevancy objections. *3 Plaintiffs' requests for documents regarding how Defendant handled the claims at issue (Production Request No. 1), as well as Defendant's underwriting decisions (Production Request No. 4), are not discoverable at this time. See Gavin's Ace Hardware, Inc. v. Federated Mut. Ins. Co., No. 2:11-CV-162-FTM-36, 2011 WL 5104476, at *3 (M.D. Fla. Oct. 27, 2011) (finding that a claims file was not relevant to the breach of contract claim at issue); Milinazzo, 247 F.R.D. at 702-03 (stating that in order to discovery into an underwriting file, in a breach of contract action, the movant must either allege an Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 79 of 177 Koster v. Landmark American Insurance Company, Slip Copy (2016) 2016 WL 3014605 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 underwriting issue or “make a prima fascia showing that material provisions of the policy are ambiguous”). Similarly, in Production Requests Nos. 5, 7, 8, and 10, Plaintiffs seek Defendant's claims handling standards, protocols, and procedures; claims handling incentive or performance program materials; personnel performance files; and marketing materials. (Doc. 56, pp. 8-10). Without a further showing of relevancy, documents responsive to these requests would be “irrelevant to the determination of coverage, (i.e. whether Defendant breached the insurance contract).” Milinazzo, 247 F.R.D. at 703 (stating that the “[d]efendant's failure to comply with internal guidelines ... is irrelevant to the determination of coverage”); Royal Bahamian Ass'n, Inc. v. QBE Ins. Corp., 268 F.R.D. 692, 694-95 (S.D. Fla. 2010). Further, in Production Request No. 20, Plaintiffs request that Defendant produce “any and all documents, records, communications, memoranda or otherwise, in any format, pertaining to MPC, maintained separately from Landmark's claims file, not otherwise produced.” (Doc. 21). Yet, Plaintiffs do not show how this obviously broad request seeks information relevant to the claims and defenses at issue here. Accordingly, Defendant's relevancy objection to Production Requests Nos. 1, 4, 5, 7, 8, 10, and 20 is sustained. Thus the motion to compel is DENIED as to those requests. The same cannot be said for Production Request No. 2, which seeks “MPC's premium payment record.” (Doc. 56, p. 7). Defendant objects that whether MPC paid the Policy premiums is not at issue in this case and is thus irrelevant. (Doc. 58, p. 6). However, Defendant's Sixteenth Affirmative Defense states that MPC has not performed all of its obligations under the Policy (Doc. 45, p. 11), and it appears that Defendant does not admit that MPC paid the Policy premiums. Accordingly, this relevancy objection is overruled. Defendant also objects that this request is not “limited in terms of policy period or the policy itself.” (Doc. 58, p. 6). That objection is sustained. Thus, Production Request No. 2 is GRANTED to the extent that Plaintiffs seek premium payment records as to the Policy. In Production Request No. 17, Plaintiffs request that Defendant produce information regarding the duty to defend and in Production Request No. 18 they make a similar request for “any other documents which you might use in support of a claim or defense, or which are relevant to a claim or defense of any party.” (Doc. 56, p. 11). Documents supporting a party's affirmative defenses are, of course, within the scope of discovery. Fed. R. Civ. P. 26(b)(1). Defendant objects that these requests improperly seek its legal opinion. Yet, “[w]hile counsel's thought- process is protected by either attorney client, or work product privilege, general facts to support an affirmative defense do not invade counsel's thought-process.” Heffron v. Citrus HMA, LLC, No. 5:13-CV-453-OC-22PRL, 2014 WL 1378815, at *3 (M.D. Fla. Apr. 8, 2014). Importantly, though, Defendant objects that these requests are moot as the responsive documents were produced in connection with its Rule 26 disclosures. (Doc. 58, p. 14). Accordingly, Defendant's objections are overruled to the extent state above and Production Requests Nos. 17 and 18 are GRANTED to the extent that Defendant has not already produced the responsive documents. *4 Finally, in Production Request No. 21, Plaintiffs request that Defendant produce “any and all documents relied upon or referred to in Landmark's responses to [Plaintiffs'] First Set of Interrogatories.” (Doc. 56, p. 12). Defendant states that it has already produced the responsive documents. (Doc. 58, p. 16). To the extent that Defendant has not produced the responsive documents, the objection is overruled and Production Request No. 21 is GRANTED. B. Interrogatories Unless otherwise provided by stipulation or court order, “a party may serve on any other party no more than 25 written interrogatories, including all discrete subparts.” Fed. R. Civ. P. 33(a)(1). “An interrogatory may relate to any matter that may be inquired into under Rule 26(b)” and “is not objectionable merely because it asks for an opinion or contention that relates to fact or the application of law to fact.” Fed. R. Civ. P. 33(a)(2). Any objection “must be stated with specificity.” Fed. R. Civ. P. 33(b)(4). In interrogatory No. 4, Plaintiffs request that Defendant state: “What information do you have for each of your denials, affirmative defenses, counterclaims, and cross claims?” (Doc. 56, p. 13). This District's Discovery Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 80 of 177 Koster v. Landmark American Insurance Company, Slip Copy (2016) 2016 WL 3014605 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 Handbook (which offers guidance, but is not controlling) provides that contention interrogatories, like this one, “should be used sparingly and, if used, should be designed (1) to target claims, defenses, or contentions that the propounding attorney reasonably suspects may be the proper subject of early dismissal or resolution or (2) to identify and narrow the scope of unclear claims, defenses, and contentions.” MIDDLE DISTRICT DISCOVERY (2015) at 17. Further, “[i]nterrogatories that purport to require a detailed narrative of the opposing parties' case are generally improper because they are overbroad and oppressive.” Id. Accordingly, Defendant's objection that this interrogatory-as written-seeks a detailed narrative of Defendant's entire case and does not target defenses subject to an early dismissal or narrow the scope of unclear defenses is sustained. See, e.g., Oliver v. City of Orlando, No. 606CV-1671-ORL-31DAB, 2007 WL 3232227, at *3-4 (M.D. Fla. Oct. 31, 2007) (denying a motion to compel answers to contention interrogatories where the movant had made no showing as to how the requested responses would either target issues subject to early dismissal or identify and narrow unclear claims or defenses); Freedman v. Lincoln Nat. Life Ins. Co., No. 3:05CV81-J-12HTS, 2005 WL 2850307, at *2 (M.D. Fla. Oct. 31, 2005) (denying a motion to compel responses to broad contention interrogatories, except for two which dealt with specific defenses). Thus the motion to compel a response to Interrogatory No. 4 is DENIED. In Interrogatories Nos. 7 and 14, Plaintiffs request that Defendant state the steps taken to “fully investigate the claim(s) submitted to Landmark by MPC for defense and/or indemnification” and the steps Defendant took “to investigate the facts pertinent to its coverage decisions with regard to the Koster and Hulslander lawsuits.” (Doc. 56, pp. 14-15). Defendant's objection that these interrogatories seek irrelevant information is sustained. The disclosures in Plaintiffs' possession (Doc. 65, Exs. 2-4) reveal Defendant's position on why the Policy doesn't apply. Whether it should or not is to ask whether failing to provide coverage was in breach. What steps Defendant took to arrive at the “why” appears to be irrelevant. That is, how Defendant went about researching or otherwise investigating “facts” pertinent to the coverage issue and who spoke to who about it all seems to go to how the claim was handled-that is to say whether there was any bad faith. But bad faith is not the issue. The issue is whether the contract applies or not, and Defendant has produced documents revealing why it says it doesn't. (See Doc. 65, Exs. 2-4). Therefore, Defendant's objection is sustained and the motion to compel responses to Interrogatories Nos. 7 and 14 is DENIED. *5 In Interrogatories Nos. 10 and 13, Plaintiffs request that Defendant state why it denied “MPC a defense and indemnification” and “what legal authorities did Landmark rely” in the Koster and Hulslander lawsuits. (Doc. 56, pp. 14-15). Defendant objects that these interrogatories seek irrelevant information. Yet, why Defendant denied coverage is clearly relevant to Plaintiffs' breach of contract claim. Defendant also objects that, under Rule 33(d), these interrogatories are moot as “the legal bases demonstrating the lack of coverage are set forth in the correspondence produced in connection with Landmark's initial Rule 26 disclosures.” 1 (Doc. 58, pp. 20-21). Accordingly, Defendant's objections are overruled and the motion to compel responses to Interrogatories Nos. 10 and 13 is GRANTED to the extent Defendant has not otherwise answered or produced responsive business records. 1 Under Rule 33(d), “[i]f the answer to an interrogatory may be determined by examining, auditing, compiling, abstracting, or summarizing a party's business records (including electronically stored information), and if the burden of obtaining the answer will be substantially the same for either party,” the responding party may answer by specifying certain records and giving the interrogating party a reasonable opportunity to examine and copy them. Fed. R. Civ. P. 33(d). IV. CONCLUSION Accordingly, it is now ORDERED: (1) Plaintiffs' renewed Motion to Compel (Doc. 56) is DENIED IN PART and GRANTED IN PART as set forth herein. (2) Under Fed. R. Civ. P. 37(a)(5)(C), each party shall bear its own attorney's fees and costs. DONE and ORDERED in Ocala, Florida on May 20, 2016. All Citations Slip Copy, 2016 WL 3014605 Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 81 of 177 Koster v. Landmark American Insurance Company, Slip Copy (2016) 2016 WL 3014605 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 82 of 177 Lebanon School Dist. v. Netherlands Ins. Co., Not Reported in F.Supp.2d (2013) 2013 WL 308702 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 KeyCite Yellow Flag - Negative Treatment Distinguished by Peerless Ins. Co. v. Pennsylvania Cyber Charter School, W.D.Pa., May 13, 2014 2013 WL 308702 Only the Westlaw citation is currently available. United States District Court, M.D. Pennsylvania. LEBANON SCHOOL DISTRICT, Plaintiff v. The NETHERLANDS INSURANCE COMPANY, et al., Defendants. No. 1:12-cv-988. | Jan. 25, 2013. Attorneys and Law Firms Harry W. Reed, Jr., Buzgon Davis, Lebanon, PA, for Plaintiff. Eric A. Fitzgerald, Marshall, Dennehey, Warner, Coleman & Goggin, Scranton, PA, Thomas B. Schmidt, III, Pepper Hamilton, LLP, Harrisburg, PA, for Defendants. MEMORANDUM YVETTE KANE, Chief Judge. *1 Before the Court are the parties' cross motions for judgment on the pleadings concerning Defendants the Netherlands Insurance Company and its associated insurance companies' duty to defend and indemnify Plaintiff Lebanon School District for its costs arising from defending a civil rights class action. (Doc. Nos.11, 15.) Both motions have been briefed and are now ripe for disposition. For the reasons that follow, the Court will grant Defendants' motion, and deny Plaintiff's motion. I. BACKGROUND This insurance coverage dispute stems from a civil rights class action also pending in this Court, Rivera v. Lebanon School District, No. 11-cv-147. Following Defendants' refusal to provide insurance coverage for legal costs arising from defending the Rivera lawsuit, Plaintiff Lebanon School District filed suit in the Court of Common Pleas of Lebanon County, seeking a declaratory judgment and damages for breach of contract against Defendants. Defendants subsequently removed the action to this Court based on diversity jurisdiction. (Doc. No. 1.) A. Scope of Insurance Coverage Under the terms of the insurance policy, Defendants have a duty to defend Plaintiff in any suit seeking “loss” because of a “wrongful act.” (Doc. No. 12-1 at 155-156.) “Loss” is defined as “monetary damages, judgments (including prejudgment interest awarded against the insured on that part of the judgment paid by us), or settlements.” (Id. at 179.) Although “wrongful act” is expansively defined as “any actual or alleged act, breach of duty, neglect, error, admission, misstatement, or misleading statement committed by the insured, or by any person for whose actions the insured is legally liable, while in the course of performing ‘educational institution’ duties,” the coverage is limited to “ ‘wrongful acts' to which the insurance applies.” (Id. at 156, 171.) In other words, the “wrongful act” must be otherwise covered under the policy in order to trigger Defendants' duty to defend. (Id. at 156.) The policy also contains a “Law Enforcement Professional Liability” exclusion, which applies to the School Leaders Errors and Omissions (SLEO) Omnibus Coverage and the Commercial General Liability Coverage provisions of the policy. Under the exclusion, Plaintiff is precluded from coverage for any claim arising out of “law enforcement activities,” which are defined as activities within the scope of the school's law enforcement personnel's authorized duties. (Id. at 153, 181.) The SLEO Omnibus Coverage also contains an “Illegal Profit or Advantage” exclusion, which precludes coverage for claims arising out of wrongful acts that result in profit to the insured to which it was not otherwise legally entitled. (Id. at 189.) B. Rivera v. Lebanon School District Lawsuit The plaintiffs in the Rivera lawsuit, parents of children attending school in the Lebanon School District, filed suit against Plaintiff Lebanon School District on January 20, 2011. Rivera v. Lebanon School District, No. 11-cv- 147 (Doc. No. 1.). In their complaint, the plaintiffs allege that during the period between the start of the 2004-05 school year and the end of the 2008-09 school year, the Lebanon School District and its officials sought truancy Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 83 of 177 Lebanon School Dist. v. Netherlands Ins. Co., Not Reported in F.Supp.2d (2013) 2013 WL 308702 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 fines that exceeded the amount allowable under Section 13-1333(a) (1) of the Pennsylvania Public School Code of 1949, as amended, 24 P .S. § 13-1333(a)(1). (Id. ¶ 15.) The Rivera plaintiffs further allege that after the Pennsylvania chapter of the National Association for the Advancement of Colored People (PA-NAACP) confronted the Lebanon School District in 2009 about the excessive truancy fines, the school district colluded with the magisterial district courts to selectively adjust unpaid truancy fines in excess of Section 13-1333(a)(1), but chose not to adjust any excessive truancy fines that had already been paid in full. (Id. ¶ 20.) The plaintiffs argue that the school district's selective adjustment of certain excessive truancy fines violated the Equal Protection Clause of the United States Constitution. The Rivera plaintiffs also maintain that the school district should reimburse any plaintiffs that paid excessive truancy fines. (Id. ¶¶ 35-39.) II. STANDARD OF REVIEW *2 Under Federal Rule of Civil Procedure 12(c), a moving party is entitled to judgment on the pleadings if she can show that the non-moving party would not be entitled to relief under any set of facts that could be proven consistent with the allegations of the complaint. Core States Bank v. Huls Am., Inc., 176 F.3d 187, 193 (3d Cir.1999). When considering a motion for judgment on the pleadings, the facts as presented in the pleadings and the inferences to be drawn therefrom must be viewed in the light most favorable to the non-moving party. Sikirica v. Nationwide Ins. Co. ., 416 F.3d 214, 220 (3d Cir.2005). The Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, provides a remedy that may be used by the federal courts in certain circumstances. The statute provides that a court “may declare the rights ... of any interested party.” 28 U.S.C. § 2201(a). Jurisdiction conferred by this act is discretionary and the district courts are under no compulsion to exercise it. Atl. Mut. Ins. Co. v. Gula, 84 F. App'x. 173, 174 (3d Cir.2003) (citation and quotation marks omitted). III. DISCUSSION This case is before the Court on diversity jurisdiction. (Doc. No. 1.) Federal courts sitting in diversity must apply state substantive law and federal procedural law. Robertson v. Allied Signal, Inc., 914 F.2d 360, 378 (3d Cir.1990). Under Pennsylvania law, an insurer may seek a declaratory judgment with respect to the obligations of the parties under an insurance contract, including the question of whether the insurer has a duty to defend or indemnify a party making a claim under the policy. Gen. Accident Ins. Co. of Am. v. Allen, 547 Pa. 693, 692 A.2d 1089, 1095 (Pa.1997). The interpretation of an insurance contract regarding the existence or non- existence of coverage is generally performed by the court. Nationwide Mut. Ins. Co. v. CPB Int'l, Inc., 562 F.3d 591, 595 (3d Cir.2009); 401 Fourth Street v. Investors Ins. Grp., 583 Pa. 445, 879 A.2d 166, 170 (Pa.2005). An insurer's duty to defend, which requires the insurer to cover the costs of defending the insured against a lawsuit, is separate and distinct from the duty to indemnify an insured. Key Handling Sys., Inc. v. Workers' Comp. Appeal Bd., 729 A.2d 109, 116 (Pa.Commw.Ct.1999); see also Specialty Surfaces Int'l., Inc. v. Cont'l Cas. Co., 609 F.3d 223, 237-38 (3d Cir.2010). An insurance company's duty to defend a suit brought against an insured is determined solely on the basis of the allegations of the complaint in the underlying action. Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Comm. Union Ins. Co., 589 Pa. 317, 908 A.2d 888, 896 (Pa.2006). If a single claim in a multi-claim lawsuit is potentially covered, the insurer must defend all claims until there is no possibility that the plaintiff could recover on a covered claim. Erie Ins. Exch. v. Transam. Ins. Co., 516 Pa. 574, 533 A.2d 1363, 1368 (Pa.1987). However, an insurer does not have a duty to defend when it is apparent on the face of the complaint that none of the injuries fall within the purview of the policy. Peerless Ins. Co. v. Brooks Sys. Corp., 617 F.Supp.2d 348, 356 (E.D.Pa.2008). *3 When determining the insurer's duty to defend, the court errs if it considers any pleadings or evidence apart from the plaintiff's complaint in the underlying action. Kvaerner, 908 A.2d at 896 (referring to the “well- reasoned and long-standing rule that an insurer's duty to defend is triggered, if at all, by the factual averments in the complaint itself”); see also State Farm Fire & Cas. Co. v. Estate of Mehlman, 589 F.3d 105, 108 n. 3 (3d Cir.2009) (determining the duty to defend solely from the allegations in the insured's complaint, although discovery had taken place in which “more germane facts” may have emerged); Nationwide Mut. Fire Ins. Co. v. Malofiy, 2011 WL 1050050, No. 10-2410 at *2 (E.D.Pa. March 22, 2011) (despite “disputed facts,” the court was limited to the “four corners” of the complaint in the underlying action when determining the duty to defend). Under Pennsylvania law, the particular cause of action alleged is Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 84 of 177 Lebanon School Dist. v. Netherlands Ins. Co., Not Reported in F.Supp.2d (2013) 2013 WL 308702 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 not determinative of whether an insurer's duty to defend has been triggered; instead, the court must focus solely on the factual averments contained in the complaint itself. Mut. Benefit Ins. Co. v. Haver, 555 Pa. 534, 725 A.2d 743, 745 (Pa.1999). Determining whether an insurer has a duty to defend an insured is a two-step process. First, the court must ascertain the scope of coverage under the policy. Britamco Underwriters, Inc. v. Grzeskiewicz, 433 Pa.Super. 55, 639 A.2d 1208 (Pa.1994). Second, the court must examine the underlying complaint to determine whether the allegations set forth trigger coverage under the terms of the policy. Kvaerner, 908 A.2d at 897. In making this determination, the court must solely rely on the allegations of the complaint, which are to be taken as true and liberally construed in favor of the insured. Biboroash v. Transam. Ins. Co., 412 Pa.Super. 505, 603 A.2d 1050, 1052 (Pa.1992). Moreover, when a defendant insurance company asserts that a policy exclusion relieves it of the duty to defend a claim against its insured, the defendant bears the burden of proving that such exclusion is applicable under the circumstances. Erie Ins. Exch., 553 A.2d at 1363. A. Duty to Defend Under the terms of the SLEO Omnibus Coverage Clause, Defendants have a duty to defend Plaintiff in the event of a “loss” resulting from a “wrongful act.” (Doc. No. 12-1 at 156.) As defined in the policy, a “loss” means “monetary damages, judgments (including prejudgment interest awarded against the insured on that part of the judgment paid by us), or settlements.” (Id. at 179.) “Loss” does not include “[c]ost of compliance with any injunctive or non-monetary relief action,” or legal fees when “solely injunctive or other non-monetary relief is sought.” (Id.) “Wrongful act” as defined in the policy means “any actual or alleged act, breach of duty, neglect, error ... committed by the insured, or by any person for whose actions the insured is legally liable, while in the course of performing educational institution duties.” (Id . at 171.) As a result, any duty to defend could only have arisen in the context of a lawsuit that sought, in whole or in part, legal relief or compensatory damages. *4 Defendants argue that their duty to defend Plaintiff is not triggered because the Rivera plaintiffs exclusively seek declaratory and injunctive relief and restitution of excessive truancy fines, and therefore Plaintiff has not suffered a loss under the terms of the policy. (Doc. No. 12 at 12.) In response, Plaintiff argues that the Rivera complaint contains due process and equal protection allegations that fall within the definition of a “loss.” Plaintiff also asserts that because the Rivera plaintiffs request that the Lebanon School District develop truancy elimination plans for each student, fund truancy elimination programs, and expend resources locating class members, these requests for relief constitute a “loss” and therefore Defendants' duty to defend Plaintiff is triggered. (Doc. No. 16 at 10.) Legal damages, generally framed as compensatory or punitive damages, are available in a Section 1983 action when they have been sought by the parties. Carey v. Piphus, 435 U.S. 247, 266, 98 S.Ct. 1042, 55 L.Ed.2d 252 (1978); see also Lakaris v. Thorburgh, 733 F.2d 260, 263 (3d Cir.1984) (“[A] claim for compensatory and punitive damages is a legal claim.”). In contrast, a judicial remedy requiring one party to pay money to another is not sufficient to characterize the requested relief as legal damages. Bowen v. Mass., 487 U.S. 879, 893, 108 S.Ct. 2722, 101 L.Ed.2d 749 (1988); see also Maryland Cas. Co. v. Armco, Inc., 822 F.2d 1348, 1352 (4th Cir.1987) (“Damages, as distinguished from claims for injunctive or restitutionary relief, include only payments to third persons when those persons have a legal claim for damages.”) (citation and quotation marks omitted). Moreover, praying for “any other relief” that the court may order does not convert an otherwise equitable claim for relief into a prayer for legal damages. Lewis v. Hyland, 554 F.2d 93, 103 (3d Cir.1977). Pennsylvania courts are in accord. See Blackman v. Katz, 390 Pa.Super. 257, 568 A.2d 642, 645 (Pa.Super.Ct.1990) (distinguishing between the equitable relief encompassed by directing one party to account for monies received from unlawful solicitation, and the “legal remedy which requires that [he] pay monetary damages for loss of business and goodwill” as the result of the unlawful solicitation). The Court finds that the relief sought in the Rivera complaint does not constitute a loss for the purposes of triggering Defendants' duty to defend under the policy. The Rivera complaint is captioned: “Class Action for Declaratory and Injunctive Relief and for Restitution of Illegal Truancy Fines Retained By the Lebanon School District.” Rivera, et al. v. Lebanon School District, No. 11- cv-1147 (Doc. No. 1 at 2.) Nowhere in the complaint do the plaintiffs seek legal damages; instead, they only “seek[ ] Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 85 of 177 Lebanon School Dist. v. Netherlands Ins. Co., Not Reported in F.Supp.2d (2013) 2013 WL 308702 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 declaratory and injunctive relief on behalf of those persons who are being arbitrarily discriminated against by the School District ... [and] declaratory and injunctive relief for violations of the Pennsylvania Constitution and Public School Code and equitable restitution of the illegal fines paid to the District.” (Id. at 3-4.) Although compensatory and punitive damages are available in a Section 1983 action, the Rivera plaintiffs do not seek such damages. Because Plaintiff seeks coverage for “costs of compliance with any injunctive or non-monetary relief action” and “ ‘legal fees' when solely injunctive or other non-monetary relief is sought,” neither of which qualify as a “loss” under the terms of the policy, the Court finds that Defendants do not have a duty to defend Plaintiff. B. Exclusions *5 Even were Defendants' duty to defend Plaintiff triggered under the SLEO Omnibus Coverage clause, the scope of that duty is limited to “wrongful acts to which this insurance applies.” (Doc. No. 12-1 at 156.) Thus, Defendants must defend Plaintiff only if the underlying allegations of the complaint are not otherwise excluded from coverage. Under the terms of the policy, the “Law Enforcement Professional Liability” exclusion as applied to both the SLEO Omnibus Coverage Clause and the Commercial General Liability Coverage could negate Defendants' duty to defend, 1 as could the “Illegal Profit or Advantage Exclusion” as applied to the SLEO Omnibus Coverage Clause. 1 Defendants also assert that Plaintiff is precluded from seeking coverage under the Commercial General Liability (CGL) package of coverage because the underlying claim does not set forth allegations constituting “bodily injury,” “property damage,” or “personal and advertising injury.” (Doc. No. 12 at 14.) Plaintiff does not respond to these arguments in its brief in opposition. As Defendants' duty to defend is not triggered under the SLEO Omnibus Coverage Clause, and is otherwise precluded by the “Law Enforcement Professional Liability and “Illegal Profit or Advantage” exclusions, the Court need not address this argument. 1. Law Enforcement Professional Liability Exclusion The insurance policy contains a “Law Enforcement Professional Liability” exclusion that applies to both the SLEO Omnibus Coverage and Commercial General Liability Coverage. Under the terms of the exclusion, any claim “arising out of” the performance of “law enforcement activities” by the insured or by any person for whose acts the insured was legally liable is not covered under the policy. (Id. at 181.) For the purposes of the exclusion, “law enforcement activities” are defined as “activities, services, advice or instruction that are within the scope of the authorized duties of the educational institution's law enforcement or security guard personnel.” (Id.) Defendants argue that Robert Bowman, acting as attendance officer for the school district, meets the definition of law enforcement personnel as framed in the policy because an attendance officer is invested with “full police power” under 24 P.S. § 1341(a) to enforce the compulsory school attendance laws. (Doc. No. 12 at 7- 8.) Moreover, Defendants contend that because the Rivera allegations concern district officials' improper issuing of truancy citations, the plaintiffs' equal protection claims concerning the selective adjustment of truancy fines “arise out of” these law enforcement activities. (Id. at 9.) In response, Plaintiff claims that Defendants' analysis is flawed because the civil rights complaint does not allege that Mr. Bowman directed the campaign of intensive use of truancy citations and excessive fines, but, rather, only that the campaign coincided with his appointment. (Doc. No. 16 at 11.) Thus, Plaintiff argues that Mr. Bowman's actions, as alleged in the complaint, do not constitute law enforcement activities because they were not undertaken at the direction of law enforcement personnel. Second, Plaintiff disputes Defendants' legal analysis of the phrase “arising out of” when used in the context of the policy, claiming that Defendants cited cases irrelevant to the type of policy exclusion presented in this case. (Id.) When determining an insurance company's duty to defend or indemnify the insured, courts have interpreted the phrase “law enforcement activities” as broadly encompassing impropriety or negligence by law enforcement officers in the course of their duties. Clarendon Nat'l Ins. Co. v. City of York, 121 F. App'x 940, 943-44 (3d Cir.2005); see also W. World Ins. Co. v. Reliance Ins. Co., 892 F.Supp. 659 (M.D.Pa.1995). A law enforcement officer's failure to follow protocols or established policies does not necessarily mean that he is acting outside the scope of his law enforcement function. 2 Clarendon, 121 F. App'x at 943. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 86 of 177 Lebanon School Dist. v. Netherlands Ins. Co., Not Reported in F.Supp.2d (2013) 2013 WL 308702 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 2 The United States Court of Appeals for the Third Circuit has noted that the term “law enforcement activities” should not be narrowly read because when a lawsuit arises from law enforcement action, the complaint usually alleges that the law enforcement official was not acting in conformity with her law enforcement function. Clarendon, 121 F. App'x at 943. *6 Under Pennsylvania law, the phrase “arising out of” in the context of insurance coverage disputes should be construed as “causally connected with, not proximately caused by,” and this expansive reading has been applied in various insurance law settings. Allstate Prop. & Cas. Ins. Co. v. Squires, 667 F.3d 388, 391 (3d Cir.2012); see also Murdock v. Dinsmoor, 892 F.2d 7, 8 (1st Cir.1989) (“arising out of” should be broadly read to cover activities “originating from, growing out of, flowing from, incident to, or having connection with” the underlying conduct). In other words, “but for” causation generally governs a court's interpretation of “arising out of” when used in an insurance policy. Allstate Prop. & Cas. Ins. Co., 667 F.3d at 391-92 (citing Mfr. Cas. Ins. Co. v. Goodville Mut. Cas. Co., 403 Pa. 603, 170 A.2d 571. 573 (Pa.1961)). Looking solely at the allegations of the complaint, the Rivera plaintiffs allege that the school district filed more than twelve-hundred (1200) truancy citations for violations of Pennsylvania's compulsory school attendance law each year starting in the 2004-05 school year, and “[t]he School District began the campaign of intensive use of court citations and excessive fines for truancy in the 2004-05 school year with the appointment of Robert Bowman as attendance officer, with the fines increasing each school year through 2008-09.” Rivera v. Lebanon School District, No. 11-cv-147, Doc. No. 1 ¶¶ 9-10. The Rivera plaintiffs further allege that “[d]istrict officials serve the summonses, prosecute the truancies, provide the court with information on the students' attendance, and make recommendations on punishment.” (Id. ¶ 12.) Under the terms of the exclusion, which defines law enforcement activities as “activities ... within the scope of the authorized duties of the ‘educational institution's' law enforcement or security guard personnel” (Doc. No. 12-1 at 181), the Court finds the allegations concern “law enforcement activities,” as they describe activities within the scope of the district officials' duties to enforce the compulsory school attendance law. The Court next turns to whether the claims in the Rivera complaint “arise out of” the performance of “law enforcement activities.” The Rivera complaint alleges that the school district violated the Equal Protection Clause of the United States Constitution when it colluded with the magisterial district courts to selectively reduce only unpaid excessive truancy fines, while retaining any paid truancy fines. (Id. ¶¶ 18-19.) Under the but-for formulation of “arising out of” adopted by the Pennsylvania courts, the Court finds the alleged selective adjustment of these fines would not have occurred but for the school district's alleged seeking of excessive fines through filing improper truancy citations. (Id. ¶¶ 9-12.) The Court thus concludes that the Rivera complaint “arises out of” law enforcement activities as defined in the exclusion. Plaintiff is therefore precluded from coverage under the “Law Enforcement Professional Liability” exclusion as applied to both the SLEO Omnibus Coverage and the Commercial General Liability Coverage. 2. Illegal Profit or Advantage Exclusion *7 Plaintiff's policy of SLEO Omnibus Coverage contains an “Illegal Profit or Advantage Exclusion.” (Doc. No. 12-1 at 189.) Under the terms of the exclusion, the SLEO Omnibus Coverage does not extend to any insured who “commits a ‘wrongful act’ that gains .... a profit or advantage of which the insured or other person or organization was not legally entitled.” (Id.) “Wrongful act” is defined as “any actual or alleged act, breach of duty, neglect, error, omission, misstatement, or misleading statement committed by the insured, or by any person for whose acts the insured is legally liable, while in the course of performing ‘educational institution’ duties.” (Id. at 216.) Defendants assert that Plaintiff is excluded from seeking coverage under this exclusion because the Rivera complaint alleges that Plaintiff retained excessive truancy fines to which it was not entitled under Section 13-1333(a) (1). (Doc. No. 12 at 13.) In response, Plaintiff argues that the allegations of the underlying complaint are focused on the “procedures used to reduce certain fines while not reducing others,” and thus the underlying complaint cannot be construed as alleging that Plaintiff sought an illegal profit to which it was not entitled. (Doc. No. 16 at 15.) Generally, an insurer must cite allegations that an insured gained illegal profit or advantage when arguing that an Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 87 of 177 Lebanon School Dist. v. Netherlands Ins. Co., Not Reported in F.Supp.2d (2013) 2013 WL 308702 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 insured is not entitled to insurance coverage because of an illegal profit exclusion. Alstrin v. St. Paul Mercury Ins. Co., 179 F.Supp.2d 376, 399 (D.Del.2002). When faced with an exclusion similar to the one at issue in this case, courts have distinguished between an insured seeking a profit or gain that is illegal, which will be precluded, and an insured engaging in illegal acts that incidentally result in profit to the insured. Id. at 400. In the Rivera complaint, the plaintiffs allege that the school district “sought and obtained” truancy fines in excess of the amount allowable by Section13-1333(a)(1). Rivera et al. v. Lebanon School District, No. 11-cv-147 (Doc. No. 1 ¶¶ 13-15.) The complaint further alleges that although the school district has not reimbursed any individuals that paid excessive fines in full, it adjusted any excessive fines that were unpaid to the amount allowable by law. (Id. ¶ 16.) The Court therefore rejects Plaintiff's argument that the alleged selective reduction did not lead to the school district obtaining a profit it was not legally entitled to; selectively reducing unpaid truancy fines while retaining excessive paid fines would enable Plaintiff to retain profit it would not be entitled to under Section 13-1333(a)(1). Without the selective adjustment of only unpaid fines, Plaintiff would not retain fines in excess of the law. Thus, the Court finds that the Rivera allegations support a finding that Plaintiff is precluded from seeking coverage under the “Illegal Profit or Advantage Exclusion.” C. Duty to Indemnify Plaintiff *8 Defendants also assert that they do not owe Plaintiff a duty to indemnify it in the Rivera action. (Doc. No. 12 at 15.) Under Pennsylvania law, an insurer's duty to indemnify arises only when the insured is held liable for a claim that is actually covered by the policy. Whole Enchilada, Inc. v. Travelers Prop. Cas. Co. of Am., 581 F.Supp.2d 677, 694-95 (W.D.Pa.2008). A finding that the insured does not have a duty to defend under the policy will preclude the existence of a duty to indemnify the insured. Kvaerner, 908 A.2d at 896 n. 7 (“[B]ecause the duty to defend is broader, a finding that it is not present will also preclude a duty to indemnify.”); Scopel v. Donegal Mut. Ins. Co., 698 A.2d 602, 605 (Pa.Super.Ct.1997). The Court has found that Defendants are not obligated to defend Plaintiff in the Rivera complaint under the terms of the policy. Accordingly, the Court also finds that Defendants are not obligated to indemnify Plaintiff for its legal costs arising from defending that action. IV. CONCLUSION Defendants are not obligated to defend Plaintiff in the Rivera lawsuit, because the complaint exclusively seeks injunctive and declaratory relief. Defendants' duty to defend Plaintiff was limited to suits for monetary damages, not the costs of complying with equitable remedies. However, even if Defendants' duty to defend Plaintiff were triggered, Plaintiff is still precluded from seeking coverage because of the policy's “Law Enforcement Professional Liability” and “Illegal Profit or Advantage” exclusions. Furthermore, because Defendants' duty to defend Plaintiff was not triggered, the Court must necessarily find that Defendants are not obligated to indemnify Plaintiff. ORDER AND NOW, on this 25th day of January 2013, for the reasons set forth in the foregoing memorandum, IT IS HEREBY ORDERED THAT Defendants' motion for judgment on the pleadings is GRANTED. Plaintiff's motion for judgment on the pleadings (Doc. No. 15) is DENIED. IT IS FURTHER ORDERED THAT judgment is entered in favor of Defendants the Netherlands Insurance Company, Ohio Casualty, member of Liberty Mutual Group, and the nominal parties, Rosa Rivera, Omary Rodriguz-Fuentes, Madeline Echevarria, Lenora Hummel, and the PA- NAACP, declaring that Defendants are not obligated to defend nor indemnify Plaintiff under policy number CPB 9601085 for Plaintiff's costs arising from Rivera v. Lebanon School District, No. 11-cv-147. Judgment is entered against Plaintiff Lebanon School District. The Clerk of Court is directed to close the case. All Citations Not Reported in F.Supp.2d, 2013 WL 308702 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 88 of 177 Merrill Reuter, M.D. v. Pyhsicians Casualty Risk Retention Group, Slip Copy (2017) 2017 WL 395242 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2017 WL 395242 Only the Westlaw citation is currently available. United States District Court, S.D. Florida. Merrill Reuter, M.D., Plaintiff, v. Pyhsicians Casualty Risk Retention Group, a foreign profit corporation, Defendant. CASE NO. 16-80581-CV-MARRA/MATTHEWMAN | Signed 01/27/2017 Attorneys and Law Firms Christa Lauren McCann, Clark Fountain La Vista Prather Keen & Littky-Rubin, West Palm Beach, FL, for Plaintiff. Matthew B. Criscuolo, John David Dickenson, Cozen O'Connor, West Palm Beach, FL, Christopher Mark Ballentine, John Edwin Fisher, Fisher Rushmer Werrenrath Dickson et al., Orlando, FL, for Defendant. ORDER DENYING PLAINTIFF'S MOTION TO COMPEL PRODUCTION OF DOCUMENTS IN RESPONSE TO SUPPLEMENTAL REQUEST TO PRODUCE TO DEFENDANT, PHYSICIANS CASUALTY RISK RETENTION GROUP WILLIAM MATTHEWMAN, UNITED STATES MAGISTRATE JUDGE *1 THIS CAUSE is before the Court upon Plaintiff, Merrill Reuter, M.D.'s (“Plaintiff”) Motion to Compel Production of Documents in Response to Supplemental Request to Produce to Defendant, Physicians Casualty Risk Retention Group (“Motion”) [DE 43]. This matter was referred to the undersigned upon an Order referring all discovery matters to the undersigned for appropriate disposition. See DE 16. Defendant, Physicians Casualty Risk Retention Group (“Defendant”), filed a Response [DE 48], and Plaintiff filed an Amended Reply [DE 51]. The Court held a hearing on the Motion on January 24, 2017. The matter is now ripe for review. I. BACKGROUND This declaratory judgment and breach of contract action was brought by Plaintiff as a result of Defendant denying Plaintiff medical malpractice coverage following a Notice of Intent and subsequent lawsuit, which was brought by a patient against Plaintiff. Plaintiff filed this Motion [DE 43] requesting that the Court compel Defendant to produce all documents responsive to Plaintiff's Request for Production #1 and Request for Production #4. [DE 43, p. 2]. Specifically, Plaintiff wants to obtain copies of all versions of the claims liability policy used by Defendant prior to or subsequent to the policy issued to Plaintiff, and copies of all correspondence between Jody Schwahn and Chris Ballentine from April 14, 2014 through the date Plaintiff filed his Complaint relating to the decision to deny and/or rescind coverage for Plaintiff. Id. First, Plaintiff asserts that the prior and subsequent liability policy versions are relevant to the interpretation of the subject policy language, particularly with regard to the definition of “claim” in the policy and the language of the specific exclusions in the policy. [DE 43, p. 3]. According to Plaintiff, Defendant's corporate representative, Jody Schwahn, is responsible for drafting and revising Defendant's policies, and she testified at her deposition that there have been revisions made to clarify definitions or exclusions in prior and subsequent policies. Id. Second, Plaintiff claims that the communications between Jody Schwahn and Chris Ballentine “surrounding the decision to deny coverage are central to the issues in this case, and are not protected by the attorney-client privilege under these circumstances.” [DE 43, p. 4]. According to Plaintiff, these communications are central to the issues in this case because they discuss the reasons for denying coverage and rescinding Plaintiff's policy and because Ms. Schwahn testified at her deposition that she and Mr. Ballentine “collectively made the decision to deny coverage” to Plaintiff for his patient's claim against him. [DE 43, p. 5]. Plaintiff alleges that Mr. Ballentine was acting as Defendant's employee and in-house counsel, not as litigation counsel, at the time these communications occurred. Id. Plaintiff argues that Defendant is attempting to use the attorney-client privilege as a sword and a shield Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 89 of 177 Merrill Reuter, M.D. v. Pyhsicians Casualty Risk Retention Group, Slip Copy (2017) 2017 WL 395242 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 because it argues that its decision to deny coverage and rescind the policy was proper but also wants to prevent discovery into the communications surrounding these decisions. [DE 43, pp. 5-6]. *2 Defendant filed its Response [DE 48] asserting that it should not be compelled to produce any of the documents at issue. [DE 48, p. 2]. First, Defendant claims that Plaintiff is not entitled to production of Defendant's prior and subsequent policies because they are irrelevant to interpreting Plaintiff's policy under Florida law, which is the law applicable to this case. Id. According to Defendant, under Florida law, “interpretation of an insurance policy is a question of law to be determined by the court” and “[t]his determination is based on the language of the policy.” [DE 48, p. 3]. Second, Defendant asserts that Plaintiff is not entitled to the communications between Defendant's representative and Mr. Ballentine because they are protected by the attorney-client privilege. [DE 48, p. 4]. Defendant argues that it investigated Plaintiff's claim and issued its initial denial letter before it ever contacted Mr. Ballentine, who is outside counsel and not in-house counsel. [DE 48, p. 5]. Defendant contends that it is not using the attorney-client privilege as a sword and a shield because Mr. Ballentine is not going to be called as a witness and the Court will be deciding the coverage issues as a matter of law. [DE 48, p. 6]. In Plaintiff's Amended Reply [DE 51], he claims that, in a declaratory judgment and breach of contract claim, “where provisions of a contract are ambiguous and unclear on the face of the agreement, courts may consider evidence outside of the plain language in order to determine the intent of the parties at the time of formation of the contract at issue.” [DE 51, p. 2]. According to Plaintiff, this extrinsic evidence may include prior versions of an insurance policy. Id. Plaintiff contends that there is an ambiguity “as to the meaning and application of the ‘exclusions' to the facts of this case.” Id. Further, Plaintiff asserts that Ms. Schwahn testified at her deposition that Mr. Ballentine “was involved in the decision to deny coverage to [Plaintiff] for the medical malpractice claim at issue in this case.” [DE 51, pp. 2-3]. Therefore, Plaintiff claims that Mr. Ballentine's communications with Ms. Schwahn are not privileged. [DE 51, p. 3]. II. ANALYSIS Federal Rule of Civil Procedure 26(b)-which governs the scope of discovery-provides, in pertinent part, that “[p]arties 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.... Information within this scope of discovery need not be admissible in evidence to be discoverable.” Fed. R. Civ. P. 26(b)(1). As noted by Chief Justice John Roberts in his 2015 Year-End Report on the Federal Judiciary 1 , in which he discusses the importance of the December 1, 2015 amendments to the Federal Rules of Civil Procedure, the new Rules require that all parties and their counsel are required to size and shape their discovery requests to the requisites of a case. “Specifically, the pretrial process must provide parties with efficient access to what is needed to prove a claim or defense, but eliminate unnecessary or wasteful discovery.” Id. at p. 7; see e.g. O'Boyle v. Sweetapple, 2016 WL 492655, f.n. 2 (S.D. Fla. Feb. 8, 2016). This also means that parties and their counsel are required to confer in good faith before filing any discovery motion in an honest effort to resolve discovery disputes and ensure the just, speedy and inexpensive determination of every action or proceeding. As stated by Chief Justice Roberts: I cannot believe that many members of the bar went to law school because of a burning desire to spend their professional life wearing down opponents with creatively burdensome discovery requests or evading legitimate requests through dilatory tactics. The test for plaintiffs' and defendants' counsel alike is whether they will affirmatively search out cooperative solutions, chart a cost-effective course of litigation, and assume shared responsibility with opposing counsel to achieve just results. Year-End Report at p. 11. 1 See Chief Justice John Roberts, 2015 Year- End Report on the Federal Judiciary (Jan. 19, 2017) https://www.supremecourt.gov/publicinfo/ year-end/2015year-endreport.pdf. Thus, this Court must first determine whether the specific discovery sought is relevant to Plaintiff's claim or Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 90 of 177 Merrill Reuter, M.D. v. Pyhsicians Casualty Risk Retention Group, Slip Copy (2017) 2017 WL 395242 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 Defendant's defense and whether it is proportionate to the needs of the case. Then, the Court must determine whether the communications involving Mr. Ballentine are privileged, and, if so, whether any waiver has occurred. A. The Prior and Subsequent Liability Policies *3 For Request #1 relating to the prior and subsequent policies, Defendant cites Diamond State Ins. Co. v. His House, Inc., No. 10-20039-CIV, 2011 WL 146837 (S.D. Fla. 2011), for the proposition that interpretation of the prior and subsequent policies is not relevant in this case. In Diamond State, Judge Simonton noted that under Florida law, the construction and interpretation of an insurance policy is a question of law to be determined by the court. Id. at *2. She also noted that “if, after construing the policy, the court finds that more than one interpretation is possible, it must resolve the ambiguity against the insurer who drafted the language of the insurance contract.” Id.; see also Medmarc Cas. Ins. Co. v. Ventura, No. 07-23300-CIV, 2008 WL 4371311, *3 (S.D. Fla. Sept. 19, 2008). Therefore, the court in Diamond State concluded that a corporate representative's testimony regarding the interpretation of an insurance policy is irrelevant. Diamond State, 2011 WL 146837 at *4. Plaintiff relies on contract cases outside of the insurance context to argue that where provisions of a contract are ambiguous and unclear on the face of the agreement, courts may consider evidence outside of the plain language in order to determine the intent of the parties at the time of formation of the contract at issue. While such case law is relevant to general contract principles, the issue in the present case is the interpretation of an insurance contract. The Court finds that the analysis applied by Judge Simonton in Diamond State is applicable to the specific facts of the instant case and applies with equal force to discovery of the prior and subsequent liability policies. The prior and subsequent liability policies, and Defendant's interpretation of those prior and subsequent polices, are irrelevant to the Court's determination of whether Plaintiff's specific policy at issue in this case is ambiguous. If the Court finds that Plaintiff's specific policy was ambiguous then any ambiguity will, under Florida law, be resolved in favor of Plaintiff, the insured. There is no need for the Court to look at prior or subsequent versions of Defendant's policies to determine whether Plaintiff's policy is ambiguous. Further, the Court finds that production of the prior and subsequent policies would be disproportionate under Federal Rule of Civil Procedure 26(b)(1). The amount of time and expense that would go into discovery of “all versions of the claims liability policy used by [Defendant] prior or subsequent to the policy that was issued to [Plaintiff] on May 18, 2014” would be disproportionate to the needs of the case. Such a request could return countless versions of Defendant's prior and subsequent liability policies without any regard to whether those policies relate to Plaintiff's policy. Moreover, the prior and subsequent liability policies constitute unnecessary and wasteful discovery which is not permitted under Rule 26 (b)(1). B. The Attorney-client Privileged Communications For Request #4 relating to the attorney-client privilege, Mr. Ballentine, who is representing Defendant as outside counsel in this action, represented at the hearing that he is outside litigation counsel for Defendant. He further represented that he has never been an employee of Defendant and has never served as in-house counsel for Defendant. Defendant filed an affidavit of Ms. Schwahn which also supports Mr. Ballentine's representations to the Court. The Court finds that Plaintiff's counsel's representation in Plaintiff's Motion to Compel [DE 43, pp. 5-6] to the effect that Mr. Ballentine was an employee and in-house counsel for Defendant is simply not accurate. The facts show otherwise-Mr. Ballentine is outside counsel who was retained by Defendant in anticipation of litigation. Further, Mr. Ballentine represented that he was not involved in the initial decision to deny coverage to Plaintiff, and only got involved in the case after the initial coverage denial decision was made and at the point when Defendant anticipated litigation. *4 It is clear that Defendant sent its initial letter to Plaintiff denying coverage on August 1, 2014. [DE 48-2, p. 4]. The communications on Defendant's privilege log between Ms. Schwahn and Mr. Ballentine are all dated after the August 1, 2014 initial denial of Plaintiff's coverage. See DE 48-2, p. 14. Thus, it is clear that Mr. Ballentine had no involvement in Defendant's initial denial of Plaintiff's claim. Once an insurer denies a coverage claim, the documents may be privileged if there is anticipation of litigation. Milinazzo v. State Farm Ins. Co., 247 F.R.D. 691, 697 (S.D. Fla. 2007). As Mr. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 91 of 177 Merrill Reuter, M.D. v. Pyhsicians Casualty Risk Retention Group, Slip Copy (2017) 2017 WL 395242 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 Ballentine represented at the hearing, as an officer of the court, Defendant contacted him after it denied coverage to Plaintiff because it anticipated that litigation may follow. The Court finds that Mr. Ballentine was not retained as outside counsel in this case until such time as Defendant reasonably anticipated litigation. Therefore, the communications between Defendant's representative and Mr. Ballentine are clearly privileged. See Fla. Stat. § 95.502. 2 2 “Under Florida law, an attorney's client is permitted ‘to refuse to disclose, and to prevent any other person from disclosing, the contents of confidential communications when such other person learned of the communications because they were made in the rendition of legal services to the client.’ ” Maharaj v. Geico Casualty Co., 289 F.R.D. 666, 669 (S.D. Fla. 2013) (citing Fla. Stat. § 95.502). Plaintiff's counsel ultimately conceded at the hearing that these communications are attorney-client privileged; however, Plaintiff asserted that, although these documents are privileged, Defendant is using them as a sword and a shield and the privilege should not attach to them. Generally, a party waives the attorney-client privilege if the party “injects the very issue which requires testimony from his attorney.” Baratta v. Homeland Housewares, LLC, 242 F.R.D. 641, 643 (S.D. Fla. 2007)(citations omitted). However, in the instant case, Defendant is not attempting to use the attorney-client privilege to prejudice Plaintiff's case while simultaneously disclosing some selected communications for self-serving purposes. See id. The Court rejects Plaintiff's sword and shield argument as it is simply not applicable to the facts of this case. The Court also finds that applying the sword and shield doctrine in this case would essentially eviscerate the attorney-client privilege, one of the most sacrosanct principles of the law. 3 Defendant has established that Mr. Ballentine, as outside counsel, only became involved in the case after Defendant denied coverage to Plaintiff and once Defendant anticipated litigation. Further, Mr. Ballentine is not a witness in this case and will not be testifying. Therefore, the communications between Defendant's representative and Mr. Ballentine are attorney-client privileged communications and there is no sword and shield waiver. 3 See Upjohn Co. v. U.S., 449 U.S. 383, 388 (1981); see also Maharaj, 289 F.R.D. at 669 (“The confidentiality of attorney-client privileged communications ‘is an interest traditionally deemed worthy of maximum legal protection.’ ” (citing State Farm Fla. Ins. Co. v. Puig, 62 So.3d 23, 27 (Fla. Dist. Ct. App. 2011))). III. CONCLUSION As stated in open court, and as further addressed in this written Order, it is hereby ORDERED that Plaintiff's Motion to Compel Production of Documents in Response to Supplemental Request to Produce to Defendant, Physicians Casualty Risk Retention Group [DE 43] is DENIED. DONE and ORDERED in Chambers at West Palm Beach, Palm Beach County, Florida, this 27 th day of January, 2017. All Citations Slip Copy, 2017 WL 395242 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 92 of 177 National Fire Insurance Company of Hartford v. Burns & Scalo..., Slip Copy (2017) 2017 WL 372144 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 KeyCite Blue Flag - Appeal Notification Appeal Filed by NATIONAL FIRE INSURANCE CO OF, ET AL v. BURNS & SCALO ROOFING CO, 3rd Cir., February 1, 2017 2017 WL 372144 Only the Westlaw citation is currently available. United States District Court, E.D. Pennsylvania. National Fire Insurance Company of Hartford and Transportation Insurance Company, Plaintiffs v. Burns & Scalo Roofing Company, Defendant CIVIL ACTION NO. 15-6028 | Filed 01/26/2017 Attorneys and Law Firms Shane R. Heskin, Craig O'Neill, White & Williams LLP, Philadelphia, PA, for Plaintiffs. John M. Hagan, Mary L. Thibadeau, Paul E. Delvecchio, K&L Gates LLP, John M. Sylvester, Kirkpatrick & Lockhart, Pittsburgh, PA, for Defendant. MEMORANDUM OPINION NITZA I. QUIÑONES ALEJANDRO, U.S.D.C. J. INTRODUCTION *1 Plaintiffs National Fire Insurance Company of Hartford and Transportation Insurance Company (“Plaintiffs”) filed this civil action under the Declaratory Judgment Act, 1 seeking a determination regarding insurance coverage, and related rights and duties, if any, for the defense and/or indemnification owed to Defendant Burns & Scalo Roofing Company (“Defendant” or “Burns & Scalo”) in an underlying state court action. 2 [ECF1]. 1 28 U.S.C. §§ 2201-2202. 2 The underlying action captioned Bremer et al. v. Burns and Scalo Roofing, Inc. et al., Court of Common Pleas of Philadelphia County, October Term, 2014, No. 1409-04424, (“the State Court Action”), was filed on October 1, 2014, by Carl and Lori Bremer against Defendant. Presently before this Court is Plaintiffs' motion for summary judgment filed pursuant to Federal Rule of Civil Procedure (“Rule”) 56, requesting judgment in their favor and a declaration that Plaintiffs do not owe a further duty to defend and/or indemnify Defendant in the above-referenced state court action. [ECF 33]. Defendant filed a response in opposition, [ECF 35], and Plaintiffs filed a reply. [ECF 42]. The issues raised in the motion for summary judgment have been fully briefed by the parties and are now ripe for disposition. For the reasons stated herein, Plaintiffs' motion for summary judgment is granted. BACKGROUND 3 3 Because an insurer's duty to defend an action against its insured is generally determined on the basis of the allegations contained in the complaint against the insured, the facts set forth in this section are primarily drawn from the state court complaint filed against Burns & Scalo. See State Farm Fire & Cas. Co. v. Estate of Mehlman, 589 F.3d 105, 108 n.3 (3d Cir. 2009) (citing Donegal Mut. Ins. Co. v. Baumhammers, 938 A.2d 286, 290-92 (Pa. 2007)). Briefly, in the underlying state court action filed by Carl and Lori Bremer (collectively “the Bremers”) against Burns & Scalo, (the same Defendant in this federal case), Carl Bremer (“Dr. Bremer”) contends that during the summer months of the years 1973 through 1976, he was employed by Defendant, was exposed to asbestos dust and fibers during his employment and, as a result of this exposure, developed malignant mesothelioma. (See State Court Compl., attached as Ex. 1, Pltfs. Mot. for Summ. J., at ¶¶ 4-5, 8). In said complaint, his wife, Lori Bremer, pled a claim for loss of consortium. 4 (See id. at ¶¶ 3, 8). The state court complaint incorporated, by reference, allegations and causes of action asserted in a master long form complaint filed as In re Asbestos Litigation in Philadelphia Court of Common Pleas, No. 8610-0001 (“the Master Long Form Complaint”), including, inter alia, an allegation in Count VII that the Dr. Bremers' injuries resulted from Defendant's intentional tortious conduct as Bremer's employer. (Id. at ¶ 9). The nine- paragraph state court complaint contains very little by way of factual allegations. However, it explicitly alleges that Dr. Bremer was employed by Defendant, and that his exposure to asbestos dust and fiber during the course of Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 93 of 177 National Fire Insurance Company of Hartford v. Burns & Scalo..., Slip Copy (2017) 2017 WL 372144 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 his employment with Defendant was the proximate cause of his injuries. (Id. ¶¶ 4-5). 4 When Carl Bremer died on November 4, 2014, (see Def. Res. to Pl. Mot. for J. on Pl. at 3), the Administrator of his Estate was substituted as a named party. (Id.). *2 In the state court matter, Defendant sought a defense and indemnification from Plaintiffs consistent with the provisions of the general liability insurance occurrence policies issued to Defendant between the years 1988 and 1992 (“the Policies”). (See Pltfs. Mot. for Summ. J., Ex. 9-12). The Policies, which contained identical provisions, essentially provide for a defense and indemnification in any lawsuit seeking damages for “bodily injury” that occurs during the policy coverage period. (See, e.g., Pltfs. Mot. for Summ. J, Ex. 9 at Section I, ¶ 1.a.). The Policies defined the term “bodily injury” as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” (See id. at Section V, ¶ 3). The Policies contained a liability exclusion provision, (“the Exclusion”), which reads as follow: This insurance does not apply to: e. “Bodily injury” to: (1) An employee of the insured arising out of and in the course of employment by the insured; or (2) The spouse, child, parent, brother or sister of that employee as a consequence of (1) above. This exclusion applies: (1) Whether the insured may be liable as an employer or in any other capacity; and (2) To any obligation to share damages with or repay someone else who must pay damages because of the injury. (Id. at Section 1, ¶ 2.e.). The term “employee” is not defined anywhere within the Policies. After being served with the state court complaint, Defendant provided Plaintiffs with the notice of the underlying state court action. On August 26, 2015, Plaintiffs denied insurance coverage. Defendant sought reconsideration and, on November 6, 2015, Plaintiffs informed Defendant that, although they believed they were under no obligation to defend and/or indemnify Defendant in the underlying state court action, they would provide a defense under a reservation of rights. Thereafter, Plaintiffs filed the instant declaratory judgment action. In the interim, on September 12, 2016, a jury trial in the state court action commenced. The Bremers, as the plaintiffs therein, presented evidence of Dr. Bremer's summer employment with Defendant between 1973 and 1976, of his exposure to asbestos during that employment period, and his subsequent diagnosis of malignant mesothelioma. To challenge this testimony, Defendant offered the testimony of Harry Trybus and Randy Trybus, the owners of Trybus Roofing. Mr. Harry Trybus essentially testified that Dr. Bremer worked directly for Trybus Roofing as a laborer during the summers of 1975 and 1976. While the jury was deliberating but before a verdict was rendered, Defendant and the Bremers reached a confidential settlement for an amount within the Policies' limits. LEGAL STANDARD Rule 56 governs the summary judgment motion practice. Specifically, this rule provides that summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A fact is “material” if proof of its existence or non-existence might affect the outcome of the litigation, and a dispute is “genuine” if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The movant bears the burden of proving the absence of a genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Under Rule 56, the court must view the evidence in the light most favorable to the non- moving party. Galena v. Leone, 638 F.3d 186, 196 (3d Cir. 2011). 5 5 Generally, Rule 56(c) provides that the movant bears the initial burden of informing the court of the basis for the motion and identifying those portions of the record which the movant “believes demonstrate the absence of a genuine issue of material fact.” Celotex, 477 U.S. at 323. This burden can be met by showing that the nonmoving party has “fail[ed] to make a showing sufficient to establish the existence of an element essential to that party's case.” Id. at 322. After the moving party has met its initial burden, Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 94 of 177 National Fire Insurance Company of Hartford v. Burns & Scalo..., Slip Copy (2017) 2017 WL 372144 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 summary judgment is appropriate if the nonmoving party fails to rebut the moving party's claim by “citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations ..., admissions, interrogatory answers, or other materials” that show a genuine issue of material fact or by “showing that the materials cited do not establish the absence or presence of a genuine dispute.” See Rule 56(c)(1)(A-B). The nonmoving party must “do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The nonmoving party may not rely on bare assertions, conclusory allegations or suspicions, Fireman's Ins. Co. of Newark v. DuFresne, 676 F.2d 965, 969 (3d Cir. 1982), nor rest on the allegations in the pleadings. Celotex, 477 U.S. at 324. Rather, the nonmoving party must “go beyond the pleadings” and either by affidavits, depositions, answers to interrogatories, or admissions on file, “designate ‘specific facts showing that there is a genuine issue for trial.’ ” Id. *3 Here, although Plaintiffs' motion is one for summary judgment, it relies upon a legal interpretation of the insurance policies in question rather than on an analysis of facts and/or evidence. As detailed below, whether an insurer owes a duty to defend an insured, in a litigation brought against the insured, is an issue generally determined by considering the allegations in the complaint against the insured and the language of the insurance policy at issue. See Mehlman, 589 F.3d at 110 (citing Donegal, 938 A.2d at 290). DISCUSSION Under Pennsylvania law, 6 an insurer's duty to defend is broader than its duty to indemnify. Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 225 (3d Cir. 2005). However, “there is no duty to indemnify if there is no duty to defend.” Id. To determine whether Plaintiffs owe a duty to defend and/ or indemnify Burns & Scalo, the allegations in the state court complaint and the language of the insurance policies issued to Burns & Scalo, must be examined. As stated: an insurer's duty to defend an action against the insured is measured, in the first instance, by the allegations in the plaintiff's pleadings.... In determining the duty to defend, the complaint claiming damages must be compared to the policy and a determination made as to whether, if the allegations are sustained, the insurer would be required to pay [the] resulting judgment.... [T]he language of the policy and the allegations of the complaint must be construed together to determine the insurers' obligation. Donegal, 938 A.2d at 290 (quoting Gene's Rest. Inc. v. Nationwide Ins. Co., 548 A.2d 246, 247 (Pa. 1988)); see also Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888, 896 (2006) (noting that it is well-settled Pennsylvania law that “[a] carrier's duty to defend and indemnify an insured in a suit brought by a third party depends upon a determination of whether the third party's complaint triggers coverage.”). If the underlying complaint alleges an injury “which may be within the scope of the policy, the company must defend the insured until the insurer can confine the claim to a recovery that the policy does not cover.” United Servs. Auto. Ass'n v. Elitzky, 517 A.2d 982, 985 (Pa. Super. Ct. 1986). However, “[t]o prevent artful pleading designed to avoid policy exclusions, it is necessary to look at the factual allegations in the complaint, and not how the underlying plaintiff frames the request for relief.” Mut. Benefit Ins. Co. v. Haver, 725 A.2d 743, 745 (Pa. 1999). “[T]he particular cause of action that a complainant pleads is not determinative of whether coverage has been triggered.” Id. Instead “it is necessary to look at the factual allegations contained in the complaint.” Id.; Scopel v. Donegal Mut. Ins. Co., 698 A.2d 602, 605 (Pa. Super. Ct. 1997) (“[I]n focusing attention upon the cause of action pled, [claimants] run afoul of our case law, which dictates that the factual averments contained in a complaint determine whether an insurer must defend.”) (emphasis in original). The duty to defend is properly denied where the allegations fall within a clear and unambiguous exclusion of coverage. Harrison v. Aetna Life & Cas., 473 A.2d 636, 636 (Pa. Super. Ct. 1984). The burden rests upon the insurer to demonstrate that the allegations of the complaint cast that pleading solely and entirely within the policy exclusions. Erie Ins. Exch. v. Transamerica Ins. Co., 533 A.2d 1363, 1366 (Pa. 1987) (citing Miller v. Boston Ins. Co., 218 A.2d 275, 277 (Pa. 1966)). 6 In their respective briefs, both parties rely upon and, therefore, appear to agree that Pennsylvania Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 95 of 177 National Fire Insurance Company of Hartford v. Burns & Scalo..., Slip Copy (2017) 2017 WL 372144 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 law applies to this action. Because the homeowner insurance policy at issue was issued to a Pennsylvania corporation, this Court agrees that Pennsylvania law applies. See Cat Internet Servs., Inc. v. Providence Washington Ins. Co., 333 F.3d 138, 141 (3d Cir. 2003) (holding that “Pennsylvania conflict of laws principles dictate that an insurance contract is guided by the law of the state in which it is delivered.”). *4 Here, Plaintiffs move for summary judgment on the premise that they have no duty to defend Defendant in the underlying state court matter because the facts and injuries therein alleged unambiguously fall within the exclusionary provision of the Policies. Defendant does not dispute Plaintiffs' characterization of the factual allegations in the state court complaint. Rather, Defendant argues that Plaintiffs have not foreclosed the possibility that the allegations in the state court complaint fall outside the Exclusion. Defendant's argument is misguided. In determining if a duty to defend exists, the court is charged with deciding whether the underlying complaint creates any possibility of coverage. Here, in the underlying state court complaint, Dr. Bremer alleges that he was employed by Defendant as a roofer during the summer months of 1973 to 1976. (See State Court Compl. at ¶ 4(a)). The Bremers' complaint incorporated, by reference, Count VII of the Master Long Form Complaint which, inter alia, alleged that the claim was against “Defendant- Employer Burns and Scalo, for whom Plaintiff was last employed between 1973 and 1976....” (Id. at ¶ 9) (emphasis added). Count VII of the Master Long Form Complaint further alleged that Defendant Burns and Scalo is liable as a “defendant employer” for, inter alia: a) failing to advise plaintiffs of the presence of asbestos ... which they were working with in connection with their employment; b) failing to provide plaintiffs with appropriate protective equipment and applicances [sic] necessary in order to protect them from ... becoming injured or disabled by way of exposure to asbestos and asbestos related products; c) failing to provide plaintiffs with a safe place to work; d) failing to provide proper instruction and supervision to plaintiffs in the performance of their duties in handling asbestos or asbestos products; e) failing to provide plaintiffs with necessary and proper safety equipment to use while performing their work duties in and around asbestos and asbestos products; f) failing to take adequate precautions to prevent plaintiffs from suffering injuries as a result of their employment; g) being otherwise negligent, reckless, and careless in failing to protect the health, safety and welfare of their employees; h) failing to advise plaintiffs of the results of their x-rays, examinations and pulmonary function tests which were taken by or on behalf of defendant employer during the course of their employment and/or failing to advise plaintiffs to cease further asbestos exposure; and i) failing to advise plaintiffs after plaintiffs' exposure to asbestos ceased, about the dangers of exposure to asbestos, about the dangers of past or present asbestos exposure in combination with smoking or exposure to other fumes and dust, and about the need for future medical surveillance. (See Pltf. Mot for Summ. J., Ex. 4 at 100-101) (emphasis added). The factual allegations of the underlying state court complaint clearly and unmistakably indicate that the Bremers' causes of action arose out of the exposure to asbestos during the course of Dr. Bremer's employment with Defendant. The Bremers successfully litigated their state court action based upon these facts. Therefore, based upon this Court's review of the allegation of the state court complaint and the exclusionary provision of the Polices, it is patently clear that the allegations in the underlying state court complaint fall within the Exclusion provisions and, therefore, outside the scope of any insurance coverage. The state court complaint has the hallmarks of an action asserted by an employee against his employer for an occupational disease as described in Tooey v. AK Steel Corp., 81 A.3d 851, 856 (Pa. 2013). 7 In fact, the state court complaint expressly alleges damages “pursuant to Tooey.” (State Court Compl. at ¶ 9). The factual averments pled give no indication, as Defendant so advances, that Dr. Bremer was exposed to asbestos while working for another employer, or that he was anything other than Defendant's employee. Nothing in the state court complaint supports Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 96 of 177 National Fire Insurance Company of Hartford v. Burns & Scalo..., Slip Copy (2017) 2017 WL 372144 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 an interpretation of the facts other than the one advanced by Plaintiffs. 7 In Tooey, the Pennsylvania Supreme Court held that employees could pursue common law causes of action against their employers for injuries relating to occupational disease manifesting more than 300 weeks after the last occupational exposure. 81 A.3d at 865. *5 Notwithstanding, Defendant contends that these general allegations do not necessarily foreclose the theoretical possibility that Dr. Bremer was not Burns & Scalo's employee during the entire period of his exposure to asbestos. Defendant urges this Court to consider a wide array of extrinsic evidence, including the testimony of the Trybuses in the underlying action, to conclude that Dr. Bremer was an independent contractor or subcontractor. However, Pennsylvania law is clear that Plaintiffs' duty to defend a suit must be determined solely by the four corners of the underlying complaint. See Kvaerner, 908 A.2d at 896 (holding that the Superior Court erred in looking beyond the allegations raised in the underlying complaint and finding “no reason to expand upon the well-reasoned and long-standing rule that an insurer's duty to defend is triggered, if at all, by the factual averments contained in the complaint”); Aetna Cas. & Sur. Co. v. Roe, 650 A.2d 94, 99 (Pa. Super. Ct. 1994) (“The insurer is obligated to defend if the factual allegations of the complaint on its face comprehend an injury which is actually or potentially within the scope of the policy”); see also State Auto. Mut. Ins. Co. v. Christie, 802 A.2d 625, 626-29 (Pa. Super. Ct. 2002) (interpreting identical exclusion and ruling that laborer injured while cleaning a cement machine fell within limits of the exclusion). Though Defendant's speculative factual arguments may have aided it in the defense of the underlying action, they are not relevant to the inquiry here. See State Farm Fire and Cas. Co. v. Kim's Asia Constr., 2016 WL 5848851, at *4 (E.D. Pa. Oct. 5, 2016) (rejecting an insured's hypotheses that the underlying claim fell within coverage because the underlying complaint alleged only facts falling outside coverage). The factual allegations in the state court complaint unequivocally indicate that the underlying injuries arose out of and in the course of Dr. Bremer's employment by Defendant. The state court complaint did not allege any facts that could potentially fall within the scope of coverage. Consequently, because the claims alleged in the state court complaint fall within the Exclusion provisions, Plaintiffs have no duty to defend or to indemnify Defendant in the underlying action. CONCLUSION For the reasons stated herein, Plaintiffs' motion for summary judgment is granted. Plaintiffs have no further duty to defend and/or indemnify Defendant in the underlying law suit identified as Bremer, et al. v. Burns and Scalo Roofing, Inc., Civil Action No. 149004424, Court of Common Pleas of Philadelphia County, Pennsylvania. An Order consistent with this Memorandum Opinion follows. All Citations Slip Copy, 2017 WL 372144 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 97 of 177 Quality Stone Veneer, Inc. v. Selective Insurance Company of America, Slip Copy (2017) 2017 WL 345636 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2017 WL 345636 Only the Westlaw citation is currently available. United States District Court, E.D. Pennsylvania. Quality Stone Veneer, Inc., Plaintiff, v. Selective Insurance Company of America, Defendant. CIVIL ACTION NO. 15-6509 | Filed 01/23/2017 Attorneys and Law Firms Ronald H. Pollock, Jr., Barley Snyder LLC, Lancaster, PA, for Plaintiff. Anthony L. Miscioscia, Steven D. Urgo, White & Williams LLP, Philadelphia, PA, for Defendant. MEMORANDUM STENGEL, District Judge I. INTRODUCTION *1 This is an insurance coverage dispute between the plaintiff, Quality Stone Veneer, Inc. (“QSV”) and its insurance company, Selective Insurance Company of America (“defendant”). Both parties filed motions for summary judgment disputing whether the defendant has a duty to defend QSV in an underlying state-court action in which QSV has been sued. For the following reasons, I find that the defendant has no duty to defend QSV. II. BACKGROUND QSV is a company that installs and manufactures stone veneer. (Dec. Judg. Compl., Doc. No. 1 at 19 ¶ 16) [hereinafter “DJ Compl.”]. In 2003, QSV entered into a subcontract with Mignatti Construction for the development of an apartment complex called Heritage Creek Condominium in Warwick Township, Pennsylvania. (Id. ¶ 17). Under this subcontract, QSV agreed to provide all the materials and labor related to the installation of stone veneer at the condominium construction project. (Def.'s Concise Statement Undisputed Material Facts, Doc. No. 11-4 ¶ 19) [hereinafter “DSUMF”]. In 2006, after construction had begun, the Heritage Creek Condominium Association filed a complaint against Mignatti Construction in Pennsylvania state court. (Id. ¶ 21). It alleged claims against Mignatti for “serious fire, life and safety deficiencies in the construction of the furnace, ventilation, roofing, alarms, sprinklers, electrical and water systems” at Heritage Creek Condominium. (Underlying Compl., Doc. No. 1-4 at ¶ 29). Mignatti thereafter filed a joinder complaint against QSV for “contribution and/or indemnity breach of warranty/ negligence.” (Am. Joinder Compl., Doc. No. 12-7 at 11). The defendant has refused to defend QSV in the underlying action. Defendant's refusal to defend QSV prompted QSV to file the instant declaratory judgment action in the Court of Common Pleas of Lancaster County. (Doc. No. 1 at 16). 1 I must now decide whether defendant has a duty to defend QSV. This requires consideration of the underlying action, the terms of QSV's commercial general liability policy with defendant, and the present action. 1 On December 9, 2015, defendant removed the action to this court. A. The Underlying Action After the work was completed at Heritage Creek Condominium, the Heritage Creek Condominium Association hired an engineering company to perform an inspection of the condominium. (Doc. No. 1-4 at 23 ¶ 28). The purpose of this inspection was to determine whether the condominium “was constructed in accordance with the architectural drawings and all applicable zoning and building regulations and other requirements.” (Id.) The engineering company performed the inspection and then made a report documenting its findings on February 16, 2005. (Id. ¶ 29). The report listed deficiencies in how the ventilation, roofing, alarms, furnace, sprinklers, electrical, and water systems were constructed. (Id.) The engineering company performed a second inspection on January 26, 2006. (Id. ¶ 37). The report for this inspection stated that many of the above deficiencies had not been corrected by Mignatti. (Id.) Thereafter, the Heritage Creek Condominium Association filed a complaint against Mignatti in the Court of Common Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 98 of 177 Quality Stone Veneer, Inc. v. Selective Insurance Company of America, Slip Copy (2017) 2017 WL 345636 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 Pleas of Bucks County. Heritage Creek Condominium Association amended its complaint on June 5, 2006. (Id. ¶ 1). This amended complaint alleged “deficiencies ... in the construction” of certain parts of the condominium. (Id. ¶ 29). Specifically, it claimed Mignatti had failed to construct the condominium as required by contract specifications, bylaws, building codes, and zoning ordinances. (Id. ¶ 46). *2 As the case against Mignatti proceeded through discovery, Heritage Creek Condominium Association had several more inspections done on the property. One of these inspections resulted in a report, which opined that Mignatti had failed to properly install: (i) flashing in and around the condominium's balconies; (ii) weather resistant barriers; (iii) windows; and (iv) balcony base plates. (Doc. No. 12-7 at 7 ¶ 16). According to the report, this caused water infiltration in the condominiums. (Id. ¶¶ 14, 17). A different report claimed that Mignatti “failed to properly install the adhered masonry concrete veneer and windows on the Project, which has caused water to infiltrate and damage the Condominium.” (Id. ¶ 22). These inspections and reports were completed in 2012 and 2013. About one year after these reports, Mignatti filed a joinder complaint against QSV and others, which Mignatti amended on September 29, 2014. (Id. at 18). In the amended joinder complaint, Mignatti alleged that “[a]ny breach of a legal duty or negligence or breach of warranty with respect to [QSV]'s work was that of [QSV] and not [Mignatti].” (Id. at 11 ¶ 46). Mignatti relied on its subcontract agreement with QSV, which required QSV to “make good ... any defect in material or workmanship which may occur or develop.” (Id. ¶ 48). Mignatti also denied liability for any “alleged construction defects and design defects and for alleged failures in construction monitoring.” (Id. ¶¶ 23-24). The amended joinder complaint sought contribution and indemnity from QSV for any damages resulting from “the work performed, materials furnished or services provided” by QSV. (Id. ¶ 50). B. The Insurance Policy Defendant provided an insurance policy to QSV from 2003 to 2008. The policy contained both commercial general liability (“CGL”) coverage as well as umbrella liability coverage. 2 2 Umbrella liability coverage is a type of “excess” insurance. Scott M. Seaman & Charlene Kittredge, Excess Liability Insurance, 32 TORT & INS. L.J. 653, 654 (1997). Excess insurance is different from primary insurance. Id. An insured usually obtains one level of “primary” insurance coverage that is followed by one or more layers of “excess” insurance. Id. at 654-55. A primary insurance policy applies immediately upon the happening of an “occurrence.” Id. at 655. The excess insurance policy, such as an umbrella policy, only applies after the limits of the primary insurance policy have been exhausted. Id. For example, if an insured purchases a $200,000 primary insurance policy and reaches a settlement for $250,000 with a third party, then ordinarily the insurer is not obligated to cover the excess $50,000. With an excess policy, however, that extra $50,000 could potentially be covered. The CGL policy provides coverage for bodily injury and property damage as follows: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which the insurance applies.” (Doc. No. 11-3 at 21). The CGL policy only provides coverage if the bodily injury or property damage results from an “occurrence.” (Id.) The CGL policy, in turn, defines an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (Id. at 35). The umbrella policy provides QSV with excess coverage over and above the CGL policy limits under certain circumstances. Just like the CGL policy, the umbrella coverage is only activated when there is bodily injury or property damage as the result of an “occurrence.” (Id. at 56). The umbrella policy defines an “occurrence” the same way that the CGL policy does: “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (Id.) *3 The CGL policy contains numerous exclusions. 3 (Doc. No. 12-1 at 71-74). One of these exclusions relates specifically to damage to QSV's own work. It states that coverage does not apply to: l. Damage To Your Work Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 99 of 177 Quality Stone Veneer, Inc. v. Selective Insurance Company of America, Slip Copy (2017) 2017 WL 345636 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 “Property damage” to “your work” arising out of it or any part of it and included in the “products- completed operations hazard”. This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor. (Id. at 74). 4 The CGL policy contains an aggregate limit of $2,000,000 for products-completed operations. (Id. at 58). The CGL policy also contains an exclusion for “impaired property.” (Id. at 74). The impaired property exclusion precludes coverage for certain property damage. (Id. at 74, 83). 3 An exclusion is a condition that, if present, relieves the insurer of its obligation to provide coverage. Devcon Internat'l Corp. v. Reliance Ins. Co., 609 F.3d 214, 882-83 (3d Cir. 2010). 4 The policy goes on to define “products-completed operations hazard” as follows: “all ‘bodily injury’ and ‘property damage’ occurring away from premises you own or rent and arising out of ‘your product’ or ‘your work’....” The products-completed operations hazard does not include bodily injury or property damage that arises out of: (1) The transportation of property, unless the injury or damage arises out of a condition in or on a vehicle not owned or operated by you, and that condition was created by the “loading or unloading” of that vehicle by any insured; (2) The existence of tools, uninstalled equipment or abandoned or unused materials; or (3) Products or operations for which the classification, listed in the Declarations or in a policy schedule, states that products- completed operations are subject to the General Aggregate Limit. (Doc. No. 12-1 at 84-85). C. The Present Action After QSV was sued by Mignatti in state court, it sought coverage from defendant. Defendant denied coverage, claiming it had no duty to defend QSV in the underlying action. (Doc. No. 1 at 22 ¶¶ 33-34). QSV then filed the instant declaratory judgment action seeking coverage under the CGL policy. QSV contends that defendant has a duty to defend, while defendant argues the opposite. 5 5 “The duty to defend is a distinct obligation, different from and broader than the duty to indemnify.” Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 225 (3d Cir. 2005). Thus, “[b]ecause the duty to defend is broader than the duty to indemnify, there is no duty to indemnify if there is no duty to defend.” Id. With these principles in mind, the parties requested to brief the duty to defend before addressing the duty to indemnify. (Doc. No. 11-1 at 3-4); (Doc. No. 10-1 at 5). III. LEGAL STANDARD Summary judgment is proper “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A factual dispute is “material” only if it might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). For an issue to be “genuine,” a reasonable fact-finder must be able to return a verdict in favor of the non-moving party. Id. *4 A party seeking summary judgment initially bears responsibility for informing the court of the basis for its motion and identifying those portions of the record that it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A party asserting that a fact cannot be or is genuinely disputed must support the assertion by citing relevant portions of the record, including depositions, documents, affidavits, or declarations, or showing that the materials cited do not establish the absence or presence of a genuine dispute, or showing that an adverse party cannot produce admissible evidence to support the fact. Fed. R. Civ. P. 56(c). Summary judgment is therefore appropriate when the non-moving party fails to rebut the moving party's argument that there is no genuine issue of fact by pointing to evidence that is “sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex, 477 U.S. at 322. Under Rule 56 of the Federal Rules of Civil Procedure, the court must draw “all justifiable inferences” in favor of the non-moving party. Anderson, 477 U.S. at 255. The Court must decide “not whether ... the evidence unmistakably favors one side or the other but whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented.” Id. at 252. It is well established that in Pennsylvania the interpretation of an insurance contract is a question of law. Kvaerner Metals Div. v. Case 4:15-cv-00539-MWB Docu ent 79-1 Filed 03/24/17 Page 100 of 177 Quality Stone Veneer, Inc. v. Selective Insurance Company of America, Slip Copy (2017) 2017 WL 345636 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 Commercial Union Ins. Co., 908 A.2d 888, 897 (Pa. 2006). In determining whether an insurer has a duty to defend, the court shall consider only the language of the policy and the complaint against the insured. Id. at 896-97. IV. DISCUSSION The outcome of the instant motions turns on the resolution of one question: Was the property damage alleged in the underlying action the result of an “occurrence” as defined by the CGL policy? If it was, then coverage applies and defendant must defend QSV. If it was not, then there is no coverage and defendant has no duty to defend. A. Duty to Defend Under Pennsylvania law, an insurer has a duty to defend the insured if the complaint in the underlying action against the insured potentially comes within the policy's coverage. Sikirica, 416 F.3d at 225. 6 The duty to defend is distinct from and broader than the duty to indemnify. Ramara, Inc. v. Westfield Ins. Co., 814 F.3d 660, 673 (3d Cir. 2016). Therefore, if there is no duty to defend then there is no duty to indemnify. Id. 6 Both parties agree that Pennsylvania law applies to this case. In Pennsylvania, courts define the scope of coverage provided by the insurance policy and then determine whether the allegations of the complaint trigger coverage under the policy. Id. Pennsylvania follows the “four corners” rule in this context, limiting courts' inquiries only to the allegations of the complaint in the underlying action. Id. (citing Kvaerner, 908 A.2d at 896). In viewing the allegations in the complaint, courts construe them liberally in favor of the insured. Id. If there is any possibility that coverage has been triggered, the insurer has a duty to defend until it becomes clear that there is no possibility the insurer owes the insured a defense. Id. at 673-74. B. An “Occurrence” Under Pennsylvania Law As stated above, the entire dispute in this case centers around whether there was an “occurrence” under the CGL policy. An “occurrence” is a commonly used term of art in many insurance contracts. Therefore, courts in Pennsylvania and the Third Circuit have frequently interpreted this term in attempts to delineate what does and does not fall within its definition. The parties rely heavily on the seminal case Kvaerner Metals Division v. Commercial Union Insurance Company, 908 A.2d 888 (Pa. 2006), in which the Pennsylvania Supreme Court considered what constitutes an “occurrence” as a matter of law. Like here, the insurer in Kvaerner denied coverage on the basis that the underlying suit against its insured was not an occurrence. 908 A.2d at 891-92. The underlying suit against the insured (a manufacturing company) involved the design and construction of a coke oven battery. Kvaerner, 908 A.2d at 891. The plaintiff in the underlying action had contracted with the insured to have the insured build and design the battery. Id. The suit claimed the insured breached its contract because there were numerous defects in the battery. Id. Like the CGL here, the policy at issue in Kvaerner only provided coverage for property damage caused by an “occurrence.” Id. at 897. The policy in Kvaerner defined “occurrence” the same way the CGL policy here does: “an accident, including continuous or repeated exposure to substantially the same or general harmful conditions.” Id. *5 Because the policy in Kvaerner did not define “accident,” the Pennsylvania Supreme Court set out to do that. It held “that the definition of ‘accident’ required to establish an ‘occurrence’ under the policies cannot be satisfied by claims based upon faulty workmanship.” Id. at 899. The Court reasoned that claims based upon faulty workmanship “simply do not present the degree of fortuity contemplated by the ordinary definition of ‘accident’ or its common judicial construction in this context.” Id. Based on this holding, the Court concluded that the insurer had no duty to defend because the underlying claims were based on faulty workmanship to the work product itself. Id. at 900. Specifically, the Court relied on allegations that there were “construction defects” in the battery and that the battery did not meet the “contract specifications and warranties” agreed upon. Id. Neither party disputes that Kvaerner made clear that an “occurrence” in a GCL policy cannot be satisfied by claims based upon faulty workmanship. QSV, however, attempts to distinguish Kvaerner from the instant case. In particular, QSV argues that Kvaerner dealt solely with damage to the insured's property (i.e. the coke oven Case 4:15-cv-00539-MWB Docu ent 79-1 Filed 03/24/17 Page 101 of 177 Quality Stone Veneer, Inc. v. Selective Insurance Company of America, Slip Copy (2017) 2017 WL 345636 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 battery). The situation here is different, according to QSV, because the claims against QSV relate not only to QSV's products but also allege damage to surrounding property. QSV's argument has been foreclosed by Pennsylvania case law directly addressing this issue. Soon after Kvaerner was decided, the Pennsylvania Superior Court addressed whether there was an “occurrence” in a coverage dispute involving property damage and water infiltration in newly constructed houses. Millers Capital Ins. Co. v. Gambone Bros. Dev. Co., 941 A.2d 706, 707-11 (Pa. Super. Ct. 2007), appeal denied, 963 A.2d 471 (Pa. 2008). The insured had contracted to build a housing development. Id. at 708. After the homes were built, the homeowners sued the insured when they “began to notice water leaks in their respective homes.” Id. at 709. The claims alleged “construction defects and product failures in ... the homes' vapor barriers, windows, roofs, and stucco exteriors.” Id. The trial court granted summary judgment in favor of the insurer, finding no duty to defend since the underlying claims were based upon faulty workmanship. Id. (citing Kvaerner, 908 A.2d 888). On appeal, the Superior Court affirmed. Id. at 718. Like QSV here, the insured in Gambone argued that the nature of the damage to the homes differed from the nature of the damage to the coke oven battery in Kvaerner. Id. at 713 (“Gambone argues the ... actions do not merely involve claims for faulty workmanship ... but also involve claims for ancillary and accidental damage caused by the resulting water leaks to non-defective work inside the home interiors.”). However, the Superior Court expressly rejected this distinction and found no duty to defend. Id. In the process, the Court rested its decision upon what it found to be the central tenet of Kvaerner: the degree of fortuity contemplated by the terms “accident” and “occurrence” does not encompass claims for faulty workmanship. Id. at 713. It did not matter that there may be resulting damage to exterior property located outside of or apart from the insured's property. Id. The resulting damage, according to the Court, was a natural and foreseeable result of the faulty workmanship, which does not qualify as an “accident.” Id. 7 7 QSV acknowledges that Gambone “rejected the distinction ... between [an insured's] own defective and non-defective work product.” (Doc. No. 10-1 at 9). QSV nonetheless contends that the Superior Court in Gambone erred by misapplying Pennsylvania precedent. (Id. at 10). QSV argues that Gambone erroneously applied a foreseeability analysis to an insurance contract and that such an analysis is prohibited by Pennsylvania law. Although artfully crafted, QSV's argument proves unavailing. QSV relies on a decision issued twenty years earlier than Gambone, in which the Pennsylvania Superior Court interpreted a Pennsylvania Supreme Court case to preclude the application of a foreseeability analysis to insurance contracts. QSV further argues that Gambone cannot overrule this earlier Superior Court case. All this is moot, though, given the simple fact that the Pennsylvania Supreme Court denied the insured's appeal in Gambone. 963 A.2d 471. If QSV were correct-that Gambone represents a drastic departure from established Pennsylvania precedent -then the Pennsylvania Supreme Court presumably would have granted the appeal in Gambone. Accordingly, I must accept Gambone's precedential value as is. To do otherwise would subvert the authority of the Pennsylvania Supreme Court to pronounce the law of its own commonwealth. Aside from this point, the Pennsylvania Supreme Court case QSV relies on is inapposite to the instant case. Cf. Mohn v. Am. Cas. Co. of Reading, 326 A.2d 346 (Pa. Super. Ct. 1974). In Mohn, the Pennsylvania Supreme Court addressed the term “accidental bodily injury” in the context of “medical insurance policies” after an insured individual was physically injured and denied coverage. 326 A.2d at 347. In that particular context, “the test of whether injury is a result of an accident is to be determined from the viewpoint of the insured and not from the viewpoint of the one that committed the act causing the injury.” Id. at 348 (citing cases all of which dealt with injured individuals seeking insurance coverage as the result of physical injuries). Obviously, this concept could not apply to a coverage dispute like the one here because the viewpoint of the insured is the same as the viewpoint of the one who committed the act causing the injury; here, QSV is both the insured and the one who is alleged to have committed the act which caused the injury (i.e. the property damage to the condominiums). The cases relied on by QSV involve allegedly injured parties seeking coverage. These cases do not address the situation here, namely, where the accused is seeking coverage for a suit brought by the allegedly injured party. *6 Since Kvaerner and Gambone, courts have consistently held that claims based upon faulty workmanship do not amount to an “occurrence” that Case 4:15-cv-00539-MWB Docu ent 79-1 Filed 03/24/17 Page 102 of 177 Quality Stone Veneer, Inc. v. Selective Insurance Company of America, Slip Copy (2017) 2017 WL 345636 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 triggers an insurer's duty to defend. See Specialty Surfaces Int'l, Inc. v. Cont'l Cas. Co., 609 F.3d 223, 231, 238-39 (3d Cir. 2010) (relying on Gambone in holding insurer had no duty to defend manufacturer-seller of synthetic turf against negligence and breach of warranty claims because “[f]aulty workmanship, even when cast as a negligence claim, does not constitute [an ‘occurrence’]”); Westfield Ins. Co. v. Bellevue Holding Co., 856 F. Supp. 2d 683, 702 (E.D. Pa. 2012) (finding no duty to defend because the underlying claims against the insured were “based entirely on claims of faulty workmanship”); Zurich Am. Ins. Co. v. R.M. Shoemaker Co., Civ. A. No. 12-873, 2012 WL 895451, at *2, *6 (E.D. Pa. Mar. 16, 2012) (relying on Gambone and Kvaerner for the proposition that “faulty workmanship by a contractor which results in damage to additional property of the other party to the underlying contract is not an ‘occurrence’ ” and that “[w]ater damage is a foreseeable result of faulty workmanship” lacking in the “required ‘degree of fortuity’ for an occurrence to have taken place, even if couched in terms of negligence”); Bomgardner v. State Farm Fire & Cas., Civ. A. No. 10- 1287, 2010 WL 3657084, at *4 (E.D. Pa. Sept. 14, 2010) (holding there was no duty to defend “[c]laims based on defective workmanship” and rejecting the alternative argument that the damaging results from the defective workmanship constitute an “occurrence”); Meridian Mut. Ins. Co. v. James Gilligan Builders, Civ. A. No. 08- 1995, 2009 WL 1704474, at *6 (E.D. Pa. June 18, 2009) (finding no duty to defend claims of “defects in stucco application, sealing at the windows, doors, and other penetration points” because such claims were based on faulty workmanship); Peerless Ins. Co. v. Brooks Sys. Corp., 617 F. Supp. 2d 348, 356-57 (E.D. Pa. 2008) (finding no duty to defend against professional negligence, breach of contract, and breach of warranty claims that clearly constituted allegations of faulty workmanship per Kvaerner). To be sure, there is no “accident” and thus no “occurrence” even if the allegations of faulty workmanship are brought under the guise of a negligence claim. See Westfield, 856 F. Supp. 2d at 694 (collecting cases holding that the definition of “occurrence” does not include faulty workmanship “even when cast as a negligence claim”). Courts have distinguished claims for faulty workmanship from claims that an insured's product “actively malfunctioned.” In the latter circumstance, courts have concluded that there is a duty to defend based on the fortuity involved in the active malfunction of a product. See Kvaerner, 908 A.2d at 898 (noting that CGL policies provide coverage for damages that result from an insured's product actively malfunctioning but do not provide coverage for claims of faulty workmanship). For example, in Indalex Inc. v. National Union Fire Insurance Company, the Pennsylvania Superior Court addressed claims that the insured's windows and doors were “defectively designed or manufactured.” 83 A.3d 418, 419 (Pa. Super. Ct. 2013). The alleged defects resulted in water infiltration that caused property damage and physical injuries. Id. at 419-20. The plaintiffs in the underlying action brought strict liability, negligence, breach of warranty, and breach of contract claims. Id. at 420. The Indalex court found the insurer had a duty to defend these claims in large part because the claims were phrased in terms of a “bad product, which can be construed as an ‘active malfunction,’ and not merely bad workmanship.” Id. at 424. The court recognized that this made the claims different from those in Gambone and Kvaerner, both of which alleged only faulty workmanship. Id.; see also Nat'l Fire Ins. Co. v. Robinson Fans Holdings, Inc., Civ. No. 10-1054, 2011 WL 1327435, at *3 (W.D. Pa. Apr. 7, 2011) (“[T]here is a discernible distinction between a product that actively malfunctions, which could give rise to an ‘accident,’ and flawed product-related work done in performance of a contract, which cannot.”). While a negligence claim could (but might not) constitute an occurrence, Pennsylvania law is clear that CGL policies do not provide coverage for breach of contract and breach of warranty claims. Nationwide Mut. Ins. Co. v. CPB Int'l, Inc., 562 F.3d 591, 597-98 (3d Cir. 2009). *7 In light of the breadth of Pennsylvania and Third Circuit precedent, I conclude that the term “occurrence” in QSV and defendant's CGL policy excludes contractual claims for faulty workmanship. In the same vein, negligence claims that allege foreseeable damages stemming from faulty workmanship do not fall within the definition of “occurrence.” C. Defendant Has No Duty to Defend QSV in the Underlying Action Having determined the scope of coverage provided by the policy, I must now “examine the underlying complaint to ascertain whether its factual allegations trigger coverage.” Westfield, 856 F. Supp. 2d at 694. Defendant maintains it has no duty to defend QSV because all the underlying Case 4:15-cv-00539-MWB Docu ent 79-1 Filed 03/24/17 Page 103 of 177 Quality Stone Veneer, Inc. v. Selective Insurance Company of America, Slip Copy (2017) 2017 WL 345636 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 claims are based on faulty workmanship. QSV attempts to cast the underlying action as a tort-based product liability claim. A review of the underlying complaints, however, reveals that the claims are for faulty workmanship. Such claims are not “accidents” and thus not “occurrences” under the CGL policy. Accordingly, defendant has no duty to defend QSV. 1. The Underlying Original Complaint The claims asserted by the Heritage Creek Condominium Association against Mignatti only allege faulty workmanship based upon construction defects. Putting aside the legal conclusions in the amended complaint, its factual allegations consist of the following: Mignatti [was required] to complete the designated Improvements, including Improvements which are the subject of this action, according to the Township's standards and requirements.... [Mignatti] had a duty to organize the Condominium association and to administer the affairs of the Condominium in accordance with the Pennsylvania Uniform Condominium Act, the Declaration of Condominium and the Bylaws of the Association.... [Mignatti] had the duty and obligation to construct the Condominium in accordance with the Development Agreement, the approved Plans, the Pennsylvania Uniform Condominium Act, the Public Offering Statement and all applicable building codes and ordinances, and had a duty to oversee the construction and administration of the Condominium in good faith and in a fiduciary capacity.... [N]umerous deficiencies, including, inter alia, serious fire, life and safety deficiencies in the construction of the furnace, ventilation, roofing, alarms, sprinklers, electrical and water systems throughout the Condominium.... Many of the deficiencies ... are in violation of the International Mechanical Code, International Plumbing Code, the BOCA Building Code, National Electrical Code and other applicable industry standards and regulations and zoning standards.... [Mignatti] ha[s] not ... completed or agreed to complete all of the repairs required in order for the Condominium to comply with all of the applicable codes and regulations.... [or] applicable zoning and other construction requirements. (Doc. No. 1-4 ¶¶ 19, 23-24, 29-30, 36, 40). The underlying complaint brought seven counts in support of the above averments. These counts contain allegations solely related to faulty workmanship. For example, the complaint alleges Mignatti is liable for failing to construct the condominium in accordance with contractual specifications, zoning and building code ordinances, private bylaws, the Pennsylvania Uniform Condominium Act, and the Pennsylvania Unfair Trade Practices and Consumer Protection Law. (Id. ¶¶ 44-46, 51, 54, 56, 61). According to the complaint, these construction failures also amount to a breach of fiduciary duty. (Id. ¶ 48). *8 Notably, not a single allegation in the underlying amended complaint comes close to averring an “active malfunction” in any product. Nor are there any allegations that even closely resemble a product-liability claim. To the contrary, all of the allegations are based upon Mignatti's alleged failure to build the homes as required by Mignatti's private contractual agreements, building codes, and zoning laws. These claims merely allege faulty workmanship, which cannot constitute an occurrence under the CGL policy. Kvaerner, 908 A.2d at 899 (“[T]he definition of ‘accident’ required to establish an ‘occurrence’ under the policies cannot be satisfied by claims based upon faulty workmanship.”). The fact that the underlying claims allege damages to more than QSV's work product itself does not change this result. See Gambone, 941 A.2d at 713 (finding “no merit in [this] distinction”); Specialty Surfaces, 609 F.3d at 239 (finding no duty because such ancillary damages are a “predictable” result of faulty workmanship and thus not accidental in nature); Bomgardner, 2010 WL 3657084, at *5 (same); Zurich, 2012 WL 895451, at *2, *6 (same). Nor does the fact that the underlying complaint included the word “negligence.” Specialty Surfaces, 609 F.3d at 231. The underlying complaint brought by Heritage Creek Condominium Association against Mignatti contains only allegations of faulty workmanship. Such claims do not trigger coverage under an “occurrence” policy Case 4:15-cv-00539-MWB Docu ent 79-1 Filed 03/24/17 Page 104 of 177 Quality Stone Veneer, Inc. v. Selective Insurance Company of America, Slip Copy (2017) 2017 WL 345636 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 8 because they lack the necessary fortuity to constitute an “accident.” 2. The Amended Joinder Complaint Against QSV The amended joinder complaint brought against QSV also contains allegations and damages solely based upon faulty workmanship. Nothing in the amended joinder complaint alleges that QSV's product actively malfunctioned. Tort-based product liability claims allege inherent defects or danger in a product. The cause of the harm in such claims is a particular defect in the way the product itself was manufactured, designed, or marketed. With these considerations in mind, it is clear that none of the allegations in the amended joinder complaint sound in product liability. The allegations instead rest upon: (1) QSV's purported failure to properly “install” or “seal” its products; (2) QSV's purportedly “poor felt and flashing practices”; (3) breaches of duties “with respect to [QSV]'s work”; and (4) QSV's contractual undertakings. (Doc. No. 12-7 ¶¶ 16, 17, 22, 45-50). Improper installation, poor construction practices, and liability relating to the “work” a company performs clearly embody faulty workmanship -not product liability-claims. Such allegations do not contain the level of fortuity to qualify as an “occurrence.” Similarly, claims based upon the parties' contractual undertakings cannot, as a matter of law, constitute an “occurrence” under a CGL policy. E.g., CPB, 562 F.2d at 597-98. Contrary to QSV's arguments, the allegations in the amended joinder complaint are nothing like those in Indalex, which were phrased in terms of a “bad product.” 83 A.3d at 424. Indeed, the underlying allegations in Indalex explicitly stated that the insured's product was “defectively designed or manufactured.” Id. at 419. Here, there are no such averments. In other words, the alleged damages in Indalex resulted from the fact that the product was defective in some way. Here, and in other analogous cases, the alleged damages resulted from allegations that QSV did not properly perform its work. This distinction is crucial in the context of insurance coverage since only the former type of claim triggers coverage. See, e.g., Robinson Fans Holdings, Inc., 2011 WL 1327435, at *3 (“[T]here is a discernible distinction between a product that actively malfunctions, which could give rise to an ‘accident,’ and flawed product-related work done in performance of a contract, which cannot.”). QSV is correct that, as shown in Indalex, tort-based product liability claims brought against an insured may constitute an occurrence. 83 A.3d at 425. Notwithstanding this, QSV's entire argument suffers from the same fatal flaw throughout: the claims brought against QSV were based solely upon an alleged contractual breach and faulty workmanship; none of the allegations state that QSV's product (the stone veneer) was defective or actively malfunctioned. *9 QSV also attempts to avoid the impact of Gambone, which stands for the proposition that ancillary and resulting damages stemming from faulty workmanship do not constitute an “occurrence.” Specifically, QSV argues that because it is a subcontractor-manufacturer and not a developer, Gambone does not apply. This argument misses the mark. Gambone did not base its decision at all on the specific status of the insured (e.g., a developer, subcontractor, general contractor). Rather, the court rested its decision on the principle that when a claim alleges the work was performed improperly, damages that naturally flow from that improper work are not transformed into “occurrences” simply because they manifested at a later date and affected a different part of the construction project. Subsequent case law only confirms this point. In Specialty Surfaces, the insured (like QSV) was not a developer but rather a manufacturer-contractor. 609 F.3d at 227. Also like here, the alleged poor workmanship and installation in Specialty Surfaces resulted in ancillary water leakage. Id. at 228, 239. There, the court rejected the same argument QSV now makes. Id. at 239. In doing so, it explained that the central focus of Gambone is “on whether the alleged damage was caused by an accident or unexpected event, or was a foreseeable result of the faulty workmanship.” Id. at 239. The insured's status as a non-developer did not preclude the court from finding the insurer had no duty to defend since the water leakage was a predictable result of the faulty work. Id. Likewise, in Zurich, Judge Bartle relied on Gambone in finding that “faulty workmanship by a contractor which results in damage to additional property of the other party to the underlying contract is not an ‘occurrence.’ ” 2012 WL 895451, at *2; see also Meridian, 2009 WL 1704474 (finding no duty to defend, even when the insured was a subcontractor who only installed the windows, because the claims were based upon faulty workmanship). 8 It Case 4:15-cv-00539-MWB Docu ent 79-1 Filed 03/24/17 Page 105 of 177 Quality Stone Veneer, Inc. v. Selective Insurance Company of America, Slip Copy (2017) 2017 WL 345636 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 9 does not matter that the insured was a developer or a subcontractor. All that matters for the analysis is whether the insured performed the work that is alleged to have been faulty. The distinction QSV attempts to draw is not recognized by case law involving the duty to defend. 9 8 Recently, Judge Rufe found that an insured had no duty to defend a window subcontractor against claims of faulty workmanship when the complaint “did not only allege that [the subcontractor]'s work was deficient, but that its defective work caused damage to the work of others.” Lenick Construction, Inc. v. Selective Way Ins. Co., Civ. A. No. 14- 2701, 2016 WL 1161571, at *4 (E.D. Pa. Mar. 23, 2016) (citing Gambone, 941 A.2d at 713). Judge Rufe emphasized that “where liability is premised upon poor workmanship, the fact that nearby work was also damaged does not change the analysis, so long as such damage is reasonably foreseeable.” Id. 9 While stressing that it is a “product manufacturer,” QSV omits the fact that QSV is also a subcontractor. QSV does not dispute that, as a subcontractor, it entered into an agreement not only to provide the stone veneer, but also to complete all the labor involved with the stone veneer (i.e. install the stone veneer at the condominium). (Doc. No. 1 at 19 ¶¶ 16-17). Thus, QSV cannot escape the fact that its workmanship is at issue in this case simply because it also manufactured the product that it installed. In sum, the underlying claims against QSV are based solely on allegations of faulty workmanship. None of the allegations are product-liability based. Nor do they allege, in any way, that QSV's product (the stone veneer) actively malfunctioned. Rather, the allegations state that QSV did a poor job installing the stone veneer. Because such allegations, and the resulting damages, do not constitute a fortuitous “accident,” there is no “occurrence” under the CGL policy. D. Other Provisions of the Policy Do Not Trigger Coverage *10 QSV does not question that the CGL the policy at issue in this case only provides coverage if there is an occurrence. (Doc. No. 10-1 at 16) (“The Insuring Agreements of the Selective Policy provide broad coverage for sums that the insured becomes legally obligated to pay ... caused by an occurrence”). Nevertheless, QSV argues that, when read together, the CGL's insuring agreement, products-completed operations hazard, and impaired property exclusion make clear that defendant must defend QSV. The CGL policy provides different aggregate limits depending upon the type of damages. (Doc. No. 12-1 at 58). It provides a $2,000,000 general aggregate limit and a separate $2,000,000 aggregate limit for products- completed operations. The products-completed provision applies when bodily injury or property damage occurs “away from premises [QSV] own[s] or rent[s] and arising out of ‘[QSV's] product’ or ‘[QSV's] work.’ ” (Id. at 84 ¶ 16(a)). On the other hand, if the damages occur at a premises that is owned or rented by QSV, then the general aggregate limit applies. (Id. at 61). QSV correctly points out that, under the above language, the policy provides broad coverage for damages to others' property that arises out of QSV's products. Contrary to QSV's position, though, the broad language in the products-complete provision does not change the fact that there still must be an “occurrence” in order for any CGL coverage to apply. This is made clear by the CGL coverage form. (Doc. No. 12-1 at 70). The CGL coverage form explicitly and unambiguously states that defendant has “no duty to defend against any ‘suit’ seeking damages for ... ‘property damage’ to which this insurance does not apply.” (Id. ¶ 1(a)). The form also explicitly states that insurance applies only if the property damage is caused by an occurrence. (Id. ¶ 1(b)(1)). Therefore, while the CGL policy contains a separate aggregate limit for products- completed operations, that separate limit (like all the CGL's limits) only applies if there is an occurrence. The court in Westfield Insurance Company v. Rustic Exteriors, Inc. confronted this identical issue. Civ. A. No. 11-6011, 2013 WL 12146532, at *7-8 (E.D. Pa. Mar. 21, 2013). There, the court found that the insurer had no duty to defend the insured because there was no “occurrence” under the policy. Rustic Exteriors, 2013 WL 12146532, at *7. In doing so, the court rejected the insured's reliance on the products-completed operations hazard. Id. at *7- 8. It held: “[T]he plain, unambiguous language of the ‘products-completed operation hazard’ read in the context of the policy as a whole ... does not alter the ‘occurrence’ coverage-triggering requirement in the policy but merely clarifies what ‘property damage’ may be covered under the policy in certain circumstances.” Id. at *7. In other words, simply because the products-completed operations hazard existed did “not change the fact that, under the policy, Case 4:15-cv-00539-MWB Docu ent 79-1 Filed 03/24/17 Page 106 of 177 Quality Stone Veneer, Inc. v. Selective Insurance Company of America, Slip Copy (2017) 2017 WL 345636 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 10 the covered ‘property damage’ (of which the ‘products- completed operations hazard’ is a part) must be ‘caused by an’ accident-based ‘occurrence.’ ” Id. at *8 (emphasis in original). Like in Rustic Exteriors, the products-completed operations hazard in QSV's policy does not do away with the overall requirement that there is only coverage if there is an occurrence. Although QSV contends this renders the coverage moot, that is not the case. On the contrary, the separate aggregate limits for “general” and for “products- completed operations hazard” simply reflect the policy's intent to bifurcate coverage between damages that occur on QSV's own property versus damages that occur away from QSV's property. 10 Under either situation, the damages must be the result of an “occurrence” in order to trigger coverage. 11 10 In the same vein, the “arising out of” language in the products-completed operations provision does not supplant the “occurrence” requirement. Rustic Exteriors, 2013 WL 12146532, at *8 n.13. The policy makes this clear by making all coverage related to property damage and bodily injury subject to the “occurrence” requirement. (Doc. No. 12-1 at 70). 11 This is the case for the exclusions of the CGL policy as well. QSV relies on the policy's impaired property exclusion to argue that defendant has a duty to defend. The impaired property exclusion only excludes coverage for a certain type of damages. (Doc. No. 12-1 at 74, 83). According to QSV, because this exclusion does not exclude all damages to other property, it therefore follows that defendant has a duty to defend. This argument ignores the overarching requirement that is a prerequisite to all coverage under the CGL policy: an occurrence. *11 QSV argues that a full reading of the entire policy confirms its arguments. However, the opposite is true. A reading of the entire policy reveals that the products-completed operations hazard is subject to the CGL coverage limitations and, therefore, subject to the “occurrence” requirement. The policy's common declaration, for example, lists the schedule of coverage, which includes four separate types of coverage: (1) CGL coverage; (2) commercial automobile coverage; (3) commercial inland marine coverage; and (4) commercial umbrella coverage. (Doc. No. 12-1 at 39). Notably, the products-completed operations hazard is not its own affirmative grant of coverage but rather a provision within the CGL policy's coverage. 12 The CGL policy unambiguously requires an “occurrence” to trigger coverage. 12 This is frequently the case with CGL policies that contain a products-completed operations hazard. See, e.g., Wensel v. Nautilus Ins. Co., 474 Fed.Appx. 862, 864 (3d Cir. 2012) (noting that “[t]he products completed-operations hazard provision, however, stands as a limitation ... not an affirmative grant of coverage.”). V. CONCLUSION For the foregoing reasons, I find that the allegations against QSV in the underlying action are based solely on claims of faulty workmanship. As a result, there is no “occurrence” under the policy. Since there is no occurrence, defendant has no duty to defend QSV. This result does not change even after taking into account all the provisions of the CGL policy. Accordingly, I will grant defendant's motion for summary judgment. 13 13 Because there is no duty to defend, it follows that there is no duty to indemnify. Sikirica, 416 F.3d at 225. An appropriate Order follows. All Citations Slip Copy, 2017 WL 345636 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Docu ent 79-1 Filed 03/24/17 Page 107 of 177 State Farm Fire and Casualty Company v. A.S., Slip Copy (2016) 2016 WL 7451631 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2016 WL 7451631 Only the Westlaw citation is currently available. United States District Court, W.D. Pennsylvania. State Farm Fire and Casualty Company, Plaintiff, v. A.S., et al., Defendants. Civil Action No. 16-35 | Signed 12/28/2016 Attorneys and Law Firms Bradley J. Mortensen, Elizabeth A. Sutton, Carroll McNulty & Kull LLC, Philadelphia, PA, for Plaintiff. Jason A. Medure, Medure Bonner Bellissimo Peirce & Daley, New Castle, PA, for Defendants. MEMORANDUM AND ORDER Cathy Bissoon, United States District Judge *1 For the reasons stated more fully below, Plaintiff State Farm Fire and Casualty Company's Motion for Summary Judgment (Doc. 10) will be granted in part and denied as moot in part. 1 1 A moving party is entitled to summary judgment only if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A dispute about a material fact is “genuine” only “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). While all reasonable inferences must be drawn in favor of the nonmoving party, “an inference based upon a speculation or conjecture does not create a material factual dispute sufficient to defeat summary judgment.” Halsey v. Pfeiffer, 750 F.3d 273, 287 (3d Cir. 2014) (quotation marks omitted). See also In re Asbestos Prod. Liab. Litig. (No. VI), No. 15-1988, 2016 WL 4750507, at *3 (3d Cir. Sept. 13, 2016). I. MEMORANDUM BACKGROUND State Farm Fire and Casualty Company (“Plaintiff” or “State Farm”) seeks a declaration, pursuant to the Declaratory Judgment Act, 28. U.S.C. § 2201, et. seq., that it has no duty to defend or indemnify Defendant A.S. for the Underlying Action captioned Jane Doe, a minor, by and through her parents and natural guardians, Mary Joe and John Doe v. Neshannock Township School District, et al., Civil Action No. 15-1089, under State Farm Homeowners Policy No. 38-LF-1916-0 and that it has no obligation to Defendants A.S., Anthony Staph or Shellie Staph for any portion of any award that constitutes punitive damages. (See Pl.'s Mot. (Doc. 10)). The underlying action was initiated by a classmate of A.S.'s, Jane Doe, who alleges that A.S. and three other classmates sexually assaulted her during a Neshannock High School field trip. Plaintiff argues that its “duty to defend, as it is defined under Pennsylvania law, has not been triggered as to Defendant A.S., as the Underlying Complaint does not allege that A.S. engaged in conduct that could be considered accidental and thus there was no occurrence as is required by the policy.” The Underlying Complaint asserts seven counts in total, with three pertaining specifically to the Defendant A.S. 2 The relevant general factual allegations in the Underlying Complaint are as follows: 46. As Jane Doe slept, defendants G.R., T.S., A.S. and D.R. conspired to touch plaintiff's body without her permission until she awoke. 47. At or around 12:15 a.m., Jane Doe awoke to T.S.'s hand rubbing her vaginal region over Jane Doe's pants, and G.R. touching her buttocks under her pants, while A.S. and D.R. coached the acts. 48. When Jane Doe awoke, T.S. and G.R. immediately stopped touching Jane Doe and returned to their respective seats. 49. Following the assault, Jane Doe moved to the seat in front of her, and sat with her friend and fellow student on the trip, H.B., whereby Jane Doe sobbed the entire way home. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 108 of 177 State Farm Fire and Casualty Company v. A.S., Slip Copy (2016) 2016 WL 7451631 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 50. Jane Doe's previous seatmate, P.L., became aware of the assault and walked to the front of the bus in an attempt to inform defendant chaperones of the incident. *2 51. A.S. forcibly stopped P.L., and prevented P.L. from walking to the front of the bus to inform defendant chaperones of the incident. 52. At or around 2:00 a.m., the bus arrived at Neshannock where parents waited to pick up their children. 53. As Jane Doe exited the bus, defendant A.S. stopped her, telling her not to tell her parents or school officials, as he and Jane Doe's boyfriend would ‘work things out.’ (Pl.'s Conc. Stmnt. (Doc. 12) at ¶ 6 (citing Doc. 1 of Civil Action 15-1089)). 2 Count V asserts a cause of action for negligent supervision against the parents/guardians of the minor students, including Anthony and Shellie Staph. In an Order granting Anthony and Shellie Staph's Motion for Judgment on the Pleadings, the Court dismissed Count V of the underlying Complaint as to those Defendants. (Doc. 90 at Civil Action No. 15-1089). Therefore, the Court need not address the coverage question as to Count V. Under Pennsylvania law, an insurer's duty to defend ends when the insurer can prove it has no duty to indemnify its insured on any claims remaining in the underlying action. See Utica First Ins. Co. v. Maclean, No. CIV.A. 08-1138, 2009 WL 415988, at *6 (E.D. Pa. Feb. 19, 2009) (“If the allegations in a complaint trigger an insurer's duty to defend, the insurer must defend until ‘it [can] confine the claim to a recovery that the policy [does] not cover.’ ”) (quoting D'Auria v. Zurich Ins. Co., 507 A.2d 857, 859 (Pa. Super. Ct. 1986)); Biborosch v. Transamerica Ins. Co., 603 A.2d at 1055, 1058 (Pa. Super. Ct. 1992) (“[T]he insurer must defend until the suit is narrowed only to claims that are definitely not within that coverage.”). Thus, “[a]lthough a complaint triggers an insurer's duty to defend, that duty ‘is not necessarily frozen in stasis,’ and it can end when the insurer can prove that its policy does not obligate it to indemnify the insured.” MacLean, 2009 WL 415988, at *6 (quoting State Farm Fire & Casualty Co. v. Cooper, No. Civ. A. 00-5538, 2001 WL 1287574, *3 (E.D. Pa. Oct. 24, 2001) (internal quotation marks omitted). See also Comm. Union Ins. Co. v. Pittsburgh Corning Corp., 789 F.2d 214, 218, 220 (3d Cir. 1986) (“There is no principle of Pennsylvania law that the duty to defend automatically ‘attaches' at the outset of the litigation and cannot afterwards terminate.”) (court holding that an insurance company's duty to defend its insured terminated with its duty to indemnify). Accordingly, because A.S.'s parents have been dismissed from the Underlying Action, Plaintiff's Motion for Summary Judgment insofar as it seeks declarations related to Anthony and Shellie Staph will be denied as moot. Count IV of the Underlying Complaint asserts a cause of action for assault and battery against A.S. and three other minor students. The count specific allegations include that they “intended to cause and did cause a harmful contact with plaintiff Jane Doe's person,” and that Jane Doe “did not consent to defendants' acts.” (Doc. 12 at ¶ 8) (citing Doc. 1 at ¶¶ 86-87 of Civil Action 15-1089). Count VI asserts a cause of action for intentional infliction of emotional distress against A.S. and the three other minor students. The count specific allegations include that they “acted intentionally and recklessly for the purpose of causing plaintiff to suffer humiliation, mental anguish and extreme emotional physical distress,” and that these acts “were done maliciously, fraudulently and oppressively with the wrongful intent of injuring plaintiff” and with “improper and evil motive amount[ing] to malice and conscious disregard of plaintiff's rights.” (Doc. 12 at ¶ 9) (citing Doc. 1 at ¶¶ 104, 107 of Civil Action 15-1089). Count VII asserts a cause of action for negligent infliction of emotional distress against A.S. and the other three minor students. All three relevant counts include requests for punitive damages. The count specific allegations include that the actors “knew or reasonably should have known that the conduct described herein would and did proximately result in physical and emotional distress to plaintiff.” (Doc. 12 at ¶ 10) (citing Doc. 1 at ¶ 109 of Civil Action 15-1089). *3 Plaintiff issued Homeowners Policy number 38- LF-1916-0 (“the Policy”) to Anthony and Shellie Staph for the policy period from January 17, 2013 through January 27, 2014. (Doc. 12 at ¶ 1.) With respect to personal liability coverage, the Policy provides as follows: COVERAGE L-PERSONAL LIABILITY If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence, we will: Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 109 of 177 State Farm Fire and Casualty Company v. A.S., Slip Copy (2016) 2016 WL 7451631 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 1. pay up to our limit of liability for the damages for which the insured is legally liable; and 2. provide a defense at our expense by counsel of our choice ... Our obligation to defend any claim or suit ends when the amount we pay for damages, to effect settlement or satisfy a judgment resulting from the occurrence, equals our limit of liability. (Doc. 12 at ¶ 2) (citing Compl. (Doc. 1) Exh. A) (emphasis in original). The Policy defines “occurrence” as follows: DEFINITIONS ... 7. “occurrence”, when used in Section II [describing personal liability coverage] of this policy, means an accident, including exposure to conditions, which first results in: a. bodily injury; or b. property damage; during the policy period. All bodily injury and property damage resulting from one accident, series of related accidents or from continuous or related exposure to the same general conditions is considered to be an occurrence. (Doc. 12 at ¶ 3) (citing Compl. (Doc. 1) Exh. A) (emphasis in original). ANALYSIS As a preliminary matter, the Court agrees with Plaintiff that under Pennsylvania law and as a matter of public policy, punitive damages are not covered under Pennsylvania insurance policies. (See Pl.'s Br. at 13) (citing Aetna Cas. & Surety Co. v. Roe, 650 A.2d 94, 100 (Pa. Super. Ct. 1994). Accordingly, the Court will grant Plaintiff's Motion insofar as it seeks a declaration that there is no coverage available to Defendant A.S. under the Policy for any portion of any award that constitutes punitive damages. Under Pennsylvania law, 3 “[a]n insurer's duty to defend an insured in litigation is broader than the duty to indemnify.” Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir. 1999) (citing Erie Ins. Exch. v. Claypoole, 673 A.2d 348, 355 (Pa. Super. Ct. 1996)). The “obligation to defend arises whenever the complaint filed by the injured party may potentially come within the coverage of the policy.” Gedeon v. State Farm Mut. Auto. Ins. Co., 188 A.2d 320, 322 (Pa. 1963) (emphasis in original). “If a single claim in a multi-claim lawsuit is potentially covered, the insurer must defend all claims until there is no possibility that the underlying plaintiff could recover on a covered claim.” Frog, Switch & Mfg. Co., 193 F.3d at 746 (citing Erie Ins. Exch. v. Transamerica Ins. Co., 533 A.2d 1363, 1368 (Pa. 1987)). The duty to defend continues until such time as the claim is limited to relief that the policy does not cover. Gen. Acc. Ins. Co. of Am. v. Allen, 692 A.2d 1089, 1095 (Pa. 1997). Conversely, if an injured party's complaint does not potentially come within the coverage of the policy, the duty to defend is not activated. See Erie Ins. Exch. v. Claypoole, 673 A.2d 348, 355-56 (Pa. Super. Ct. 1996) (“[O]nly allegations contained within the underlying complaint pertaining to injuries which are either actually or potentially within the scope of the insurance policy obligate the insurer to defend the insured.”). 3 A federal court exercising diversity jurisdiction is obliged to apply the substantive law of the state in which it sits, including the forum state's choice-of- law rules. Erie R.R. Co. v. Thompkins, 304 U.S. 64 (1939); Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Under Pennsylvania choice of law rules, claims arising from an insurance policy are governed by the law of the state in which the policy was delivered. CAT Internet Servs., Inc. v. Providence Wash. Ins. Co., 333 F.3d 138, 141 (3d Cir. 2003); Prudential Ins. Co. of Am. v. Prusky, No. CIV.A. 04-0462, 2008 WL 859217, at *17 (E.D. Pa. Mar. 31, 2008). Here, the parties' dispute concerns the terms of a renter's insurance policy delivered in Pennsylvania, and all parties appear to agree that Pennsylvania law applies. Inasmuch as Pennsylvania law governs this action, we treat Pennsylvania Supreme Court opinions as binding precedent and Pennsylvania Superior Court opinions as persuasive precedent. See State Farm Fire & Cas. Co. v. Mehlman, 589 F.3d 105, 107 n.2 (3d Cir. 2009). *4 A court ascertaining whether an insurer has a duty to defend its insured makes its determination by defining the scope of coverage under the insurance policy on which the insured relies and comparing the scope of coverage to the Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 110 of 177 State Farm Fire and Casualty Company v. A.S., Slip Copy (2016) 2016 WL 7451631 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 allegations of the underlying complaint. Ramara, Inc. v. Westfield Ins. Co., 814 F.3d 660, 673 (3d Cir. 2016); Gen. Accident Ins. Co. of Am. v. Allen, 692 A.2d 1089, 1095 (Pa. 1997). If the allegations of the underlying complaint potentially could support recovery under the policy, there will be coverage at least to the extent that the insurer has a duty to defend its insured in the case. Ramara, Inc., 814 F.3d at 673; Gen Accident Ins. Co. of Am., 692 A.2d at 1095. In determining the scope of coverage, “the particular cause of action that a complainant pleads is not determinative,” and instead, “it is necessary to look at the factual allegations contained in the complaint.” Mut. Benefit Ins. Co. v. Haver, 725 A.2d 743, 745 (Pa. 1999). The insured has the initial burden of establishing coverage under an insurance policy. Butterfield v. Giuntoli, 670 A.2d 646, 651-52 (Pa. Super. Ct. 1995). If coverage is established, the insurer then bears the burden of proving that an exclusion applies. Madison Constr. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (Pa. 1999). The Court's first task, as noted, is to ascertain the scope of the policy's coverage. Interpretation of an insurance policy is a question of law for the Court, and the Court's “primary goal ... is to ascertain the parties' intentions as manifested by the policy's terms.” Liberty Mut. Ins. Co. v. Sweeney, 689 F.3d 288, 293 (3d Cir. 2012) (quoting Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888, 897 (Pa. 2006)). In this case, coverage for bodily injury claims is triggered only by an “occurrence,” which is defined to mean an “accident.” Thus, the policy's “bodily injury” coverage only applies to the extent the sexual assault of Jane Doe was an “accident.” Although the term “accident” is not further defined in the policy, Pennsylvania law supplies meaning to that term, as recently explained by the Court of Appeals for the Third Circuit: In Donegal Mutual Insurance Co. v. Baumhammers, the Supreme Court of Pennsylvania said that, when “accident” is undefined in an insurance policy, Pennsylvania courts should treat the term as “refer[ing] to an unexpected and undesirable event occurring unintentionally....” 595 Pa. 147, 938 A.2d 286, 292 (2007). [T]he key term in the definition of the “accident” is “unexpected” which implies a degree of fortuity. An injury therefore is not “accidental” if the injury was the natural and expected result of the insured's actions....See also Minnesota Fire and Cas. Co. v. Greenfield, 579 Pa. 333, 855 A.2d 854, 870 (2004) (“ ‘Accident’ has been defined in the context of insurance contracts as an event or happening without human agency or, if happening through such agency, an event which, under circumstances, is unusual and not expected by the person to whom it happens.”) (internal citations omitted). That definition comports with the basic purpose of insurance: “to cover only fortuitous losses.” United Servs. Auto. Ass'n v. Elitzky, 358 Pa.Super. 362, 517 A.2d 982, 986 (1986). Auto-Owners Ins. Co. v. Stevens & Ricci Inc., No. 15-2080, 2016 WL 4547641, at *11 (3d Cir. Sept. 1, 2016). In other words, [a]n accident, simply stated, is merely an unanticipated event; it is something which occurs not as the result of natural routine but as the culmination of forces working without design, coordination or plan. And the more disorganized the forces, the more confusedly they operate, the more indiscriminately haphazard the clash and intermingling, the more perfect is the resulting accident. *5 State Farm Fire & Cas. Co. v. Estate of Mehlman, 589 F.3d 105, 111 (3d Cir. 2009)(citing Brenneman v. St. Paul Fire & Marine Ins. Co., 192 A.2d 745, 747 (Pa. 1963)). “Moreover, ‘[q]ualification of a particular incident as an accident seems to depend on two criteria: 1. the degree of foreseeability, and 2. the state of mind of the actor in intending or not intending the result.’ ” Id. (citing Black's Law Dictionary 16 (9th ed. 2009)) (alteration in the original). In determining whether the injury in question resulted from an accident, the Court must view the operative events from the perspective of A.S, since State Farm insured him and not Jane Doe. Estate of Mehlman, 589 F.3d at 111. Whether the events were unexpected from the victim's point of view is therefore irrelevant. See id. (“Accordingly, it is of no significance in our analysis that the events in question were unexpected, as they surely must have been, when viewed through the eyes of [the victim].”). Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 111 of 177 State Farm Fire and Casualty Company v. A.S., Slip Copy (2016) 2016 WL 7451631 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 With this understanding in mind, the Court must compare the scope of coverage to the allegations in the Underlying Complaint. The analysis is driven not by the causes of action pled, but by the factual allegations set forth in the complaint. See Haver, 725 A.2d at 745. Here, despite one of the relevant counts in the Underlying Complaint encompassing the term “negligence,” it is clear that any injury suffered by Jane Doe was not “accidental.” Sexual assault does not happen by accident. Moreover, the Underlying Complaint alleges that the students “conspired” with one another to engage in the conduct together. (Doc. 12 at ¶ 6) (citing Doc. 1 ¶ 46 of Civil Action No. 15-1089). Collectively, the students engaged in purposeful conduct resulting in harm to Jane Doe. Additionally, and as Plaintiff points out, “Defendants themselves have admitted that the facts asserted against A.S. do not allege accidental behavior.” (Doc. 15 at 3) (citing Doc. 14 at ¶¶ 12, 14, 16). There remains no dispute as to whether the facts alleged in the Underlying Complaint describe an accident-they simply do not. As the language in the Policy is clear that State Farm's duty to defend extends only to an “occurrence,” which is defined by the Policy as an accident, and because the Court finds the allegations in the Underlying Action do not describe accidental behavior, the Court finds that State Farm has no duty to defend A.S. in the Underlying Action, Civil Action No. 15-1089. Accordingly, Plaintiff's Motion for Summary Judgment as it relates to State Farm's duty to defend A.S. in the Underlying Action will be granted. II. ORDER For the reasons stated more fully above, IT HEREBY IS ORDERED that Plaintiff's Motion for Summary Judgment (Doc. 10) is GRANTED IN PART AND DENIED AS MOOT IN PART. Plaintiff's Motion is GRANTED as it relates to State Farm's duties to A.S. Plaintiff's Motion is DENIED AS MOOT as it relates to State Farm's duties to Defendants Anthony and Shellie Staph. IT IS FURTHER ORDERED that Plaintiff State Farm Fire and Casualty Company has no obligation to defend or indemnify A.S. for the underlying action captioned Jane Doe, a minor, by and through her parents and natural guardians, Mary Doe and John Doe v. Neshannock Township School District, et al., Case No. 2:15-cv-01089, United States District Court for the Western District of Pennsylvania, under State Farm Homeowners Policy No. 38-LF-1916-0. *6 IT IS FURTHER ORDERED that Plaintiff State Farm Fire and Casualty Company has no obligation to A.S., for any portion of any award that constitutes punitive damages. IT IS SO ORDERED. All Citations Slip Copy, 2016 WL 7451631 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 112 of 177 State Farm Fire and Casualty Company v. Jumper, Slip Copy (2017) 2017 WL 839459 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2017 WL 839459 Only the Westlaw citation is currently available. United States District Court, M.D. Pennsylvania. State Farm Fire and Casualty Company, Plaintiff v. Leroy Jumper, Defendant No. 1:15-cv-02389 | Filed 03/03/2017 Attorneys and Law Firms Bradley J. Mortensen, Elizabeth A. Sutton, Carroll McNulty & Kull LLC, Philadelphia, PA, for Plaintiff. George B. Faller, Jr., Martson Deardorff Williams Otto Gilroy & Faller, Carlisle, PA, for Defendant. MEMORANDUM Kane, District Judge *1 Before the Court is Plaintiff State Farm Fire and Casualty Company's motion for summary judgment pursuant to Federal Rule of Civil Procedure 56. (Doc. No. 14.) For the reasons that follow, the Court will grant the motion. I. BACKGROUND The present action for declaratory judgment arose out of a fire that occurred at the home of Ralph Weidner on September 8, 2013 and a lawsuit filed in federal court on July 2, 2015. (Doc. Nos. 1 ¶¶ 21-23; 4-1 ¶ 13; see Doc. No. 8 ¶ 23.) On July 2, 2015, Unitrin Auto and Home Insurance Company, as subrogee of Ralph Weidner, filed an action (“Underlying Action”) against Defendant Jumper, alleging that the September 8, 2013 house fire was caused by Defendant's “negligent, careless and/or reckless acts and/or omissions.” 1 (Doc. No. 4-1 ¶¶ 17, 18; 14-3 ¶¶ 17-18; 15 ¶¶ 10, 11; 18 ¶¶ 10, 11.) According to the underlying complaint, Ralph Weidner allegedly hired Defendant Jumper to investigate and repair circuit breakers that had been tripping at Weidner's home. (Doc. Nos. 14-3 ¶ 10; 15 ¶ 10; 18 ¶ 10.) The underlying complaint alleges that: (1) Defendant Jumper installed “larger sized circuit breakers” to address the problem; (2) the September 8, 2013 fire “originated in the electrical wiring” of Weidner's home; and (3) the damage to Weidner's home was caused by Defendant Jumper, inter alia, “carelessly and improperly repairing the electronical system” at Weidner's home. 2 (Doc. No. 14-3 ¶¶ 12, 13, 17; 15 ¶¶ 10, 11; 18 ¶¶ 10, 11.) 1 On February 16, 2016, Unitrin Auto and Home Insurance Company amended its complaint against Defendant Jumper. (Doc. No. 14-3.) The Court refers to the amended complaint in the Underlying Action as the “underlying complaint.” 2 On November 25, 2016, upon notification in the Underlying Action that the parties consented to proceed before a United States Magistrate Judge, the Underlying Action was reassigned to Magistrate Judge Schwab. (See Doc. Nos. 10, 11, 12; 15- cv-01312.) Plaintiff State Farm Fire and Casualty Company issued a homeowners policy, No. 38-E5-6609-4 (“the Policy”), to Defendant Jumper for the period between April 5, 2013 and April 5, 2014. (Doc. Nos. 1 ¶ 8; 8 ¶ 8.) Plaintiff has since provided Defendant a defense to the Underlying Action pursuant to three reservation of rights letters. 3 (Doc. Nos. 1 ¶ 12; 8 ¶ 12.) However, on December 11, 2015, Plaintiff filed the above-captioned action seeking a declaratory judgment that it owes no obligation to defend or indemnify Defendant Jumper for claims arising out of the Underlying Action. 4 (Doc. No. 1 ¶¶ 14, 32, 43-44; 48-49.) First, Plaintiffs contend that the claims asserted in the Underlying Action “do not fall within the Insuring Agreement of the Policy” because the Underlying Action's complaint does not allege an “occurrence.” (Id. ¶¶ 28-32.) Second, Plaintiffs argue that the Policy's “business pursuits exclusion” applies to Defendant's claim for coverage. (Id. ¶¶ 34, 36-37, 40-43.) 3 Plaintiff insurer sent Defendant insured a reservation of rights letter on August 17, 2015 (Doc. No. 4-2 at 2-4), on November 23, 2015 (Doc. No. 4-3 at 2-4), and on March 16, 2016 (Doc. No. 16-3 at 2-4). 4 Plaintiff filed the present action for declaratory judgment “pursuant to Rule 57 of the Federal Rules of Civil Procedure and 28 U.S.C. § 2201.” (Doc. No. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 113 of 177 State Farm Fire and Casualty Company v. Jumper, Slip Copy (2017) 2017 WL 839459 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 1 ¶ 7.) The Declaratory Judgment Act, 28 U.S.C. § 2201, “allows a court to declare the rights of parties to an insurance contract, including the extent to which a policy obligates an insurer to defend or indemnify an insured.” Bituminous Cas. Corp. v. John W. Gleim, Jr., Inc., No. 07-2287, 2009 WL 473034, at *2 (M.D. Pa. Feb. 24, 2009) (internal citations omitted). The parties do not dispute that Pennsylvania substantive law applies. *2 On January 20, 2016, Defendant filed an answer to Plaintiff's complaint for declaratory judgment. (Doc. No. 8.) Plaintiff filed a motion for summary judgment on March 29, 2016. (Doc. No. 14.) In its motion for summary judgment, Plaintiff submits only its first argument- that “the allegations of the Underlying Action do not constitute an ‘occurrence’ under the Policy.” (Id. ¶ 25.) The motion for summary judgment has been fully briefed and is ripe for disposition. II. LEGAL STANDARD Federal Rule of Civil Procedure 56(a) requires the court to render summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “[T]his standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original). A factual dispute is material if it might affect the outcome of the suit under the applicable law, and is genuine only if there is a sufficient evidentiary basis that would allow a reasonable fact finder to return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). Thus, where no material fact is in dispute, the moving party need only establish that it is entitled to judgment as a matter of law. Anderson, 477 U.S. at 248. Conversely, where there is a dispute as to an issue of material fact, the moving party must establish that the factual dispute is not a genuine one. Id. The party moving for summary judgment bears an initial burden of identifying evidence that it believes demonstrates the absence of a genuine issue of material fact. Conoshenti v. Pub. Serv. Elec. & Gas Co., 364 F.3d 135, 145-46 (3d Cir. 2004). Once the moving party has carried this initial burden, “the nonmoving party must come forward with specific facts showing that there is a genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (internal quotation marks omitted). If the non-moving party “fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden at trial,” summary judgment is warranted. Celotex, 477 U.S. at 322. With respect to the sufficiency of the evidence that the non-moving party must provide, a court should grant summary judgment where the non-movant's evidence is merely colorable, conclusory, or speculative. Anderson, 477 U.S. at 249-50. There must be more than a scintilla of evidence supporting the non-moving party and more than some metaphysical doubt as to the material facts. Id. at 252; see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). In determining whether there is a genuine issue of material fact, the court must view the facts and all reasonable inferences in favor of the nonmoving party. Moore v. Tartler, 986 F.2d 682 (3d Cir. 1993); Clement v. Consolidated Rail Corp., 963 F.2d 599, 600 (3d Cir. 1992); White v. Westinghouse Electric Co., 862 F.2d 56, 59 (3d Cir. 1988). In deciding a motion for summary judgment, the court need not accept allegations that are merely conclusory in nature, whether they are made in the complaint or a sworn statement. Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888 (1990). Moreover, the court's function is not to make credibility determinations, weigh evidence, or draw inferences from the facts. Anderson, 477 U.S. at 249. Rather, the court must simply “determine whether there is a genuine issue for trial.” Id. III. DISCUSSION *3 In its motion for summary judgment, Plaintiff contends that it has no duty to defend or indemnify Defendant because the allegations in the Underlying Action do not constitute an “occurrence” under the Policy. (Doc. No. 16 at 6.) Defendant responds that the Underlying Action brings a “claim for negligent work,” Plaintiff has an obligation to defend Defendant for a loss caused by a fire, and that Plaintiff's November 23, 2015 reservation of rights letter “should be deemed untimely.” (Doc. No. 17.) The Court first addresses Defendant's untimeliness argument. A. Timeliness of Plaintiff's Reservation of Rights Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 114 of 177 State Farm Fire and Casualty Company v. Jumper, Slip Copy (2017) 2017 WL 839459 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 Defendant urges this Court to deem Plaintiff' second reservation of rights letter as untimely and, by extension, Plaintiff's “non-occurrence argument” as waived. (See Doc. No. 17 at 13-14.) Defendant argues that he had no notice that the allegations of the Underlying Action might not qualify as an “occurrence” until he received the second reservation of rights letter, dated November 23, 2015. (Id. at 13.) Defendant stresses that more than six months passed between the commencement of the Underlying Action and the second reservation of rights letter. (Id.) Plaintiff responds that Defendant's timeliness argument overlooks that the complaint in the Underlying Action was amended on February 16, 2016 and that Plaintiff cited the “relevant language of the Policy at issue” in its reservation of rights letters. (Doc. No. 19 at 4-7.) “Under Pennsylvania law, an insurer is not estopped from denying coverage when ... the insured received a timely reservation of rights letter.” St. Leger v. Am. Fire & Cas. Ins. Co., 870 F. Supp. 641, 644 (E.D. Pa. 1994), aff'd, 61 F.3d 896 (3d Cir. 1995). However, the “[f]ailure to provide timely notice of a reservation of rights may preclude the insurer from later denying a duty to defend and/or a duty to indemnify its insured. When a party seeks to estop an insurer from withdrawing from a case, the burden is on the party asserting the estoppel claim to establish that defense by clear, precise, and unequivocal evidence.” Transportation Ins. Co. v. C.F. Bordo, Inc., No. 06-2386, 2009 WL 839366, at *5 (M.D. Pa. Mar. 30, 2009) (Vanaskie, J.) (internal citation omitted). For example, in Erie Insurance Exchange v. Lobenthal, the Superior Court of Pennsylvania concluded that an insurer's reservation of rights letter, sent seven months after the filing of the underlying complaint, was untimely. 114 A.3d 832, 840 (Pa. Super. Ct. 2015). In that case, the passenger of a car-who suffered injuries in a car accident -brought the underlying action against the driver and a family whose daughter had hosted a party preceding the accident. Id. at 834-35. The underlying complaint alleged that the daughter-an additional insured under her family's insurance policy-“encouraged the use of controlled substances at the party” and provided the driver in the car accident with controlled substances. Id. at 838-89. In Erie, although the insurer was “on notice” that the underlying “allegations fell under the controlled substances policy exclusion,” the insurer did not send the second reservation of rights letter, which first referenced the policy's controlled substances exclusion, until seven months after the underlying complaint was filed and three months after the disposition of preliminary objections. Id. at 837, 839. The Superior Court of Pennsylvania reasoned that prejudice, under the circumstances, could be “fairly presumed,” as follows: [The insurer] waited to send its reservation of rights letter until over three months had passed from disposition of its preliminary objections and the only remaining claim related to [the daughter's] alleged furnishing of controlled substances, which was clearly excluded from coverage.... Had [the daughter] been informed of [the insurer's] intention to deny coverage when the suit was filed, she could have engaged separate counsel and managed her own defense. *4 Id. at 839. After considering the insurer's untimely reservation of rights letter and the fact that the insurer never provided the daughter with “actual notice” of its position, the Superior Court of Pennsylvania reversed and remanded the lower court's order with instructions to enter judgment in the declaratory judgment action in favor of the daughter. See id. at 840. Here, Plaintiff insurer first raised its “non-occurrence argument” in the second reservation of rights letter, dated on November 23, 2015. (Doc. No. 4-3 at 2-4.) In the second reservation of rights letter, Plaintiff informed Defendant Jumper, in relevant part, as follows: Additional information has come to light, and We wish to call your attention to the fact that we specifically reserve our right to deny defense or indemnity to you ... for the following reasons: there is a question whether the property damage alleged arose from business pursuits of any insured. It is questionable whether the definition of occurrence has been met. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 115 of 177 State Farm Fire and Casualty Company v. Jumper, Slip Copy (2017) 2017 WL 839459 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 (Doc. No. 4-3 at 2.) Plaintiff also included the definition of an “occurrence,” as defined in the Policy, in the letter. (Id. at 4.) At that point, in the Underlying Action, a case management conference had been scheduled and Defendant Jumper had filed an answer to the July 2, 2015 complaint. (Doc. Nos. 1, 7, 8; 15-cv-01312.) However, on February 16, 2016, approximately three months after the second reservation of rights letter, the complaint in the Underlying Action was amended with Defendant's written consent. (Doc. Nos. 15, 16; 15-cv-01312.) This Court cannot presume prejudice to Defendant Jumper where Plaintiff notified Defendant of the insurer's “non-occurrence argument” three months prior to the filing of the operative complaint. Moreover, Defendant's unsupported contention that “this would be a very different case”-were Plaintiff to have provided Defendant with the non-occurrence argument in its August 17, 2015 reservation of rights letter-does not constitute the “clear, precise, and unequivocal evidence” needed to raise a genuine dispute as whether Plaintiff is estopped from denying coverage. Accordingly, the Court declines to find Plaintiff's second reservation of rights letter untimely or its “non-occurrence argument” waived. B. Definition of Occurrence As discussed above, Plaintiff contends that it has no duty to defend or indemnify Defendant because the allegations in the Underlying Action do not constitute an “occurrence” under the Policy. (Doc. No. 16 at 6.) Plaintiff stresses that the underlying allegations are that Weidner's home was damaged by Defendant's allegedly defective work, not by an accident or conduct that otherwise could be “construed as negligent or fortuitous events.” 5 (Id. at 10-11.) Defendant responds that the Underlying Action brings a “claim for negligent work” and that Plaintiff has an obligation to defend Defendant for a loss caused by a fire. (Doc. No. 17.) In particular, Defendant reasons that “the Underlying Complaint does not allege that [Defendant] Jumper's work installing the larger sized circuit breakers was faulty, but rather that his decision to do so to fix the problem with the electrical system at the Property was negligent.” (Id. at 9, 11, 14.) 5 Plaintiff also reasons that conclusory allegations of negligence do not constitute an “occurrence” where “there are no factual allegations to support such claims.” (Doc. No. 16 at 11-13.) *5 “An insurance company's duty to defend a suit against an insured is determined solely on the basis of the allegations of the complaint in the underlying action.” 6 Westfield Ins. Co. v. Bellevue Holding Co., 856 F. Supp. 2d 683, 691 (E.D. Pa. 2012) (internal citations and quotations omitted); see Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888, 896 (Pa. 2006) (“[A]n insurer's duty to defend and indemnify [is to] be determined solely from the language of the complaint against the insured”) (internal citations omitted). “To decide whether a duty to defend exists, the court must compare the allegations in the complaint with the provisions of the insurance contract and determine whether, if the complaint allegations are proven, the insurer would have a duty to indemnify the insured.” Keystone Spray Equip., Inc. v. Regis Ins. Co., 767 A.2d 572, 574 (Pa. Super. Ct. 2001) (citing Gene's Restaurant v. Nationwide Insurance Company, 548 A.2d 246, 246 (Pa. 1988)). 6 “If an insurer does not have a duty to defend, it does not have a duty to indemnify. However, ‘both duties flow from a determination that the complaint triggers coverage.’ ” Indalex Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 83 A.3d 418, 421 (Pa. Super. Ct. 2013). The Policy defines “occurrence” as “an accident, including exposure to conditions, which first results in: a. bodily injury; or b. property damage; during the policy period. All bodily injury and property damage resulting from one accident, series of related accidents or from continuous and repeated exposure to the same general conditions is considered to be one occurrence.” (Doc. No. 14-2.) The policy does not define the term “accident” for purposes of delineating an “occurrence.” (Id.) For guidance, this Court turns to the Supreme Court of Pennsylvania's conclusion “that the term ‘accident’ within insurance polices refers to an unexpected and undesirable event occurring unintentionally, and that the key term in the definition of the ‘accident’ is ‘unexpected’ which implies a degree of fortuity.” Donegal Mut. Ins. Co. v. Baumhammers, 938 A.2d 286, 292 (Pa. 2007) (internal citation omitted). “An injury therefore is not ‘accidental’ if the injury was the natural and expected result of the insured's actions.” Id. at 292 (internal citation omitted). Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 116 of 177 State Farm Fire and Casualty Company v. Jumper, Slip Copy (2017) 2017 WL 839459 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 In particular, the Supreme Court of Pennsylvania has held that “the definition of ‘accident’ required to establish an ‘occurrence’ under” two commercial general liability policies “cannot be satisfied by claims based upon faulty workmanship. Such claims simply do not present the degree of fortuity contemplated by the ordinary definition of ‘accident’ or its common judicial construction in this context.” Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888, 899 (Pa. 2006). Since the Kvaerner decision, courts sitting in Pennsylvania “have consistently held that claims based upon faulty workmanship do not amount to an ‘occurrence’ that triggers an insurer's duty to defend.” Quality Stone Veneer, Inc. v. Selective Ins. Co. of Am., No. 15-6509, 2017 WL 345636, at *6 (E.D. Pa. Jan. 23, 2017) (collecting cases). For example, in Specialty Surfaces International, Inc., the United States Court of Appeals for the Third Circuit affirmed a district court's grant of summary judgment in favor of appellee insurer on the basis that the underlying allegations did not constitute an occurrence. Specialty Surfaces Int'l, Inc. v. Cont'l Cas. Co., 609 F.3d 223, 227 (3d Cir. 2010). In that case, subcontractor Empire-an additional insured and subsidiary of insured manufacturer Specialty Surfaces-was hired to install synthetic turf fields and drainage systems in the fields of a California school district. Id. at 227. The school district filed suit against Specialty Surfaces for “defects in materials and workmanship” and “unstable playing surfaces” that resulted from water leaking. Id. at 228. In its amended complaint, the school district added Empire as a defendant and alleged, inter alia, that Empire's negligence in “designing, manufacturing and installing the subdrain system and liner” caused “damage to the turf, the subdrain system, the liner, and the subgrade.” Id. at 228, 238. *6 Empire and Specialty Surfaces, collectively referred to as “Sprinturf,” sought a declaratory judgment “that the insurer had a duty to defend and to indemnify” Sprinturf against the school district's lawsuit. Id. at 229. The district court entered summary judgment in favor of the insurer, and Sprinturf appealed. Id. The Third Circuit noted that, “[i]n order for a claim to trigger coverage, there must be a causal nexus between the property damage and an ‘occurrence,’ i.e., a fortuitous event. Faulty workmanship, even when cast as a negligence claim, does not constitute such an event; nor do natural and foreseeable events like rainfall.” Id. at 231. As such, the Third Circuit affirmed the district court's judgment, in relevant part, as follows: [Appellee insurer] was not required to defend Sprinturf because the allegations in the amended complaint do not support a determination that any damage was caused by an ‘occurrence.’ Any damages to Empire's own work product based on Empire's alleged negligence are claims of damage based on faulty workmanship. Because they are not caused by an accident, under Kvaerner, they are not a covered ‘occurrence’ under the insurance policy. Id. at 238. The Third Circuit reasoned that “water damage to the subgrade was a foreseeable result of the failure to supply a suitable liner or ‘to ensure the proper design, manufacture and installation of the synthetic turf and subdrain system.’ ” Id. at 239. Here, Plaintiff has identified the following allegations in the underlying complaint: 9. Prior to September 8, 2013, one or more circuit breakers at the Property started to trip and shut power off to certain portions of Weidner's house. 10. Prior to September 8, 2013, Weidner hired Jumper to come to the Property to investigate why the circuit breakers were tripping and then repair/fix whatever was causing the circuit breakers to trip. 11. Prior to September 8, 2013, Jumper went to the Property to investigate why the circuit breakers were tripping. 12. Prior to September 8, 2013, and upon information and belief, Jumper simply installed larger sized circuit breakers in the circuit breaker panel box at the Property to repair/fix the problem that was causing the circuit breakers to trip at Weidner's house. 13. On September 8, 2013, a fire originated in the electrical wiring at the Property. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 117 of 177 State Farm Fire and Casualty Company v. Jumper, Slip Copy (2017) 2017 WL 839459 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 14. As a direct and proximate result of the aforementioned fire, the Property was severely damaged and destroyed. ... 17. The damage and destruction to Weidner's Property was caused by and resulted from the negligent, careless and/or reckless acts and/or omissions of Jumper.... Said acts and/or omissions consisted of: a) failing to properly and safely inspect the electrical system the Property to determine why circuit breakers were tripping prior to the fire; b) failing to properly and safely test the electrical system at the Property to determine why circuit breakers were tripping prior to the fire; c) failing to determine why circuit breakers were tripping at the Property before commencing repairs on the electrical system; d) carelessly and improperly repairing the electrical system at the Property prior to the fire; e) repairing the electrical system at the Property in an unsafe and dangerously defective manner; f) repairing the electrical system at the Property in an unsafe and dangerously defective manner that Jumper knew or should have known posed an unreasonable risk of harm to Weidner's Property; g) failing to detect and correct the dangerous and unsafe conditions in the electrical system at the Property that Jumper knew or should have known existed and posed an unreasonable risk of harm to Weidner's Property; ... j) failing to properly and safely test the electrical system at the Property after Jumper repaired it prior to the fire; *7 k) causing and/or permitting the aforesaid fire; ... (Doc. Nos. 15 ¶¶ 10-11; 16-2 ¶¶ 9-14, 17; 18 ¶¶ 10-11.) In essence, the Underlying Action alleges that Weidner hired Defendant to repair the circuit breakers at Weidner's home, Defendant “improperly” repaired the electrical system, and Defendant caused damage to Weidner's home. (See Doc. No. 16-2 ¶¶ 9-14.) The Underlying Action alleges nothing fortuitous about the fire originating in the electrical wiring or the resulting damage to the home. (Id.) Rather, the Underlying Action alleges that the “damage and destruction to Weidner's Property was caused by and resulted from the negligent, careless and/or reckless acts and/or omissions of [Defendant] Jumper.” (Id. ¶ 17.) Accordingly, the Court finds that the Underlying Action alleges a claim of faulty workmanship, albeit cast as a claim of negligence, carelessness and/or recklessness. (Id.) See, e.g., State Farm Fire & Cas. Co. v. Kim's Asia Constr., No. 15-6619, 2016 WL 5848851, at *5 (E.D. Pa. Oct. 5, 2016); Roman Mosaic & Tile Co. v. Liberty Mut. Ins. Co., No. CIV.A. 11-6004, 2012 WL 1138587, at *5 (E.D. Pa. Apr. 5, 2012). The allegations in the Underlying Action do not involve an “occurrence” as “[f]aulty workmanship, even when cast as a negligence claim, does not constitute such an event.” Specialty Surfaces Int'l, Inc., 609 F.3d at 231. Therefore, Plaintiff has demonstrated the absence of a genuine issue of material fact as to whether it has a duty to defend or to indemnify Defendant against the Underlying Action. The Court will grant judgment as a matter of law in favor of Plaintiff. IV. CONCLUSION For the foregoing reasons, the Court will grant Plaintiff State Farm Fire and Casualty Company's motion for summary judgment pursuant to Federal Rule of Civil Procedure 56. All Citations Slip Copy, 2017 WL 839459 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 118 of 177 State Farm Fire and Cas. Co. v. Scalia, Not Reported in F.Supp.3d (2014) 2014 WL 6982926 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2014 WL 6982926 Only the Westlaw citation is currently available. United States District Court, M.D. Pennsylvania. STATE FARM FIRE AND CASUALTY COMPANY, Plaintiff, v. Marti B. SCALIA, Defendant. No. 1:14-cv-00049. | Signed Dec. 9, 2014. Attorneys and Law Firms Bradley J. Mortensen, Elizabeth A. Bartman, Carroll McNulty & Kull LLC, Philadelphia, PA, for Plaintiff. Erica Shoaf, Shoaf & Wencker, LLC, Huntingdon, PA, for Defendant. MEMORANDUM JOHN E. JONES III, District Judge. *1 Presently pending before the Court is Plaintiff's Motion for Summary Judgment. (Doc. 18). The Court will grant this Motion, as more fully set forth and articulated herein. Also pending is Plaintiff's Motion to Strike (Doc. 24), which is denied. I. PROCEDURAL HISTORY On January 13, 2014, Plaintiff State Farm Fire and Casualty Company (“State Farm”) filed a Complaint, seeking a declaratory judgment pursuant to Rule 57 of the Federal Rules of Civil Procedure and 28 U.S.C. § 2201, that it has no obligation to defend Defendant Marti Scalia (“Scalia”) in a state court action that has been brought against him by another person, Jackie Alexander (“Alexander”) (Doc. 1). Additionally, State Farm seeks a determination that because it has no duty to defend Scalia, it also has no duty to indemnify him in the underlying state court action. On June 17, 2014, State Farm filed a Motion for Summary Judgment and a brief in support of its Motion. (Docs. 18 & 19). Scalia filed his brief in response to the Motion for Summary Judgment on July 10, 2014. (Doc. 21). Both parties filed Statements of Material Fact with regard to the Motion. (Docs. 20 & 22). With its Statement of Material Facts, Scalia also filed a Response to Plaintiff's Statement of Material Facts. (Doc. 22). State Farm then filed a Reply on July 16, 2014 (Doc. 26), to which Scalia filed a Sur- Reply on July 23, 2014. (Doc. 28-1). State Farm was granted permission to file a Reply to the Sur-Reply, and accordingly the Court accepted its Reply on November 24, 2014. (Doc. 32). The Motion for Summary Judgment has been fully briefed and statements of material fact have been filed and answered. The Motion is thus ripe for our review. 1 1 On July 14, 2014, State Farm filed a Motion to Strike, arguing that the Court should strike Scalia's Response to State Farm's Motion for Summary Judgment because it was not timely filed, or alternatively, that the Court should strike Subsection II.C. of Scalia's Response because it impermissibly asserts the defense of failure to join an indispensable party. (Doc. 24). Scalia filed a Response to the Motion to Strike on July 21, 2014. (Doc. 27). The Court will deny this Motion. Scalia correctly asserts that this Court provides an extra three days for a party to file his brief in opposition to a motion for summary judgment when the party files his responsive pleading electronically. See, e.g., Dietz v. National City Mortg. Co., 2008 WL 2857722 (M.D.Pa. July 21, 2008). Regarding Subsection II.C. State Farm argues that Scalia's discussion of his defense of failure to join an indispensable party should have been raised in earlier pleadings or a motion to dismiss, and that his belated discussion of the issue at the summary judgment stage of proceedings is inappropriate. Although the Court would have much preferred to address this defense separately at an earlier stage of proceedings, we do find that Scalia preserved this defense by including it, however summarily, in the Affirmative Defenses section in his Answer. (Doc. 9). Furthermore, the defense has been fully briefed by the parties. II. STANDARD OF REVIEW Summary judgment is appropriate if the moving party establishes “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” FED. R. Civ. P. 56(a). A dispute is “genuine” only if there is a sufficient evidentiary basis for a reasonable jury to find for the non-moving party, and a fact is “material” only if it might affect the outcome of Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 119 of 177 State Farm Fire and Cas. Co. v. Scalia, Not Reported in F.Supp.3d (2014) 2014 WL 6982926 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 the action under the governing law. See Sovereign Bank v. BJ's Wholesale Club, Inc., 533 F.3d 162, 172 (3d Cir.2008) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). A court should view the facts in the light most favorable to the nonmoving party, drawing all reasonable inferences therefrom, and should not evaluate credibility or weigh the evidence. See Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764, 772 (3d Cir.2013) (citing Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000)). Initially, the moving party bears the burden of demonstrating the absence of a genuine dispute of material fact, and upon satisfaction of that burden, the non-movant must go beyond the pleadings, pointing to particular facts that evidence a genuine dispute for trial. See id. at 773 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). In advancing their positions, the parties must support their factual assertions by citing to specific parts of the record or by “showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.” FED. R. Civ. P. 56(c)(1). *2 A court should not grant summary judgment when there is a disagreement about the facts or the proper inferences that a factfinder could draw from them. See Reedy v. Evanson, 615 F.3d 197, 210 (3d Cir.2010) (citing Peterson v. Lehigh Valley Dist. Council, 676 F.2d 81, 84 (3d Cir.1982)). Still, “the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment.” Layshock ex rel. Layshock v. Hermitage Sch. Dist., 650 F.3d 205, 211 (3d Cir.2011) (quoting Anderson, 477 U.S. at 247-48) (internal quotation marks omitted). III. STATEMENT OF FACTS Most, if not all, of the facts that are material to this Motion in the instant case are undisputed. The following facts are undisputed by the parties: Marti B. Scalia was issued a Homeowners Policy (# 38-LC-9279-8) (“Policy”) for the period May 21, 2010 through May 21, 2011. (Doc. 20, ¶ 1). The Policy does provide personal liability coverage, but with limitations. (Id., ¶ 2). The exact language of the Policy and what kind of personal liability it covers will be discussed at length at a later point in our analysis. Scalia was sued in a personal injury action by Jackie C. Alexander. This action was filed in the Pennsylvania Court of Common Pleas for Huntingdon County (“Underlying Action”). The case is captioned Alexander v. Scalia, No.2010-1787. (Id., ¶ 5). In Alexander's Amended Complaint, she alleges in Count I that, on October 29, 2010, while driving on the highway and then while at Scalia's personal residence, Scalia “violently struck [Alexander] on and about various parts of her body with great force and violence, pulled [Alexander] from her car, pushed and shoved [Alexander] and knocked [Alexander] to the ground.” (Id., ¶ 7). Her Amended Complaint refers to this incident as an “assault and battery,” which she alleged caused her various bodily and psychological injuries. (Id., ¶ 8). Count II of her Amended Complaint seeks punitive damages against Scalia as a result of this alleged assault and battery. (Id., ¶ 10). The Amended Complaint further alleges that Scalia's actions were “careless, reckless, wanton, and willful” and “constitute careless, reckless, wanton, willful misconduct and a reckless indifference” to Alexander's interests. (Id., ¶ 11). Scalia submits additional evidence in an attempt to contest this Motion. He submits copies of State Farm's Claim Notes, correspondence between his defense counsel and a State Farms claims representative, State Farm Section Manager Status Reports, and a copy of the transcript from Scalia's criminal trial regarding this same incident. (Doc. 22). All of these exhibits ultimately seek to dispute the facts of the underlying incident between Scalia and Alexander, and seek to argue that there was not in fact an assault and battery but rather Alexander may have caused her own injuries due to alleged intoxication. (Id.). IV. DISCUSSION A. Whether State Farm Failed to Join an Indispensable Party *3 First, the Court must consider whether State Farm's failure to join the plaintiff in the underlying civil action, Jackie C. Alexander, constitutes failure to join an indispensable party, warranting dismissal of the case. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 120 of 177 State Farm Fire and Cas. Co. v. Scalia, Not Reported in F.Supp.3d (2014) 2014 WL 6982926 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 Federal Rule of Civil Procedure 19 dictates the requirements for a third party to be considered indispensable to an action and thus must be joined in order for the federal action to proceed. The section of the Rule applicable to the instant case states that a person must be joined if “that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may: i) as a practical matter impair or impede the person's ability to protect the interest.” FED. R. CIV. P. 19(a). Scalia argues that Alexander is an indispensable party to the instant federal action because under state law precedent governing the issue, it is required that the person asserting the underlying claims against the insured be joined as indispensable party in a declaratory judgment action on the issue of coverage between the insured and the insurer. Scalia cites to Vale Chemical Co. v. Hartford Accident & Indem. Co., 512 Pa. 290, 516 A.2d 684 (Pa.1986) as providing the binding precedent. State Farm contends that Vale does not bind federal courts, because Vale' s rule concerning joinder of indispensable parties in this type of case constitutes procedural, not substantive, law, and thus is not binding on federal courts sitting in diversity jurisdiction, under Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), citing to Liberty Mutual Insurance Co. v. Treesdale, Inc., 419 F.3d 216, 228 (3d Cir.2005). In Treesdale, the Third Circuit affirmed a district court's denial of intervention and joinder to injured parties in an insurance coverage declaratory judgment action between an insured and its insurer. In considering whether state law on joinder of indispensable parties governed, the Third Circuit concluded that “Vale did not announce substantive principles of law for Pennsylvania courts to apply in insurance coverage disputes. Rather, Vale addressed procedural and jurisdictional issues.” Treesdale, 419 F.3d at 229. In federal courts, then, while state law is instructive in determining “the interests of those affected by the litigation, joinder pursuant to Rule 19 is ultimately a question of federal law.” Hartford Casualty Ins. Co. v. Cardenas, 292 F.R.D. 235, 241 (E.D.Pa.2013). In his briefs, Scalia painstakingly attempts to argue that Treesdale's holding is narrow and that it serves as precedent only for intervention cases. However, the Third Circuit did directly address Rule 19 joinder in Treesdale. The court stated that the third parties seeking to intervene could not qualify as “necessary parties” under Rule 19 because “their interest does not relate[ ] to the subject of the action.” Id. at 230 (internal citations omitted). “Under Fed.R.Civ.P. 19(a)(2), a party is only ‘necessary’ if it has a legally protected interest, and not merely a financial interest, in the action.” Id. (internal citations omitted). The court found that the third parties did not have a “legally protectable interest” in the insurance policies at issue. Id. Scalia is effectively asking us to ignore a sizeable portion of the Third Circuit's opinion in Treesdale that discusses the type of interests a third party must have in a case in order for joinder to be required. We refuse to find the Third Circuit's broader discussion of joinder and legally protectable interests superfluous. *4 Additionally, the Third Circuit stated that it is a “general principle” that “a mere economic interest in the outcome of litigation is insufficient to support a motion to intervene. Thus, the mere fact that a lawsuit may impede a third party's ability to recover in a separate suit ordinarily does not give the third party a right to intervene.” Treesdale, 419 F.3d at 224. Although the court there discussed this principle in the context of intervention of third parties, its reasoning would naturally seem to apply to joinder of indispensable parties under Rule 19. If the Third Circuit does not find that a third party's economic interest in a lawsuit is enough to support a motion to intervene, it would be illogical for the court to find a party “indispensable” under Rule 19 by virtue of the fact the party has an economic interest in the lawsuit between the insured and insurer. Scalia does correctly point out that recent Third Circuit standing jurisprudence concerning the definition of “legally protected interests” invites confusion as to whether Treesdale is still good law on this topic in the context of Rule 19 joinder. In American Automobile Insurance Company v. Murray, 658 F.3d 311 (3d Cir.2011), the court held that an injured third party (who was not the insured) who had been named as a defendant in an insurance company coverage declaratory judgment action had standing to appeal the district court's order in that underlying action that was brought by an insurer against its insured. The court applied the Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992), test for standing, which requires the person to have an “injury in fact,” defined as a “concrete and particularized invasion of a Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 121 of 177 State Farm Fire and Cas. Co. v. Scalia, Not Reported in F.Supp.3d (2014) 2014 WL 6982926 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 legally protected interest ...” Murray, 658 F.3d at 318. Applying this test and the controlling case in the Third Circuit on whether injured parties have standing in a declaratory judgment action in the insurance coverage context, Federal Kemper Insurance Co. v. Rauscher, 807 F.2d 345 (3d Cir.1986), the court in Murray found that the directly injured third party's interests in the lawsuit were independent of the insured and that he did have a “particularized interest in the lawsuit because a determination of Murray's coverage would dictate its ability to receive the full benefit” of the lawsuit. Id. at 319. In other words, at least for purposes of standing, the financial interests of a third party related to a declaratory judgment action between an insurer and its insured may qualify as “legally protected interests.” In Hartford Casualty Ins. Co. v. Cardenas, the district court recognized the lack of clarity in Third Circuit jurisprudence over whether financial interests alone in insurance disputes qualify as a basis for joinder under Rule 19(a)(1)(B) in light of its recent standing jurisprudence. There, the court provided a lengthy and quite comprehensive discussion of the seemingly competing precedents of Treesdale versus Murray and Rauscher in terms of which precedent should direct its Rule 19 analysis, ultimately concluding that Treesdale was the proper precedent. Hartford Casualty, 292 F.R.D. at 242-246. We find the court's logic and reasoning in Hartford Casualty Insurance Co. to be persuasive and do not feel the need to repeat its analysis at length in the instant matter. The court summarized its reasoning as follows: *5 “The Court is aware of no cases in which the Third Circuit applied the standing analysis to determine the existence of a legally protected interest under Rule 19(a)(1)(B). To the contrary, review of Rauscher, Treesdale, and Murray reveals that standing and Rule 19 analyses are fundamentally different, and it would be an unwarranted expansion of the holdings in Rauscher and Murray to treat them as precedent for Rule 19(a) (1)(B).” Id. at 244. Applying Treesdale then to the case sub judice, the question becomes whether the plaintiff in the underlying tort case, Alexander, has a “legally protected interest” in this declaratory judgment action in order for her to be considered an indispensable party under Rule 19. Scalia's sole argument on this issue appears to be that Alexander's underlying civil suit against Scalia is her legally protected interest in this case. As a point of fact, Scalia does not even directly assert that Alexander has a financial interest in the instant case. Regardless, Alexander may have a financial interest in the scope of Scalia's insurance coverage in that if the alleged incident between her and Scalia was covered under the policy, she would have a greater possibility of recovery of the judgment against him; however, as Treesdale discussed, a financial interest alone in the insurance coverage declaratory judgment action is insufficient. Especially considering that Alexander has not won the underlying civil action and may or may not even be pursuing it, she does not have a legally protected interest in Scalia's insurance policy he bought from State Farm. Alexander has only a contingent financial interest. The impact of this action on Alexander is purely “collateral” and “speculative.” Treesdale, 419 F.3d at 225. Lastly and importantly, we note that Alexander herself has expressed no interest in this case, nor has she evinced a desire to intervene. It appears beyond peradventure that Scalia's last minute argument to have her joined in this federal action is little more than an attempt to delay its resolution on the merits. In that endeavor Scalia has also failed. B. Whether Summary Judgment is Appropriate The interpretation of an insurance policy, and thus whether a particular loss falls under its coverage, is a question of law. See Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 589 Pa. 317, 908 A.2d 888, 897 (Pa.2006) (internal citations omitted). As with any contract interpretation, our duty is to “ascertain the parties' intentions as manifested by the policy's terms.” Id. If the language of the policy is clear, we must abide by those terms and given them effect. On the other hand, if the terms at issue are ambiguous, the terms are to be construed in favor of the insured in a declaratory judgment action such as this. See id. With regard to the duty to defend, it has been long established in Pennsylvania law that “the obligation of a casualty insurance company to defend an action brought against the insured is to be determined solely by the allegations of the complaint in the action....” Id. at 896 (quoting Wilson v. Maryland Casualty Co., 377 Pa. 588, 105 A.2d 304, 307 (1954) (emphasis added in Kvaener )). *6 Thus, there is a two-step process in a declaratory judgment action concerning insurance coverage. A court first determines the scope of the policy's coverage, as Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 122 of 177 State Farm Fire and Cas. Co. v. Scalia, Not Reported in F.Supp.3d (2014) 2014 WL 6982926 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 outlined above. Second, a court analyzes the underlying complaint and its factual allegations in order to decide whether it triggers coverage under the terms of the policy. General Acc. Ins. Co. of America v. Allen, 547 Pa. 693, 692 A.2d 1089, 1095 (Pa.1997). Accordingly, although many exhibits have been submitted by Scalia, mostly contesting whether an assault and battery actually occurred or whether Alexander's injuries were a result of her own intoxication or carelessness, the documents that are dispositive in a case such as this are the underlying complaint filed by Alexander against Scalia and the State Farm insurance policy bought by Scalia. In order to dispose of this Motion, we must consider the language of State Farm's policy to determine the instances in which they will provide coverage and those in which coverage is not provided, and then examine Alexander's complaint to determine whether the allegations set forth therein trigger coverage. We first then turn to the pertinent portions of the Policy to determine when State Farm would be required to defend and indemnify Scalia. Those portions state the following: COVERAGE LPERSONAL LIABILITY If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence, we will: 1. Pay up to our limit of liability for the damages for which the insured is legally liable; and 2. Provide a defense at our expense by counsel of our choice ... Our obligation to defend any claim or suit ends when the amount we pay for damages, to effect settlement or satisfy a judgment resulting from the occurrence, equals our limit of liability. (Doc. 1, Ex. A; Doc. 20, ¶ 2) (emphasis in original). The term “bodily injury” is defined in the Policy as follows: “bodily injury” means physical injury, sickness, or disease to a person. This includes required care, loss of services and death resulting therefrom. (Doc. 1, Ex. A; Doc. 20, ¶ 3). The operative term for coverage for the insured for damages due to bodily injury or property damage is that such injury or damage must be caused by an “occurrence.” This is what is known as an occurrence policy in the insurance business. The “Definitions” section of this Policy defines “occurrence” as follows: 7. “occurrence”, when used in Section II of this policy, means an accident, including exposure to conditions, which results in: a. bodily injury; or b. property damage; during the policy period. Repeated or continuous exposure to the same general conditions is considered to be one occurrence. (Doc. 1, Ex. A; Doc. 20, ¶ 4) (emphasis in original). Simply put, then, the bodily injury at issue in the matter sub judice needs to have been caused by an “accident” in order for State Farm to be responsible for damages. Although this Policy does not define the term “accident,” many courts have been called on to construe what the term means in the context of occurrence policies issued by insurance companies. The Pennsylvania Supreme Court defined the term “accident” in this context to mean something that happens “unexpectedly or unintentionally,” and that the term “implies a degree of fortuity.” Kvaerner, 908 A.2d at 898. *7 Willful and malicious assaults are intentional torts; they are not accidents. Gene's Restaurant, Inc. v. Nationwide Ins. Co., 519 Pa. 306, 548 A.2d 246, 247 (Pa.1988). In Gene's Restaurant, Inc. v. Nationwide Ins. Co., the Pennsylvania Supreme Court examined a similar case in which it had to determine whether the insurance company's occurrence policy at issue covered a willful and malicious assault alleged in the underlying complaint. The court found that under the occurrence policy, an “occurrence” was an “accident,” and that because the assault was an intentional tort, it could not be considered an accident, and therefore was not covered by the policy and the insurer had no duty to defend. Id. To determine, then, whether State Farm's policy covers the event between Scalia and Alexander at issue, we must determine whether the factual allegations of the underlying complaint against Scalia allege an “accident” Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 123 of 177 State Farm Fire and Cas. Co. v. Scalia, Not Reported in F.Supp.3d (2014) 2014 WL 6982926 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 resulting in bodily injury. Alexander alleged that Scalia “violently struck” her with “great force and violence, pulled the Plaintiff [Alexander] from her car, pushed and shoved the Plaintiff and knocked the Plaintiff to the ground.” (Doc. 1, Ex. B). There is no factual allegation that suggests Scalia's actions were unintentional or fortuitous. Alexander's complaint ultimately makes out a claim for the intentional tort of assault and battery, which inherently does not suggest an accident. Manifestly, a clear reading of the complaint demonstrates that it describes a wanton assault intentionally perpetrated upon Alexander by Scalia. Thus, this event is not covered under the policy, and State Farm owes no duty to defend. Scalia points to evidence, in the form of State Farm's Claim Notes, that Alexander was intoxicated at the time of the event in question and suggests that is the reason she fell and injured herself, and further points to the Claim Notes indicating that Alexander gave at least three different versions of the story of what happened between her and Scalia. However, while this evidence may be relevant in deciding the merits of the civil tort action against Scalia, it is not relevant to the determination of whether State Farm is required to defend and indemnify Scalia. As discussed in detail above, the law requires the Court to consider only the terms of the State Farm policy at issue together with Alexander's complaint. Additionally, Scalia argues that even if Pennsylvania law follows the “four corners” rule that an insurance company's duty to defend is governed by the allegations of the underlying complaint, he believes his case falls within an exception to that rule. Scalia cites the exception that where an insurer is on notice that the underlying complaint may be amended in a way that may bring it within the scope of the coverage of the insurance policy, the insurance company maintains a duty to defend, even if ultimately there is no duty to indemnify. See Heffernan & Co. v. Hartford Ins. Co. of America, 418 Pa.Super. 326, 614 A.2d 295, 298 (Pa.Super.Ct.1992). However, Heffernan clarified, by citing the Pennsylvania Supreme Court case of Cadwallader v. New Amsterdam Casualty Co., 396 Pa. 582, 152 A.2d 484 (Pa.1959), that a court must look to whether the complaint in question “comprehends an injury which may be within the policy, ” that is, if the complaint contains factual allegations which would support recovery under the policy. Id. at 297-98, 152 A.2d 484 (emphasis added). Scalia contends that it is likely that Alexander will amend her claim to allege negligence and thus State Farm should be obligated to continue to defend Scalia. 2 However, no factual allegations in Alexander's complaint support this claim. To reiterate, the factual allegations solely allege intentional violent acts on the part of Scalia. Thus, even if this “exception” to the general four corners rule is binding law, which we find far less than clear, this case does not fall within it. 3 As State Farm points out in its reply brief, the general rule of civil procedure that complaints may be amended cannot be manipulated to essentially require insurers to defend every complaint ever filed based on the mere possibility that at some point in the future, the underlying plaintiff may amend his or her complaint to allege a potentially covered claim. Such a rule would be highly burdensome to insurers, and would quite likely drive up the costs of insurance for policyholders. 2 Notably, despite the existence of this ardently litigated federal declaratory judgment action that implicates the express language of her complaint, Alexander has chosen not to amend it. 3 Furthermore, the mere usage of legal terms such as “negligence” and “recklessness” in a complaint are not determinative of coverage. The factual allegations of the complaint, and whether they “comprehend an injury which is actually or potentially within the scope of the policy,” determine whether the insurer is obligated to defend. Erie Ins. Exchange v. Muff, 851 A.2d 919, 926 (Pa.Super.2004). *8 Even viewing the facts in the light most favorable to Scalia, we cannot conclude that a reasonable jury would have a sufficient evidentiary basis to find in his favor. Once again, the only evidence that must be examined in this case is the insurance policy and the underlying complaint against the insured. Scalia does not contest the accuracy of the exhibits of the policy and underlying complaint submitted to the court. We have found the language in the policy and Alexander's complaint to be quite straightforward, in that the only reasonable interpretation to be taken from the two documents, read together, is that the intentional tort alleged cannot be considered an accident, and thus State Farm cannot be required to defend and indemnify Scalia. Moving to the issue of punitive damages, based on the foregoing discussion and our determination that State Farm is not obligated to defend or indemnify Scalia, it logically follows that State Farm will not have to cover any possible punitive damages awarded against Scalia Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 124 of 177 State Farm Fire and Cas. Co. v. Scalia, Not Reported in F.Supp.3d (2014) 2014 WL 6982926 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 under the policy at issue. But as a point of law, State Farm is correct in its briefing that insurers do not have a duty to indemnify an insured with regard to an award of punitive damages. See Aetna Cas. and Sur. Co. v. Roe, 437 Pa.Super. 414, 650 A.2d 94, 100 (Pa.Super.1994). V. CONCLUSION Accordingly, the Motion for Summary Judgment shall be granted. The Court will enter a declaratory judgment that State Farm has no obligation to defend Marti B. Scalia with regard to the claims asserted against him in the underlying action in state court to which he has been named a defendant. The Court will further enter a declaratory judgment that State Farm has no obligation to indemnify Scalia with regard to the claims asserted against him in the underlying action. An appropriate order shall issue. ORDER In accordance with the Memorandum issued on today's date, it is hereby ORDERED that: 1. Plaintiff's Motion to Strike Defendant's Response to Plaintiff's Motion for Summary Judgment (Doc. 24) is DENIED. 2. Plaintiff's Motion for Summary Judgment (Doc. 18) is GRANTED . 3. It is further ORDERED that Plaintiff has no obligation to defend or indemnify Marti B. Scalia in the underlying action captioned Alexander v. Scalia, No.2010-1787, in the Pennsylvania Court of Common Pleas for Huntingdon County, under State Farm Homeowners Policy No. 38- LC-9279-8. 4. The Clerk of Court is directed to CLOSE the file on this case. All Citations Not Reported in F.Supp.3d, 2014 WL 6982926 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 125 of 177 Steadfast Ins. Co. v. Tomei, Not Reported in A.3d (2016) 2016 WL 2989982 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2016 WL 2989982 Only the Westlaw citation is currently available. NON-PRECEDENTIAL DECISION- SEE SUPERIOR COURT I.O.P. 65.37 Superior Court of Pennsylvania. STEADFAST INSURANCE COMPANY v. Toni TOMEI t/a Sunkissed Tanning & Spa, Countryside Shopping Center Associates, Colony Development Company, Colony Holding Company Penn-America Insurance Company and Penn America Insurance Company and Western Heritage Insurance Company and Nationwide Property & Casualty Insurance Company, Nationwide Mutual Insurance Company, and Nationwide Mutual Fire Insurance Company, and Alisha Backus, Ashley D. Barkley, Caitlin M. Beal, Ashley L. Beanner, Brittany N. Clawson, Katie B. Cook, Sarah E. Homulka, Codie L. Howard, Karlie M. Hunt, Jessica A. Kaylor, Melissa P. Koskee, Justine Kowatch, Erika L. Leasure, Christina L. Lewandowski, Ashley N. Lewis, Katelyn M. Mardis, Danell Renay Primus, Lauren M. Roth, Lindsay V. Roth, Alysia M. Swank, Christy Weaver, Chelsea A. Wettgen, Kayla M. Wildey, and Kristin L. Zelmore, Brandi Eutsey and Barbi Stoner, and Brandy Newill and Rebecca Richter, and Heather A. Falcone, Melissa Halerz, Tara O'Neal and Mylyssa Wilson, and Christina Lauffer and Jonathon Lauffer and Marvin M. Demorest, Jr. and Michelle Demorest and Jamies Aumer and Dawn Marie Mondock. Appeal of: Countryside Shopping Center Associates, Appellant. Steadfast Insurance Company v. Toni Tomei t/a Sunkissed Tanning & Spa, and Countryside Shopping Center Associates and Colony Development Company and Colony Holding Company and Penn-America Insurance Company and Western Heritage Insurance Company and Nationwide Property & Casualty Insurance Company, Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company and Alisha Backus, Ashley D. Barkley, Caitlin M. Beal, Ashley L. Beanner, Brittany N. Clawson, Katie B. Cook, Sarah E. Homulka, Codie L. Howard, Karlie M. Hunt, Jessika A. Kaylor, Melissa P. Koskee, Justine Kowatch, Erika L. Leasure, Christina L. Lewandowski, Ashley N. Lewis, Katelyn M. Mardis, Danell Renay Primus, Lauren M. Roth, Lindsay V. Roth, Alysia M. Swank, Christy Weaver, Chelsea A. Wettgen, Kayla M. Wildey, and Kristin L. Zelmore and Brandi Eutsey and Barbi Stoner and Brandy Newill and Rebecca Richter and Heather A. Falcone, Melissa Halerz, Tara O'Neal and Mylyssa Wilson and Christina Lauffer and Jonathan Lauffer and Marvin M. Demorest, Jr., and Michelle Demorest, and Jamies Aumer and Dawn Marie Mondock. Appeal of: Colony Development Company, Appellant Steadfast Insurance Company v. Toni Tomei t/a Sunkissed Tanning & Spa, and Countryside Shopping Center Associates and Colony Development Company and Colony Holding Company and Penn-America Insurance Company and Western Heritage Insurance Company and Nationwide Property & Casualty Insurance Company, Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company and Alisha Backus, Ashley D. Barkley, Caitlin M. Beal, Ashley L. Beanner, Brittany N. Clawson, Katie B. Cook, Sarah E. Homulka, Codie L. Howard, Karlie M. Hunt, Jessika A. Kaylor, Melissa P. Koskee, Justine Kowatch, Erika L. Leasure, Christina L. Lewandowski, Ashley N. Lewis, Katelyn M. Mardis, Danell Renay Primus, Lauren M. Roth, Lindsay V. Roth, Alysia M. Swank, Christy Weaver, Chelsea A. Wettgen, Kayla M. Wildey, and Kristin L. Zelmore and Brandi Eutsey and Barbi Stoner and Brandy Newill and Rebecca Richter and Heather A. Falcone, Melissa Halerz, Tara O'Neal and Mylyssa Wilson and Christina Lauffer and Jonathan Lauffer and Marvin M. Demorest, Jr., and Michelle Demorest, and Jamies Aumer and Dawn Marie Mondock. Appeal of: Colony Holding Company, Appellant. Nos. 477 WDA 2015, 478 WDA 2015, 479 WDA 2015. | Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 126 of 177 Steadfast Ins. Co. v. Tomei, Not Reported in A.3d (2016) 2016 WL 2989982 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 Filed May 24, 2016. Appeal from the Order Entered February 19, 2015, in the Court of Common Pleas of Westmoreland County, Civil Division at Nos. 12CI03917, 150 of 2013. BEFORE: FORD ELLIOTT, P.J.E., BENDER, P.J.E., AND SHOGAN, J. MEMORANDUM BY FORD ELLIOTT, P.J.E.: *1 This is a consolidated appeal from the order entered February 19, 2015, entering summary judgment for Steadfast Insurance Company (“Steadfast”) and Nationwide Property & Casualty Insurance Company, Nationwide Mutual Insurance Company, and Nationwide Mutual Fire Insurance Company (collectively, “Nationwide”), and declaring that they have no duty to defend or indemnify appellants in the underlying civil actions. After careful review, we affirm. The context in which this issue arises is as follows. The Defendants 1 herein are Defendants in a separate suit brought by 37 plaintiffs in an action filed at Westmoreland County Court of Common Pleas No. 6 of 2011, captioned Kaylor v. Toni Tomei t/ a d/b/a Sunkissed Tanning & Spa, et al. [Footnote 1] In that suit, Plaintiffs' claims arise from the surreptitious videotaping by a third party (Jesse Macklin) of Sunkissed patrons as they undressed and were unclothed during tanning sessions at the tanning salon, and the subsequent posting of these videotapes for public viewing on the internet. Generally, Plaintiffs claim to have suffered injuries constituting humiliation, embarrassment, shame, mental anguish and mental trauma as a result of discovering images of themselves nude on the internet. The Complaints allege that the Defendants were negligent in failing to ensure the safety of the underlying plaintiffs and in failing to secure the premises from the third party's misdeeds. 1 The owners of the shopping center where Sunkissed Tanning & Spa is located are related entities, Countryside Shopping Center Associates (“Countryside”), Colony Development Company, and Colony Holding Company (“Colony defendants”). [Footnote 1] All 37 Plaintiffs' actions against Sunkissed, et al ., have been consolidated at Westmoreland County Court of Common Pleas case number 6 of 2011. Trial court opinion and order, 2/19/15 at 1-2. Jesse Macklin (“Macklin”) allegedly videotaped Sunkissed patrons while they were in varying states of undress by placing video cameras in the ceiling above the tanning booths. He recorded these videos in 2006, and posted them to the internet in the summer of 2006 and continuing into early 2007. Each of the underlying plaintiffs discovered in 2010 or 2011 that nude videos of themselves were available on the internet. The Colony defendants owned or operated the strip mall where the tanning salon was located. Countryside leased the property to Sunkissed. 2 The underlying plaintiffs alleged that Countryside and the Colony defendants, appellants herein, were negligent for failing to ensure their safety and security. Appellants sought insurance coverage from appellees, Nationwide and Steadfast. 3 By order dated February 19, 2015, the trial court granted appellees' motions for summary judgment, and this timely appeal followed. 2 Countryside, as lessor, was endorsed as an additional insured under the policies Steadfast issued to Sunkissed. Steadfast provided commercial general liability coverage to Sunkissed from October 11, 2006-October 11, 2010. Nationwide insured Countryside as well as the Colony defendants from December 1, 2005-December 1, 2012. 3 Appellants also sought coverage from Penn-America Insurance Company (“Penn-America”) and Western Heritage Insurance Company (“Western Heritage”). Appellants have not appealed summary judgment for Penn-America and Western Heritage. Appellants have raised the following issues for this court's review: A. Whether the trial court erred by holding that no genuine issues of material fact existed, and by holding that the “bodily injury” coverage (Coverage A) in the Steadfast and Nationwide policies did not cover claims by third parties against the Colony Defendants even though many of the third parties alleged physical components to the injuries that they suffered, and all alleged severe emotional injuries[?] *2 B. Whether the trial court erred by holding that no genuine issues of material fact existed, and by holding that the “personal and advertising Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 127 of 177 Steadfast Ins. Co. v. Tomei, Not Reported in A.3d (2016) 2016 WL 2989982 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 injury” coverage (Coverage B) in the Steadfast and Nationwide policies did not cover claims by third parties against the Colony Appellants even though the claims arose from publication of material that invaded the victims' privacy[?] C. Whether the trial court erred by holding that no genuine issues of material fact existed, and by holding that the “personal and advertising injury” coverage (Coverage B) in the Nationwide policies did not cover claims by third parties based on a policy exclusion that was overly broad and excluded coverage for violations of any statute, ordinance or regulation prohibiting the communication of information or distribution of material, including such acts committed by a third party who was not an insured[?] D. Whether the trial court erred by holding that no genuine issues of material fact existed, and by holding that the “personal and advertising injury” coverage (Coverage B) in the Steadfast Policies did not cover claims by third parties based on incorrect exclusionary language[?] E. Whether the trial court erred by holding that no genuine issues of material fact existed, and by holding that the “personal and advertising injury” coverage (Coverage B) in the Steadfast and Nationwide policies did not cover claims by third parties because the posting of nude videos and photographs on the internet did not amount to “written” publication[?] Appellants' brief at 4-5. Initially, we note: Our scope of review of a trial court's order disposing of a motion for summary judgment is plenary. Accordingly, we must consider the order in the context of the entire record. Our standard of review is the same as that of the trial court; thus, we determine whether the record documents a question of material fact concerning an element of the claim or defense at issue. If no such question appears, the court must then determine whether the moving party is entitled to judgment on the basis of substantive law. Conversely, if a question of material fact is apparent, the court must defer the question for consideration of a jury and deny the motion for summary judgment. We will reverse the resulting order only where it is established that the court committed an error of law or clearly abused its discretion. Grimminger v. Maitra, 887 A.2d 276, 279 (Pa.Super.2005) (quotation omitted). “[Moreover,] we will view the record in the light most favorable to the non-moving party, and all doubts as to the existence of a genuine issue of material fact must be resolved against the moving party.” Evans v. Sodexho, 946 A.2d 733, 739 (Pa.Super.2008) (quotation omitted). Ford Motor Co. v. Buseman, 954 A.2d 580, 582-583 (Pa.Super.2008), appeal denied, 970 A.2d 431 (Pa.2009). “The proper construction of a policy of insurance is resolved as a matter of law in a declaratory judgment action.” Alexander v. CNA Ins. Co., 657 A.2d 1282, 1284 (Pa.Super.1995), appeal denied, 670 A.2d 139 (Pa.1995) (citation omitted). “The Declaratory Judgments Act may be invoked to interpret the obligations of the parties under an insurance contract, including the question of whether an insurer has a duty to defend and/or a duty to indemnify a party making a claim under the policy.” Gen. Accident Ins. Co. of America v. Allen, 692 A.2d 1089, 1095 (Pa.1997) (citations omitted). Both the duty to defend and the duty to indemnify may be resolved in a declaratory judgment action. Id. at 1096, citing Harleysville Mut. Ins. Co. v. Madison, 609 A.2d 564 (Pa.Super.1992) (insurer can seek determination of obligations to insured before conclusion of underlying action) (additional citations omitted). *3 It is well established that an insurer's duties under an insurance policy are triggered by the language of the complaint against the insured. In determining whether an insurer's duties are triggered, the factual allegations in the underlying complaint are taken as true and liberally construed in favor of the insured. Indalex Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 83 A.3d 418, 421 (Pa.Super.2013), appeal denied, 99 A.3d 926 (Pa.2014) (citation and quotation marks omitted). The obligation of an insurer to defend an action against the insured is fixed solely by the allegations in the underlying complaint. As long as a complaint alleges an injury Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 128 of 177 Steadfast Ins. Co. v. Tomei, Not Reported in A.3d (2016) 2016 WL 2989982 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 which may be within the scope of the policy, the insurer must defend its insured until the claim is confined to a recovery the policy does not cover. Erie Ins. Exch. v. Fidler, 808 A.2d 587, 590 (Pa.Super.2002) (citations omitted). “[W]e focus primarily on the duty to defend because it is broader than the duty to indemnify. If an insurer does not have a duty to defend, it does not have a duty to indemnify. However, both duties flow from a determination that the complaint triggers coverage.” Indalex, 83 A.3d at 421 (citations and quotation marks omitted). In their first issue on appeal, appellants claim that the trial court erred in finding that Coverage A of the policies, providing coverage for bodily injury, did not apply where the underlying plaintiffs alleged only emotional trauma. Both the Steadfast and Nationwide policies provide, in relevant part: COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY 1. Insuring Agreement a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply.... .... b. This insurance applies to “bodily injury” and “property damage” only if: (1) The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory”; (2) The “bodily injury” or “property damage” occurs during the policy period.... The policies define “bodily injury” as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” The trial court determined that the underlying plaintiffs alleged only emotional distress, embarrassment, and humiliation, with no physical injury or impact. Twelve of the underlying plaintiffs did allege “physical symptoms”; however, they did not allege any antecedent physical injury, only later manifestations of emotional distress in the form of physical symptoms. 4 Appellants argue that it is well established that “bodily injury” does not encompass emotional distress claims without an antecedent or immediate physical injury. 4 The trial court also found that only 9 of the 37 claimants first learned of the existence of the videos during the effective dates of Steadfast's coverage (October 11, 2006-October 11, 2010); 28 of the 37 plaintiffs first discovered the videos after the effective dates of the Steadfast policies. (Trial court opinion, 2/19/15 at 4.) Therefore, pursuant to the first manifestation of injury rule, there is no coverage available for those 28 claimants who first manifested injuries after the last day of the coverage period, October 11, 2010. See Pennsylvania Nat. Mut. Cas. Ins. Co. v. St. John, 106 A.3d 1, 15-16 (Pa.2014) (under the first manifestation rule, coverage is triggered when an injury is reasonably apparent, not at the time the cause of injury occurs) (citations omitted). Appellants do not challenge this aspect of the trial court's order granting summary judgment for Steadfast as to these 28 claimants. In addition, the 9 claimants who did allege discovery of the offending videos during the period of Steadfast's coverage did not allege any physical symptoms, only mental anguish, embarrassment, etc. With regard to the Nationwide policy, which provided coverage from December 1, 2005 to December 1, 2012, it is undisputed that all 37 underlying plaintiffs first learned of the existence of these offensive videos during the coverage period. *4 The Pennsylvania courts have soundly rejected the contention that policy definitions of injury or bodily injury encompass mental or emotional harm. Jackson v. Travelers Insurance Company, 414 Pa.Super. 336, 606 A.2d 1384 (1992). In the context of insurance coverage, those terms were not intended to encompass harm other than physical injury. Id. See also: Aim Insurance Company v. Culcasi, 229 Cal.App.3d 209, 280 Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 129 of 177 Steadfast Ins. Co. v. Tomei, Not Reported in A.3d (2016) 2016 WL 2989982 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 Cal.Rptr. 766, 771-72 (1991) (“Bodily injury” as used in an insurance policy refers only to physical injuries and does not encompass emotional distress only with no physical harm). Kline v. The Kemper Group, 826 F.Supp. 123 (M.D.Pa.1993), affirmed, 22 F.3d 301 (3rd Cir.1994) (plaintiff's emotional distress or humiliation of having his employment terminated, allegedly on the basis of his age, did not constitute “bodily injury” within the meaning of the policy); see also Philadelphia Contributionship Ins. Co. v. Shapiro, 798 A.2d 781, 787 (Pa.Super.2002) (plaintiff's damages for mental anguish and humiliation were all emotional damages and were not covered by the policy; plaintiff made no allegation that he suffered any “bodily harm” as a result of being fired), citing Kline. Appellants cite Glikman v. Progressive Cas. Ins. Co., 917 A.2d 872 (Pa.Super.2007), which is distinguishable. Similar to the policies in the case sub judice, the policy in Glikman defined “bodily injury” as, “bodily harm, sickness, or disease, including death that results from bodily harm, sickness, or disease.” Id. at 873. The policy also provided for first-party benefits “for loss or expense sustained by an insured person because of bodily injury caused by an accident arising out of the maintenance or use of a motor vehicle.” Id. In Glikman, the appellant, Sura Eynisfeld Glikman, was walking across the street with her husband when he was struck and killed by a motorist whose vehicle was insured by the appellee, Progressive. Id. As a result of witnessing her husband's accident, Glikman was diagnosed with and medically treated for post-traumatic stress disorder (“PTSD”). Id. At the time of the accident, Glikman did not own a motor vehicle, nor did she reside with anyone who did. Id. Glikman sought first-party medical benefits under the tortfeasor's policy, which Progressive denied on the basis that Glikman's PTSD was not the result of a “bodily injury.” Id. On appeal from summary judgment entered in favor of Progressive, this court reversed, holding that, under the language of [Progressive]'s policy, contraction of a “disease” caused by an accident arising out of the maintenance or use of a motor vehicle is a specifically covered bodily injury under the policy. As [Progressive] neither disputes that [PTSD] is a disease nor the cause of [Glikman]'s suffering, we find she has sustained a bodily injury within the meaning of the policy. Id. at 873. In so holding, we distinguished the Glikman policy from the policy in Zerr v. Erie Ins. Exch., 667 A.2d 237 (Pa.Super.1995), which defined “bodily injury” or “injury” as “accidental bodily harm to a person and that person's resulting illness, disease or death.” Id. at 873-874, quoting Zerr, 667 A.2d at 238. Thus, under the Zerr policy, the disease must be a result of accidental bodily harm, while under the Progressive policy under consideration in Glikman, disease is defined as an injury separate from bodily harm. Id. at 874. The court in Zerr determined that the insured's policy created a distinction between physical and psychological illness, and precluded recovery for mental injuries which were not the result of accidental bodily harm. Id. at 873 n. 1. This court in Glikman found that Zerr was inapposite and the trial court erred in relying upon it to assess coverage. *5 Instantly, as stated above, the Nationwide and Steadfast policies define bodily injury as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” This is akin to the definition of bodily injury in Glikman. Nevertheless, we find Glikman is not controlling where in that case, Glikman suffered from a recognized psychological disease, PTSD, after watching her husband get struck and killed by a motor vehicle. Glikman was crossing the street with her husband when he was run over. Here, by contrast, some of the underlying plaintiffs alleged vague physical symptoms brought on by their emotional distress after learning that offensive videos had been posted to the internet. Even the 12 plaintiffs who at least alleged some physical symptoms associated with emotional distress did not allege any antecedent physical injury or impact, to themselves or anyone else. Nor did they allege anything resembling a “disease” as in Glikman. The trial court correctly held that the underlying plaintiffs' claims for emotional distress, humiliation and embarrassment did not qualify as claims for “bodily injury” under either the Steadfast or Nationwide policy, and therefore, they were not required to provide a defense under Coverage A. 5 5 Appellants also rely extensively on an unpublished memorandum decision of this court, Lipsky v. State Farm Mut. Ins. Co., 2011 WL 11745706 (Pa.Super. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 130 of 177 Steadfast Ins. Co. v. Tomei, Not Reported in A.3d (2016) 2016 WL 2989982 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 filed Sept. 1, 2011) (unpublished memorandum), affirmed by an equally divided court, 84 A.3d 1056 (Pa.2014). We caution appellants that, pursuant to this court's internal operating procedures, “An unpublished memorandum decision shall not be relied upon or cited by a Court or a party in any other action or proceeding,” subject to certain limited exceptions not relevant here. Pa.Super.Ct. IOP 65.37(A). Therefore, we cannot consider Lipsky. At any rate, Lipsky involved a bystander negligent infliction claim in which the plaintiffs witnessed the vehicular homicide of a family member and is factually distinguishable. We now turn to Coverage B, which provides coverage for “personal and advertising injury” claims against the insured. Coverage B provides, in relevant part, as follows: SECTION 1-COVERAGES .... COVERAGE B. PERSONAL AND ADVERTISING INJURY LIABILITY 1. Insuring Agreement a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “personal and advertising injury” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “personal and advertising injury” to which this insurance does not apply.... Both the Steadfast and Nationwide policies provide identical coverage for personal and advertising injury “caused by an offense arising out of your business,” which includes claims for invasion of privacy. Under SECTION V-DEFINITIONS, paragraph 14, “Personal and advertising injury” is defined as “injury, including consequential ‘bodily injury,’ arising out of one or more of the following offenses: ... e. Oral or written publication, in any manner, of material that violates a person's right of privacy[.]” In addition, both policies exclude coverage for distribution of material in violation of the law, including any act or omission that violates or is alleged to violate any statute, ordinance, or regulation that prohibits or limits the sending, transmitting, communicating, or distribution of material or information. As stated above, the duty to defend an action is governed by the factual allegations in the underlying pleadings. *6 It is well established that an insurer's duties under an insurance policy are triggered by the language of the complaint against the insured. In Mutual Benefit Insurance Co. v. Haver, 555 Pa. 534, 725 A.2d 743, 745 (1999), we stated; A carrier's duty to defend and indemnify an insured in a suit brought by a third party depends upon a determination of whether the third party's complaint triggers coverage. Id., citing General Accident Insurance Co. v. Allen, 547 Pa. 693, 692 A.2d 1089, 1095 (1997). This principle has been long held in this Commonwealth as well as in other jurisdictions. In Wilson v. Maryland Casualty Co., 377 Pa. 588, 105 A.2d 304, 307 (1954), we explained: [T]he rule everywhere is that the obligation of a casualty insurance company to defend an action brought against the insured is to be determined solely by the allegations of the complaint in the action ... Id. (Emphasis supplied). Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888, 896 (Pa.2006). Here, there is no allegation of a “personal and advertising injury” against Countryside or the Colony defendants in the underlying civil actions. Coverage B only extends coverage for specific enumerated torts, e.g., oral or written publications that violate a person's right of privacy; it affords coverage only for defined risks. The underlying plaintiffs allege that appellants were negligent in failing to secure the premises and prevent Macklin from gaining access to the ceiling above the tanning booths. However, negligent security is not one of the defined risks specified in Coverage B. No claim for invasion of privacy is advanced against Countryside or the Colony defendants. There is no allegation that appellants participated in the taking of the offending videos or posted them on the internet. There is no allegation that appellants published oral or written material that violated the underlying plaintiffs' right of privacy, or negligently enabled the electronic publication of the videos on the internet, or are vicariously liable for Macklin's criminal conduct. The claims against appellants in the underlying civil actions sound solely in negligence Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 131 of 177 Steadfast Ins. Co. v. Tomei, Not Reported in A.3d (2016) 2016 WL 2989982 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 and no claims for invasion of privacy are pending against them. Therefore, the trial court did not err in finding that Coverage B did not apply. 6 6 “As an appellate court, we may affirm the lower court by reasoning different than that used by the lower court.” Gerace v.. Holmes Prot. of Phila., 516 A.2d 354, 357 (Pa.Super.1986), appeal denied, 527 A.2d 541 (Pa.1987). Alternatively, we agree with the trial court that the violation-of-statute exclusion would apply to bar coverage under the Nationwide policy. 7 Macklin's conduct in surreptitiously videotaping patrons of the tanning salon in the nude and then posting the videos on the internet was clearly in violation of a number of state and federal criminal statutes, including Section 7507.1 of the Pennsylvania Crimes Code. 8 As the underlying plaintiffs' alleged injuries occurred as a result of Macklin's intentional, criminal acts, they are specifically excluded from coverage under the Nationwide policy. (Trial court opinion, 2/19/15 at 9-10.) Furthermore, as recognized by this court in Fidler, as a rule, general liability policies do not cover intentional torts and/or criminal acts and must be clearly and unambiguously written to provide such coverage. Fidler, 808 A.2d at 591 (citations omitted). 7 The “Violation of Communication or Information Exclusion” in the Steadfast policies in effect during the relevant time period included language that the criminal acts must have been committed “by any insured or on behalf of any insured.” The Nationwide policies did not include this qualifying language. There is no allegation that Macklin was acting on behalf of the named insured, Sunkissed, when he committed these criminal acts. Therefore, by its plain language, the Steadfast exclusion does not apply. Steadfast argues on appeal that it is incongruous for Countryside to insist that it is an insured under the policy and has coverage for the personal and advertising injury offense of “oral or written publication of material that violates a person's right of privacy” because it arose out of Sunkissed's business, and on the other hand, insist that the exclusion does not apply because Macklin was not acting on Sunkissed's behalf. (Steadfast's brief at 43.) According to Steadfast, even if the underlying plaintiffs' negligence claims fell under Coverage B, “the exclusion would apply because the offense must arise out of Sunkissed's business and Sunkissed's liability would have to be premised upon the dissemination of material in violation of statute on its behalf.” (Id. at 44.) This is nonsense. Steadfast is conflating the terms “arising out of” and “acting on behalf of,” which mean different things in this context. The phrase “arising out of” in insurance contracts has generally been interpreted as “causally connected with” and is construed against the insurer as the drafter of the insurance agreement. Mfrs. Cas. Ins. Co. v. Goodville Mut. Cas. Co., 170 A .2d 571, 573 (Pa.1961). For the personal and advertising injury offense to arise out of Sunkissed's business, Macklin did not have to be acting on Sunkissed's behalf. 8 (a) Offense defined.-Except as set forth in subsection (d), a person commits the offense of invasion of privacy if he, for the purpose of arousing or gratifying the sexual desire of any person, knowingly does any of the following: (1) Views, photographs, videotapes, electronically depicts, films or otherwise records another person without that person's knowledge and consent while that person is in a state of full or partial nudity and is in a place where that person would have a reasonable expectation of privacy. (2) Photographs, videotapes, electronically depicts, films or otherwise records or personally views the intimate parts, whether or not covered by clothing, of another person without that person's knowledge and consent and which intimate parts that person does not intend to be visible by normal public observation. (3) Transfers or transmits an image obtained in violation of paragraph (1) or (2) by live or recorded telephone message, electronic mail or the Internet or by any other transfer of the medium on which the image is stored. 18 Pa.C.S.A. § 7507.1 (“Invasion of privacy”). *7 Appellants cite Bd. of Pub. Educ. of Sch. Dist. of Pittsburgh v. Nat'l Union Fire Ins. Co. of Pittsburgh, 709 A.2d 910 (Pa.Super.1998) (en banc), appeal denied, 727 A.2d 126 (Pa.1998), for the proposition that the Coverage B criminal acts exclusion was too broad. In Bd. of Pub. Educ., a complaint was filed on behalf of a minor student against the school district alleging negligent supervision after he was sexually molested by the president of the parent-teacher organization, a school volunteer. The policy excluded coverage for “any claim involving allegations of ... criminal acts....” Id. at 912. This court observed that, “This language, at face value, would eliminate coverage for any factual scenario ‘involving’ acts by any person which are arguably criminal; if the case peripherally ‘involved’ someone Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 132 of 177 Steadfast Ins. Co. v. Tomei, Not Reported in A.3d (2016) 2016 WL 2989982 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 8 jaywalking, the insurer could claim its duty to defend was eliminated.” Id. at 914-915. We determined that the parties could not have contemplated such a result: “a more realistic, less sweeping interpretation must have been intended, for otherwise there would be few if any scenarios where serious claims would be covered.” Id. at 915. By contrast, in the instant case, the exclusion is specific and limited. It excludes coverage only for personal and advertising injuries alleged to have arisen from conduct that violated, or is alleged to have violated, any statute, ordinance or regulation that prohibits or limits the sending, transmitting, communicating or distribution of material or information. It does not exclude coverage for any claim involving allegations of criminal acts, as in Bd. of Pub. Educ. For these reasons, we determine that 1) Coverage A does not apply because the underlying plaintiffs do not allege a “bodily injury” as defined in the policies, but only allege emotional distress and mental anguish; and 2) Coverage B does not apply because the underlying plaintiffs do not allege any “personal and advertising injury” caused by appellants; rather, they allege appellants' negligence in failing to secure the premises. This is insufficient to bring their claims within the scope of Coverage B. Furthermore, Coverage B would not apply under the Nationwide policy because of the exclusion for criminal activity. 9 The trial court did not err in granting summary judgment for appellees. 9 Alternatively, appellees argue that Coverage B only applies to a personal and advertising injury caused by an offense “arising out of your business.” Appellees argue that there is no allegation Macklin's posting of offensive videos occurred at the tanning salon or was part of Sunkissed's business operations. Appellees state that Macklin's independent criminal acts of posting illicit videos had no plausible connection with Sunkissed's salon business. Given our holding as set forth above, Coverage B does not apply in any event and we need not determine whether the underlying plaintiffs' alleged injuries “arose out of” the business. Similarly, we need not address the trial court's finding that Macklin's posting of the videos did not constitute “oral or written publication of material” within the scope of Coverage B. (Trial court opinion, 2/19/15 at 8-9.) Order affirmed. All Citations Not Reported in A.3d, 2016 WL 2989982 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 133 of 177 Vitamin Health, Inc. v. Hartford Casualty Ins. Co., Not Reported in F.Supp.3d (2015) 2015 WL 9591444 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2015 WL 9591444 Only the Westlaw citation is currently available. United States District Court, E.D. Michigan, Southern Division. Vitamin Health, Inc., Plaintiff, v. Hartford Casualty Ins. Co., Defendant. Civil Action No.: 15-10071 | Signed November 20, 2015 Attorneys and Law Firms Douglas Young, Wilson Young, Detroit, MI, for Plaintiff. Amy Lynne Felder, Plunkett, Cooney, Bloomfield Hills, MI, for Defendant. ORDER GRANTING IN PART AND DENYING IN PART VITAMIN HEALTH'S MOTION TO COMPEL, GRANTING AN EXTENSION OF DISCOVERY, AND AWARDING VITAMIN HEALTH EXPENSES AND ATTORNEY'S FEES [R. 11] ELIZABETH A. STAFFORD, United States Magistrate Judge *1 For the reasons stated below, the Court: • GRANTS IN PART AND DENIES in part Vitamin Health's Motion to Compel [R. 11]; • ORDERS Hartford to produce documents responsive to the requests set forth in Vitamin Health's supplemental brief [R. 31] by December 4, 2015; • ORDERS that discovery is reopened and that the new discovery cutoff is January 18, 2016; • GRANTS Vitamin Health's request for an award of expenses and attorney's fees, but only from the date of the meet and confer through the November 13, 2015 hearing; and • ORDERS Vitamin Health to submit a bill of costs by December 4, 2015, and for Hartford to submit any objections thereto by December 18, 2015. I. BACKGROUND Plaintiff Vitamin Health, Inc.'s complaint against Hartford Casualty Insurance Company requests declaratory relief and alleges that Hartford breached its contractual obligation to defend Vitamin Health in a separate action. [R. 1]. On the discovery deadline, September 30, 2016, Vitamin Health filed a motion to compel responses to its requests for production of documents, and Hartford responded. [R. 11; R. 14]. The Honorable Sean F. Cox referred the motion to the undersigned for hearing and determination pursuant to 28 U.S.C. § 636(b)(1)(A). [R. 12]. Thereafter, this Court ordered the parties to meet and confer as required by E.D. Mich. LR 37.1 and to appear for a hearing on November 13, 2015 to resolve any unresolved issues. [R. 13]. After the meet and confer, each party filed notices indicating that they resolved no issues and that Hartford objected to producing any of the records in dispute. [R. 29; R. 30]. At the hearing that followed, Vitamin Health shed more light on the discussions by indicating it had reduced its request to produce to four items; those items were set forth in Vitamin Health's later-filed supplemental brief. [R. 31-1, PgID 2974]. Hartford responded at the hearing that its only objection to Vitamin Health's modified request was relevance, and confirmed that it did not have any objections on the basis of privilege, breadth or burdensomeness. II. ANALYSIS A. Currently, the federal rules broadly allow parties to discover any non-privileged matter that is relevant to a claim or defense, including matter that is not admissible, so long as it is “reasonably calculated to lead to discovery of admissible evidence.” Fed.R.Civ.P. 26(b)(1). However, effective December 1, 2015, the rule will require the Court to also consider whether even arguably relevant discovery requests are “proportional to the needs of the case ... and whether the burden or expense of the proposed discovery outweighs its likely benefit.” Id. (effective December 1, 2015). Although this language is new, it reflects a longstanding intent for courts to guard against discovery overuse. Rule 26, advisory committee note (2015). In light of this longstanding intent, and because the effective date Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 134 of 177 Vitamin Health, Inc. v. Hartford Casualty Ins. Co., Not Reported in F.Supp.3d (2015) 2015 WL 9591444 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 of the amendments is imminent, the Court will consider both relevance and proportionality. Relevance and proportionality must be framed by the legal principles underlying the action between Vitamin Health and Hartford. This being a diversity case, substantive state law applies. Federal-Mogul U.S. Asbestos Personal Injury Trust v. Continental Cas. Co., 666 F.3d 384, 387-88 (6th Cir.2011). The parties agree that the law of the State of Michigan applies to their dispute. [R. 15, PgID 816-17; R. 17-1, PgID 892-96]. Ordinarily, under Michigan law, “an insurance contract must be enforced in accordance with its terms.” Henderson v. State Farm Fire & Cas. Co., 460 Mich. 348, 354 (1999). However, if the relevant language of an insurance contract is ambiguous, “its construction depends upon other and extrinsic facts in connection with what is written....” Klapp v. United Ins. Grp. Agency, Inc., 468 Mich. 459, 469 (2003) (internal quotation marks and citation omitted). “Any ambiguities should be construed against the insurer and in favor of the insured.” Federal-Mogul, 666 F.3d at 388. B. *2 It is against this backdrop that Hartford objected to numbers two through twenty of Vitamin Health's request for production of documents. [R. 11-3, PgID 730-38]. 1 Hartford objected to those requests as being irrelevant, overly broad, burdensome and protected by privilege. [Id.] With respect to relevance, Hartford argues that “Michigan law [ +] is clear that extraneous evidence may not be considered when unambiguous contract terms are at issue.” [R. 14, PgID 751]. Hartford contends that, despite this law, Vitamin Health “seeks a multitude of extraneous evidence” to interpret the policy. [Id. at PgID 752]. 1 Since Hartford indicated that it had no documents responsive to numbers twenty-one and twenty-two of the request for production, Vitamin Health withdrew those requests from its request to compel at the hearing. The problem with Hartford's argument is that the Court has not yet decided as a matter of law whether the contractual language at issue is, in fact, unambiguous. Further, contrary to Hartford's argument that there is no dispute that the contractual language is unambiguous, Vitamin Health's motion for summary judgment explicitly asks the Court to determine, as a first step, whether the language is ambiguous or unambiguous. [R. 17-1, PgID 892-93]. Thus, Hartford's insistence that extrinsic evidence is irrelevant is based entirely on its own litigation position, without regard to what the Court may find. Having said that, Hartford's objection that Vitamin Health's original requests were overly broad and unduly burdensome has merit; the requests contemplated discovery of voluminous material, the relevance of which is contingent upon the policy terms being found ambiguous. The burden and expense Hartford would likely incur producing all of the requested documents would substantially outweigh their anticipated benefit, which is an outcome that Rule 26 discourages. The same is not true for the four requests that Vitamin Health proposed to Hartford at the meet and confer, which were as follows: 1. Any Hartford training materials or manuals related to the handling of personal & advertising injury claims; 2. The underwriting file for the 2013 and 2014 policies; 3. Any marketing materials for Hartford personal and advertising injury insurance coverage from 2010 to present; and 4. All documents relating to the drafting or interpretation of the 'AMENDMENT OF EXCLUSIONS AND DEFINITION - PERSONAL AND ADVERTISING INJURY' endorsement [Form SS 41 62 06 11]. [R. 31, PgID 2971]. No analysis is necessary in order for the Court to conclude that these requests are not unduly burdensome or overly broad, as Hartford confirmed at the hearing that its only objection to them was relevance. Hartford's relevance objection is untenable. As noted, the argument that the policy terms are unambiguous is grounded solely in Hartford's own litigation position - a position that the Court may or may not accept. See Lucas v. Protective Life Ins. Co., No. CIV.A.4:08CV00059- JH, 2010 WL 569743, at *3 (W.D.Ky. Feb. 11, 2010) (rejecting argument that underwriting materials were not discoverable based upon the insurer's “unilateral decision that these other guidelines are not relevant to the claims and defenses in this action.”). If the Court denies the motions for summary judgment and finds that the terms Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 135 of 177 Vitamin Health, Inc. v. Hartford Casualty Ins. Co., Not Reported in F.Supp.3d (2015) 2015 WL 9591444 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 of the insurance policies at issue are ambiguous, extrinsic evidence such as that requested by Vitamin Health in its supplemental brief will be relevant and admissible at trial. While an insurance contract is interpreted according to its terms, extrinsic evidence may become relevant if those terms are determined to be ambiguous. And an insurance company's internal claims manual or claims processing guidelines may contain information relevant to resolving any ambiguities in the contract, such as the company's course of dealing or insurance industry practice. *3 U.S. Fire Ins. Co. v. City of Warren, No. 2:10-CV- 13128, 2012 WL 1454008, at *9 (E.D.Mich. Apr. 26, 2012). Using this analysis, the court in U.S. Fire Ins. permitted discovery of claims manuals, underwriting guidelines, and related information. Id. at *4-*5 (collecting cases). C. It is true that U.S. Fire Ins. and the opinions it cites preceded the 2015 amendments to Rule 26, which begs the question of whether the pending new emphasis of proportionality should result in a different outcome. Should insurance companies be allowed, under the new rules, to withhold extrinsic evidence unless and until a court deems the policy language ambiguous? No, they should not, as allowing such a practice would result in unwarranted delays of the resolution of disputes, which would contravene the intent of the drafters of the amended rules of discovery. The unwarranted delays would result because insurance companies routinely take the position that their policies unambiguously favor their interpretations. If a court finds that policy language is ambiguous during the consideration of dispositive motions, it will be forced to reopen a period of discovery. Otherwise, the insured will be unjustifiably denied the ability to seek discovery of extrinsic evidence. This additional period of discovery would prolong the resolution of the litigation. Importantly, the amended Rules of Civil Procedure are not intended to allow parties to prolong litigation. To the contrary, Federal Rule of Civil Procedure 1 was “amended to emphasize that just as the court should construe and administer these rules to secure the just, speedy, and inexpensive determination of every action, so the parties share the responsibility to employ the rules in the same way.” Fed.R.Civ.P. 1, advisory committee notes (2015). Amended Rule 1 is intended to discourage “over- use, misuse, and abuse of procedural tools that increase cost and result in delay.” Id. The advisory committee notes, “Effective advocacy is consistent with - and indeed depends upon - cooperative and proportional use of procedure.” Id. The Court finds that Vitamin Health's offer of significantly narrowed requests for production of documents was consistent with the aims of cooperation and proportionality that drove the amendments to the rules of procedure. Hartford's refusal to produce any documents on Vitamin Health's narrowed list -based upon its unilateral view that the policies are unambiguous - was inconsistent with the aims of cooperation, and threatens to delay the litigation if the Court finds that the policy terms are ambiguous. Hartford's intransigence was also contrary to LR 37.1, which required the parties to confer “in a good faith effort to narrow the areas of disagreement” during their meeting in advance of the hearing. Its refusal to cooperate with Vitamin's Health's effort to narrow the areas of disagreement is especially indefensible given that it admits that producing the documents on the narrowed list of requests would not be burdensome. D. For these reasons, the Court will grant Vitamin Health's motion to compel with respect to the requests for production of documents set forth in its supplemental brief, [R. 31], and Hartford must produce those documents no later than December 4, 2015. However, Vitamin Health's motion to compel is otherwise denied. Additionally, the Court will reopen discovery and order that the new discovery cutoff is January 18, 2016. E. *4 Vitamin Health has additionally moved for an order requiring Hartford to pay it reasonable expenses incurred Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 136 of 177 Vitamin Health, Inc. v. Hartford Casualty Ins. Co., Not Reported in F.Supp.3d (2015) 2015 WL 9591444 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 as a result of the filing of the motion, pursuant to Federal Rule of Civil Procedure 37(a)(5)(A). However, because the Court is granting Vitamin Health's motion only in part, Rule 37(a)(5)(C) is applicable. That provision indicates that a court “may” apportion reasonable expenses if a motion is granted in part and denied in part. “The award of costs is the norm, rather than the exception.” Galinis v. Branch Cty., No. 1:14-CV-00460-PLM, 2015 WL 2201696, at *3 (W.D.Mich. May 11, 2015) (citing Eastern Maico Distribs., Inc. v. Maico-Fahrzeugfabrik, 658 F.2d 944, 949 n. 4 (3d Cir.1981)). Hartford was substantially justified in objecting to Vitamin Health's initial overly broad and burdensome requests for production of documents, but not in refusing to produce documents requested by the reduced list Vitamin Health offered at the meet and confer. Therefore, the Court will grant Vitamin Health's request for an award of costs for the period from the date of the meet and confer through the November 13, 2015 hearing. Vitamin Health must submit a bill of costs to the Court no later than December 4, 2015, and Hartford will have until December 18, 2015 to file any objections to the amount of costs Vitamin Health alleges. IT IS SO ORDERED. All Citations Not Reported in F.Supp.3d, 2015 WL 9591444 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 137 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2016 WL 1730171 Editor's Note: Additions are indicated by Text and deletions by Text . Only the Westlaw citation is currently available. United States District Court, D. New Mexico. XTO Energy, Inc., Plaintiff, v. ATD, LLC, Air Tech Drilling, Inc. and Zurich American Insurance Company, Defendants. No. CIV 14-1021 JB/SCY | Filed April 1, 2016 Attorneys and Law Firms Bradford C. Berge, Holland & Hart LLP, Santa Fe, New Mexico, Jose A. Ramirez, Holland & Hart LLP, Greenwood Village, Colorado, Katie K. Custer, Holland & Hart LLP, Denver, Colorado, Attorneys for Plaintiff XTO Energy, Inc. Sam L. Fadduol, Joshua K. Conaway, Fadduol, Cluff, Hardy & Conaway, P.C., Maureen A. Sanders, Sanders & Westbrook, P.C., Albuquerque, New Mexico, Attorneys for Plaintiffs-in-Intervention Scott Manley, Shanna Manley, Jose Betancur, and Virginia Betancur. Terry R. Guebert, Robert Gentile, Guebert Bruckner, P.C., Albuquerque, New Mexico, Attorneys for Defendant ATD, LLC. James H. Johansen, Shawn S. Cummings, Amy Elizabeth Headrick, Rheba Rutkowski, Butt, Thornton & Baehr, P.C., Albuquerque, New Mexico, Attorneys for Defendant and Third-Party Plaintiff Zurich American Insurance Company. Andrew B. Curtis, Craig, Terrill, Hale & Grantham, LLP, Lubbock, Texas, Attorney for Third-Party Defendant Basic Energy Services, Inc. Michael Lemoine, Jones Walker, Lafayette, Louisiana, Matthew T. Byers, McCormick, Caraway, Tabor & Byers LLP, Carlsbad, New Mexico, Attorneys for Third-Party Defendant Weatherford Artificial Lift Systems, Inc., Weatherford International, Inc., and Weatherford U.S., L.P. MEMORANDUM OPINION AND ORDER James O. Browning, UNITED STATES DISTRICT JUDGE *1 THIS MATTER comes before the Court on the Motion to Quash or Motion for Protective Order Regarding Subpoena to Nonparty Holland & Hart LLP, filed December 1, 2015 (Doc. 36)(“Motion to Quash”), and Defendant Zurich American Insurance Company's Motion to Compel Discovery from Plaintiff, filed December 2, 2015 (Doc. 37)(“Motion to Compel”). The Court held a hearing on March 1, 2016. The primary issues are: (i) whether Plaintiff XTO Energy, Inc. has access to and control over XTO Energy's counsel's billing documents and rates relating to other insurance company clients over the past five years; (ii) whether the Subpoena that Zurich Insurance sent to XTO Energy's counsel- Holland & Hart, LLP-is procedurally and facially valid; (iii) whether the Subpoena, which requests Holland & Hart to produce all of its agreements with any insurance company regarding rates for legal services for the past five years, and all billing documents for services that Holland & Hart provided related to the defense of an insured for the past five years, is unduly burdensome; and (iv) whether the Court should award costs and fees. Because Request for Production Nos. 5 and 6 ask for documents outside of XTO Energy's possession, custody, or control, the Court denies the Motion to Compel for these requests. Because Interrogatories Nos. 7 and 10 ask for information that is not available to XTO Energy, the Court also denies the Motion to Compel for these requests. Regarding the second issue, the Subpoena does not comply with rule 45's requirements, making it unenforceable. Additionally, the Subpoena imposes an undue burden on Holland & Hart. The Court will therefore grant the Motion to Quash. Finally, because rule 45 requires the Court to impose sanctions when a subpoena imposes an undue burden on the responding party, the Court will also award costs and fees to Holland & Hart. FACTUAL BACKGROUND Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 138 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 This case involves numerous parties who contracted with each other to provide services and insurance. Below, the Court describes the parties involved, their contracts, and the disputes that surround those contracts. The Court takes its facts from Defendant Zurich American Insurance Company's Motion for Summary Judgment, filed November 13, 2015 (Doc. 32)(“MSJ”), Plaintiff XTO Energy Inc.'s Memorandum in Support of Response to Defendant Zurich American Insurance Company's Motion for Summary Judgment, filed December 21, 2015 (Doc. 44)(“MSJ Response”), and the Defendant Zurich American Insurance Company's Reply in Support of Motion for Summary Judgment, filed February 1, 2016 (Doc. 59)(“MSJ Reply”). 1. The Parties. XTO Energy is an oil-and-gas well operator that contracts with various contractors to perform well operations. See MSJ at 1; MSJ Response ¶ A, at 2. 1 Defendant Air Tech Drilling, Inc., a contractor, is a New Mexico corporation based in Bloomfield, New Mexico and formed on June 9, 2006. See MSJ ¶¶ 7, 10, at 4; MSJ Response ¶ A, at 2. 2 Air Tech's corporate status was revoked on June 28, 2010. See MSJ ¶ 7, at 4. Defendant ATD, LLC is a New Mexico limited liability company based in Hobbs, New Mexico, originally formed as a New Mexico corporation on September 22, 2006 and converted into a limited liability company on August 27, 2009. See MSJ ¶ 8, at 4. Zurich Insurance is an insurance company that provides insurance for Air Tech. See MSJ ¶ 19, at 6. ATD, LLC employed Scott Manley and Jose Betancur, who were working at the XTO Well site on November 8, 2012. See MSJ ¶ 9, at 4. Scott Manley and Shanna Manley (“the Manleys”), as well as Jose and Virginia Betancur (“the Betancurs”), individually and as Next Friend of Vanessa B. Betancur, Valerie Betancur, and Jose Betancur, minors, filed litigation in state court against XTO Energy, Weatherford Artificial Lift Systems, Inc., Weatherford International, Inc., Weatherford U.S., L.P., Basic Energy Services, Inc., BOS Roustabout Service, LLC, Gabriel Valdez, and Randy Green. See MSJ ¶¶ 1-2, at 2; Response ¶¶ M-N, at 4. 1 XTO Energy does not dispute any of Defendant Zurich American Insurance Company's factual assertions. It states in its MSJ Response that “there is no genuine issue of material fact.” MSJ Response at 6. 2 Throughout its MSJ Response, XTO Energy does not distinguish between Air Tech and ATD, LLC, using the phrase “Air Tech/ATD” to refer to both entities. See, e.g., MSJ Response ¶ J, at 4. Zurich Insurance disputes all of XTO Energy's factual assertions that suggest that Air Tech and ATD, LLC are the same entity. See MSJ Reply ¶ B, at 3. Zurich Insurance contends that Air Tech and ATD, LLC are not the same entity, and provides documents to support its objection. See Reply ¶ B, at 3; New Mexico Secretary of State Office, Information on Air Tech Drilling, Inc., filed November 13, 2015 (Doc. 33-1) (demonstrating that: (i) Air Tech's corporate status was revoked on June 28, 2010; (ii) Air Tech was a New Mexico corporation based in Bloomfield, New Mexico formed on June 9, 2006; and (iii) ATD, LLC was formed as a corporation on September 22, 2006, based in Hobbs, New Mexico and converted to a limited liability company on August 27, 2009). Because Zurich Insurance presents credible evidence that Air Tech and ATD, LLC are not the same entity, the Court deems it disputed whether they are the same entity. While the issue is disputed, it is not material to the current dispute. The Court will therefore refer to and treat Air Tech and ATD, LLC as distinct entities. See D.N.M.LR-Civ. 56(b). Additionally, the Court will refer only to Air Tech when describing the Contractor's obligations in the Master Contract. This adoption of terminology does not determine that Air Tech and ATD, LLC are separate entities, as that determination is not relevant here. 2. The Master Service Contract. *2 On November 8, 2006, XTO Energy entered into a Master Service Contract (“Master Contract” or “MSC”) with Air Tech. MSJ ¶¶ 7, 10, at 4; MSJ Response ¶ A, at 2. The Master Contract provides that Air Tech, “as ‘Contractor,’ would provide certain well-related services to XTO.” MSJ ¶ 10, at 4; MSJ Response ¶ A, at 2. “The MSC defines ‘XTO Group’ as ‘XTO, its Affiliates, co-owners ... at the Site, joint venturers, partners, contractors and subcontractors other than Contractor or its Subcontractors and all of their respective directors, officers, employees, representatives, agents, licensees and invitees.’ ” MSJ ¶ 11, at 4. The Master Contract defines “Contractor Group” as “Contractor, its Affiliates, any Subcontractor of Contractor, and their Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 139 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 respective directors, officers, employees, representatives, agents, licensees and invitees.” MSJ ¶ 13, at 4-5. The XTO Complaint does not allege that “XTO or any defendants named in the Manley Complaint or the Betancur Complaint is a member of the ‘Contractor Group.’ ” MSJ ¶ 14, at 5. Master Contract § 10, entitled “RELEASE, DEFENSE, INDEMNITY, AND HOLD HARMLESS,” states: 10.1.1 Contractor hereby agrees to release, defend, indemnify and hold the XTO Group harmless from and against any and all claims, demands, and causes of action of every kind and character (including without limitation, fines, penalties, remedial obligations, court costs and reasonable attorney's fees, including attorney's fees incurred in the enforcement of this indemnity) (hereinafter collectively referred to as the ‘Indemnifiable Claims') arising out of, without limitation bodily injury and/or death of any one or more members of the Contractor Group in any manner incident to, connected with or arising out of the performance of the Work. This obligation is without regard to the cause or causes of such bodily injury, death, loss of or damage to property and includes, but is not limited to, Indemnifiable Claims resulting from any sole, joint or concurrent negligence, strict liability, or other act and/or omission of any one or more members of the XTO Group. 10.1.2 To the extent not covered in Section 10.3, Contractor hereby further agrees to release, defend, indemnify and hold the XTO Group harmless from and against any and all Indemnifiable Claims arising out of the emission, discharge or negligence, strict liability, or other act and/or omission of any one or more members of the Contractor Group, which is in any manner incident to, connected with or arises out of the performance of the Work. 10.1.3 Contractor agrees that its indemnity obligations herein will be supported by insurance with at least the minimum amounts provided in Article XI, which insurance will be primary to any other insurance provided by or available to any one or more members of the XTO Group and shall provide waivers of subrogation against all members of the XTO Group. To the extent that applicable law prohibits the monetary limits of insurance required or the indemnities voluntarily assumed hereunder, the requirements will automatically be revised to conform, to the maximum extent permitted, with applicable law. *3 MSJ ¶ 15, at 5 (quoting Master Contract § 10.1 (emphases in MSJ)). Master Contract § 11.4 provides that all Contractor's liability insurance policies must name “XTO Group” as an additional insured and must “contain a waiver on the part of the insurer, by subrogation or otherwise, of all rights against the XTO Group.” MSJ ¶ 16, at 5-6. Master Contract § 10.4 also contains a savings clause, which states: SPECIAL PROVISION FOR NEW MEXICO. THE FOLLOWING PROVISION APPLIES WHERE WORK IS TO BE PERFORMED IN NEW MEXICO, NOTWITHSTANDING ANY PROVISIONS IN THE CONTRACT TO THE CONTRARY. To the extent this Article X is governed by New Mexico law, then the provisions therein shall be read not to include indemnification for one's own negligence. MSJ ¶ 17, at 6 (quoting MSC § 10.4 (emphasis in MSJ)). MSC § 14.8 provides that Texas law-“excluding the Texas rules on conflict of law”-governs the Master Contract. MSJ ¶ 18, at 6. 3. The Zurich Policy. Zurich Insurance issued “a commercial general liability policy (‘Policy’) to Mesa Well Servicing, LP, policy number GLO 4391238-03, effective July 1, 2012 through July 1, 2013.” MSJ ¶ 19, at 6. “The Policy's Commercial General Liability Coverage Part Declarations page identifies Mesa Well Servicing, LP as the Named Insured.” Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 140 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 MSJ ¶ 19, at 6. The Policy's Commercial General Liability Coverage Form states that “[t]hroughout this policy the words ‘you’ and ‘your’ refer to the Named Insured shown in the Declarations and any other person or organization qualifying as a Named Insured under this policy.” MSJ ¶ 20, at 6. The Policy's Schedule of Named Insureds includes Air Tech. See MSJ ¶ 21, at 6. In describing the coverage, the Policy states in the section entitled “Coverage A Bodily Injury and Property Damage Liability (‘Coverage A’)”: We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages. However, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply. We may, at our discretion, investigate any ‘occurrence’ and settle any claim or ‘suit’ that may result.... But: ... No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Supplementary Payments -Coverages A and B. MSJ ¶ 22, at 6-7 (emphasis in MSJ). Coverage A excludes coverage for “ ‘Bodily injury’ or ‘property damage’ for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement,” except for liability for damages: “(1) That the insured would have in the absence of the contract or agreement; or (2) Assumed in a contract or agreement that is an ‘insured contract’, provided the ‘bodily injury’ or ‘property damage’ occurs subsequent to the execution of the contract or agreement.” 3 MSJ ¶ 23, at 7. The Policy defines “Insured contract” as: “That part of any other contract or agreement pertaining to your business ... under which you assume the tort liability of another party to pay for ‘bodily injury’ or ‘property damage’ to a third person or organization.” MSJ ¶ 24, at 7. The Policy defines “tort liability” as “a liability that would be imposed by law in the absence of any contract or agreement.” MSJ ¶ 24, at 7. 3 XTO Energy does not address this factual assertion, so the Court deems it undisputed. See D.N.M.LR- Civ. 56(b). *4 In the Commercial General Liability Coverage Part, the Policy defines “insured” as “any person or organization qualifying as such under Section II-Who is an insured.” MSJ ¶ 25, at 7. The Policy contains an Additional Insured Endorsement, which modifies the insurance provided under the Commercial General Liability Coverage Part as follows: A. Section II-Who Is An Insured is amended to include as an insured any person or organization who you are required to add as an additional insured on this policy under a written contract or written agreement. B. The insurance provided to the additional insured person or organization applies only to ‘bodily injury’, ‘property damage’ ... covered under Section I- Coverage A-Bodily Injury and Property Damage Liability ... but only with respect to liability for ‘bodily injury’, ‘property damage’ ... caused, in whole or in part, by: 1. Your acts or omissions; 2. The acts or omissions of those acting on your behalf, and resulting directly from your ongoing operations of ‘your work’ as included in the ‘products-completed operations hazard’, which is the subject of the written contract or written agreement.... D. The insurance provided to the additional insured person or organization does not apply to: ‘Bodily injury’, ‘property damage’ ... arising out of the rendering or failure to render any professional architectural, engineering or surveying services including: 1. The preparing, approving or failing to prepare or approve maps, shop drawings, opinions, reports, surveys, field orders, change orders or drawings and specifications; and 2. Supervisory, inspection, architectural or engineering activities.” Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 141 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 MSJ ¶ 26, at 8 (emphasis in MSJ). The Zurich Policy further provides that, when the insured-Air Tech-has assumed liability for reasonable attorney's fees and expenses under an “insured contract,” the insurer will reimburse those fees and expenses as damages. Response ¶ I, at 3-4. All of the claims asserted in the XTO Complaint are based entirely on obligations that Air Tech, ATD, LLC and Zurich Insurance allegedly owe under the Master Contract and the Zurich Policy “for the claims asserted against XTO Group members in the Manley and Betancur Complaints.” MSJ ¶ 27, at 8. 4. The State Litigation. On November 8, 2012, an accident occurred at a well in Eddy County, New Mexico, resulting in a fire. See MSJ ¶ 1, at 2; Response ¶ J, at 4. On November 8, 2012, ATD, LLC and Air Tech provided services on the well. See Response ¶ K, at 4. ATD, LLC employed Scott Manley and Jose Betancur, who were working at the XTO Well site on November 8, 2012. See MSJ ¶ 9, at 4. The parties dispute whether XTO Energy directed or supervised Air Tech. See XTO Complaint ¶ 15, at 3 (“The MSC further provides that Air Tech/ATD would be, at all material times, an independent contractor and would have complete and sole control over their employees, the details of the work performed and the methods by which the work was accomplished.”); Transcript of Hearing at 35:13- 16 (taken March 1, 2016)(“Tr.”) 4 (“There is a question about whether XTO supervised and directed the work at the well site. And that is an issue that's hotly contested by XTO in the underlying case.”). On March 13, 2013, as a result of the November 8, 2012 accident, Scott Manley and Shanna Manley (“the Manleys”) filed the Plaintiffs' Complaint to Recover Damages for Personal Injury in the Fifth Judicial District Court, Eddy County, State of New Mexico, D-503-CV-2013-00241, against XTO Energy and other defendants. MSJ ¶ 1, at 2; Response ¶ M, at 4. On May 22, 2014, Jose and Virginia Betancur (“the Betancurs”), individually and as Next Friend of Vanessa B. Betancur, Valerie Betancur, and Jose Betancur, minors, filed their Complaint in Intervention to Recover Damages for Personal Injury (“Betancur Complaint”) in the same state case in connection with the same November 8, 2012 incident. MSJ ¶ 2, at 2; Response ¶ N, at 4. 4 The Court's citations to the transcript of the hearing refer to the court reporter's original, unedited version. Any final transcript may contain slightly different page and/or line numbers. *5 The defendants in both state complaints consist of XTO Energy, Weatherford Artificial Lift Systems, Inc., Weatherford International, Inc., Weatherford U.S., L.P., Basic Energy Services, Inc., BOS Roustabout Service, LLC, Gabriel Valdez, and Randy Green. See Manley Complaint at 1; Betancur Complaint at 1. “Most or all of the other defendants in the Manley suit are members of the XTO Group.” MSJ ¶ 12, at 4. The Betancur Complaint asserts against XTO Energy and the other defendants claims of “negligence; respondeat superior; negligent selection, retention, and supervision of contractors/ subcontractors; liability for nondelegable duty/joint and several liability; and violation of statute/negligence as a matter of law.” MSJ ¶ 2, at 2. It requests damages for J. Betancur's bodily injuries, punitive damages, and damages for loss of consortium. See MSJ ¶ 2, at 2. On June 2, 2014, the Manleys amended their Complaint to assert “the same claims against the same defendants as the Betancur Complaint.” MSJ ¶ 3, at 2. The Manley Complaint and Betancur Complaint allege that, “at the time of the incident, XTO owned and operated the well (‘XTO Well’) and that Randy Green was XTO's ‘Company Man’ at the well site, with overall authority and control over the site.” MSJ ¶ 4, at 3. Both Complaints assert claims against XTO Energy, Green, and certain contractors that provided well-related services to XTO Energy at the XTO Well: Weatherford Artificial, Weatherford International, Weatherford U.S., Basic Energy, BOS Roustabout, and Valdez, a Weatherford- entity employee. See MSJ ¶ 5, at 3. “Neither the Manley Complaint nor the Betancur Complaint alleges any wrongdoing or asserts any claims against Air Tech, ATD, LLC, Mesa Well Servicing, LP, or their employees.” MSJ ¶ 5, at 3. On February 28, 2013, XTO Energy tendered its defense to Air Tech and ATD, LLC “pursuant to the indemnity provision and the additional insured requirement” in the Master Contract that it signed. Response ¶ O, at 4. Zurich Insurance acknowledged XTO Energy's tender of defense and indemnity to Air Tech Drilling in its April 3, 2013 letter to XTO Energy. See Response ¶ P, at 4. 5 In response to Zurich Insurance's inquiries, XTO Energy informed Zurich Insurance that Air Tech or ATD, LLC “must Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 142 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 provide indemnity and a defense pursuant to the MSC.” Response ¶ Q, at 4. 5 Zurich Insurance does not dispute this fact, so the Court deems it undisputed. See D.N.M.LR-Civ. 56(b). In an email dated November 10, 2013, Zurich Insurance responded to XTO Energy, denying any obligation to indemnify XTO Energy, but agreeing to defend XTO Energy as an additional insured under a reservation of rights. See Response ¶ R, at 5; Reply ¶ F, at 3. XTO Energy accepted Zurich Insurance's defense tender, and Zurich Insurance stated that the law firm that XTO Energy retained as counsel, Holland & Hart LLP, was on its approved counsel list. See Response ¶ S, at 5. Zurich Insurance attempted to reach an agreement with Holland & Hart over the firm's hourly rates for attorney's fees, but did not reimburse XTO Energy for any fees or expenses, notwithstanding that it asked to be billed directly for fees incurred after it accepted the defense tender. See Response ¶ T, at 5. Zurich Insurance stated that it would defend XTO Energy only if it could arrive at an agreement over hourly rates for attorney's fees. See Response ¶ U, at 5. Zurich Insurance could not reach an agreement on the law firm's hourly rates. See Response ¶ V, at 5. PROCEDURAL BACKGROUND XTO Energy's Complaint for Breach of Contract, Unfair Practices and Declaratory Relief, filed November 10, 2014 (Doc. 1)(“XTO Complaint”), alleges that “Air Tech and ATD, LLC breached contractual duties under a Master Service Contract to defend XTO against the claims asserted in the Manley and Betancur Complaints.” MSJ ¶ 6, at 3. It further asserts that Zurich Insurance breached its defense and reimbursement obligations to XTO Energy under the commercial general liability policy that Zurich Insurance issued to Mesa Well Servicing. See MSJ ¶ 6, at 3-4. *6 XTO Energy alleges four claims. It first alleges breach of contract against Air Tech and ATD, LLC. See XTO Complaint ¶¶ 42-47, at 6-7. It contends that “XTO and Air Tech entered into a binding written master service contract,” which “is binding upon Air Tech and ATD.” XTO Complaint ¶ 43, at 6. It states that Air Tech and ATD, LLC “have materially breached the MSC by refusing to defend XTO,” and that XTO Energy is “entitled to recover damages.” XTO Complaint ¶¶ 45-47, at 6-7. Second, XTO Energy asserts a breach-of-contract claim against Zurich Insurance. See Complaint ¶¶ 48-54, at 7. It alleges that Zurich Insurance breached the Policy by: (i) refusing to defend XTO Energy; (ii) refusing to reimburse XTO Energy for fees and expenses incurred; and (iii) refusing to pay XTO Energy's counsel. See XTO Complaint ¶ 51, at 7. Third, XTO Energy contends that “Zurich's actions and inactions, as alleged [in the XTO Complaint], constitute violations of New Mexico's unfair claims practices statutes, § 59A-16-1 et seq.” XTO Complaint ¶ 56, at 7. Finally, XTO Energy asks the Court to “declare the duties and obligations of Zurich under the Policy.” XTO Complaint ¶ 60, at 8. The Manleys, and Jose Betancur and Virginia Betancur, individually and as next friend of Vanessa Betancur, Valerie Betancur, and Jose Betancur, Jr., minors, seek to intervene in the litigation. See Plaintiffs-in-Intervention's First Amended Motion to Intervene and Memorandum in Support, filed December 20, 2015 (Doc. 42). 1. The Motion to Compel. On September 18, 2015, Zurich Insurance served its first set of discovery requests to XTO Energy. See Motion to Compel at 2. Zurich Insurance contends that XTO Energy provided “inadequate Responses to Zurich's First Set of Interrogatories and Requests for Production on November 12, 2015.” Motion to Compel at 2. XTO Energy's response largely objected to Zurich Insurance's Motion to Compel on the ground that Zurich Insurance seeks to obtain information that XTO Energy “does not have within its care, custody, or control and over which it has no legal right to obtain.” XTO Energy, Inc.'s Response to Defendant Zurich American Insurance Company's Motion to Compel Discovery at 1, filed December 28, 2015 (Doc. 46)(“Response to Motion to Compel”). Zurich Insurance states that it asked XTO Energy to supplements its responses, but that XTO Energy did not provide any supplements. See Motion to Compel at 2. The Court describes the specific disputes below. a. Interrogatory No. 7. Zurich Insurance explains that, in Interrogatory No. 7, it asks XTO Energy to “state the hourly billing rates charged by its current attorneys, Holland & Hart, to any insurance company represented by Holland & Hart or who has retained Holland & Hart to represent an insured for the past five years, including rates for shareholders, Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 143 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 associates, and paralegals.” Motion to Compel at 4. XTO Energy objects that Holland & Hart is not a party to this litigation, and is therefore not an appropriate recipient of Zurich Insurance's interrogatory under rule 33 of the Federal Rules of Civil Procedure. See Motion to Compel at 4; Response to Motion to Compel at 4. It argues that the information requested is neither relevant nor likely to lead to the discovery of admissible evidence. See Motion to Compel at 4; Response to Motion to Compel at 4. XTO Energy further objects that the requested information “was confidential, privileged or proprietary.” Response to Motion to Compel at 4. Zurich Insurance contends that the “attorney's fees charged by XTO's counsel to insurance companies are clearly relevant to the issue of whether the fees proposed by Holland & Hart are reasonable.” Motion to Compel at 4. Moreover, Zurich Insurance argues that Holland & Hart put the fees' reasonableness at issue by representing that its rates are reasonable. See Motion to Compel at 4 (citing Email from Brad Berge, Holland & Hart attorney representing XTO Energy, to Les Hall, Zurich Insurance at 2 (dated October 3, 2014), filed December 2, 2015 (Doc. 37-1)(“Letter”)). In response, XTO Energy reiterates the same arguments that it raised in its initial objection to Interrogatory No. 7. See Response to Motion to Compel at 4-5. Specifically, it asserts that rule 33 “allows a party to serve interrogatories on another party only.” Response to Motion to Compel at 4. It argues that it should not have to release the requested information, because it “is held by Holland & Hart and is clearly not in XTO's care, custody or control.” Response to Motion to Compel at 4. XTO Energy further asserts that the information that Interrogatory No. 7 seeks is not relevant and will not likely lead to the discovery of admissible evidence, because the rates that it charges clients for unrelated matters in different regions vary substantially. See Response to Motion to Compel at 5. Additionally, XTO Energy contends that Interrogatory No. 7's broad scope imposes an undue burden and cost. See Response to Motion to Compel at 5-6. *7 Zurich Insurance disputes that the information sought is not within XTO Energy's care, custody, or control. See Defendant Zurich American Insurance Company's Reply in Support of Motion to Compel Discovery From Plaintiff at 1, filed January 11, 2016 (Doc. 50)(“Reply to Motion to Compel”). It argues that Holland & Hart can give that information to XTO Energy. See Reply to Motion to Compel at 1-2. With respect to XTO Energy's argument that the desired information is not relevant, Zurich Insurance contends that it “is simply unable to determine the reasonableness of the $400.00 rate charged by Holland & Hart without the information on what XTO's counsel charges other insurance companies.” Reply to Motion to Compel at 2. b. Interrogatory No. 8. Along the same lines, Zurich Insurance states that Interrogatory No. 8 asks XTO Energy “to identify all insurance companies and/or businesses to which XTO has tendered a defense of the underlying Manley and Betancur lawsuits.” Motion to Compel at 5. XTO Energy responds that it tendered the defense to Air Tech and to Basic Energy. Zurich Insurance argues that XTO Energy must produce all written communications regarding the defense tender to Basic Energy. See Motion to Compel at 5-6. In XTO Energy's Response to Motion to Compel, XTO Energy states that it “has offered to cure some of the discovery issues raised in Zurich's Motion.” Response to Motion to Compel at 1. With respect to Interrogatory No. 8, it asserts that it filed an amended response clarifying that it did not tender its defense to Basic Energy. See Response to Motion to Compel at 2. Accordingly, XTO Energy argues that it has complied with Interrogatory No. 8 by identifying all insurance companies and businesses to which XTO Energy has tendered a defense. See Response to Motion to Compel at 2. Zurich Insurance agrees that the parties have resolved the discovery dispute surrounding Interrogatory No. 8. See Reply to Motion to Compel at 7. c. Interrogatory No. 10. In Interrogatory No. 10, Zurich Insurance asks XTO Energy if Zurich Insurance has retained Holland & Hart within the past five years and, if so, to provide “the name of the case, the nature of the case, and the agreed-upon hourly rate Zurich paid to Holland and Hart in each case.” Motion to Compel at 6; Response to Motion to Compel at 6. XTO Energy objects, stating that Holland & Hart is not a party, so it is not an appropriate recipient of Zurich Insurance's interrogatory, and that the information is not likely to lead to the discovery of admissible evidence. See Motion to Compel at 6. XTO Energy raises the same arguments for objecting in its Response to Motion to Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 144 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 8 Compel. See to Motion to Compel at 6. Zurich Insurance again asserts that the information is relevant to Holland & Hart's fees' reasonableness. See Reply to Motion to Compel at 4. Furthermore, it states that XTO Energy did not provide a privilege log, meaning that XTO Energy waived any privilege. See Motion to Compel at 6. d. Request for Production Nos. 5 and 6. In Requests for Production Nos. 5 and 6, Zurich Insurance requested information about the rates that Holland & Hart charged for cases in which an insurance company pays Holland & Hart. See Motion to Compel at 7. Once again, XTO Energy raises the same objection: Holland & Hart is not a party to this litigation, or an appropriate recipient of the interrogatories, and the information is not likely to lead to the discovery of admissible evidence. See Motion to Compel at 7. XTO Energy further objects that the discovery sought is confidential, privileged, or proprietary. See Motion to Compel at 7. Zurich Insurance contends that the attorney's fees that XTO Energy charges to insurance companies are “entirely relevant to the issue of whether the fees proposed by Holland & Hart are reasonable in this case.” Motion to Compel at 7. Additionally, Zurich Insurance argues that Holland & Hart's objection that it is not a party to the litigation “is not a valid objection,” because a party “responding to a request for production is required to provide requested documents within its possession, custody, or control.” Motion to Compel at 7. e. Request for Production No. 10. *8 In Request for Production No. 10, Zurich Insurance requests all pleadings, written discovery, and responses, depositions, subpoenas to third parties, and responses in the underlying Manley and Betancur lawsuits. See Motion to Compel at 8. XTO Energy objects on the ground that production “would be unduly burdensome and overly broad.” Motion to Compel at 8. Zurich Insurance argues that XTO Energy has not shown that the burdens outweigh the “benefits to be secured from the discovery.” Motion to Compel at 8. In XTO Energy's Response to Motion to Compel, XTO Energy asserts that it informed Zurich Insurance that, “in light of Zurich's narrowing of documents requested pursuant to its Request for Production No. 10, XTO is in the process of producing all discovery responses and document productions from the underlying Manley and Betancur lawsuits.” Response to Motion to Compel at 2. XTO Energy agrees to produce the deposition transcripts that Zurich Insurance identifies, but states that it is waiting for Zurich Insurance to identify which particular transcripts it desires. See Response to Motion to Compel at 2. Zurich Insurance agrees that the parties have resolved the discovery dispute surrounding Request for Production No. 10. See Reply to Motion to Compel at 7. f. Requests for Production Nos. 11, 12, and 13. Finally, in Request for Production Nos. 11, 12, and 13, Zurich Insurance requests that XTO Energy produce “written agreements between XTO and its attorneys, Holland & Hart, and all billing documents.” Motion to Compel at 9. XTO Energy initially raised the attorney- client privilege as its basis for objecting. See Motion to Compel at 9. Zurich Insurance argues that XTO Energy must produce these documents, because they can obtain control over them, and because they waived any privilege by failing to produce a privilege log. See Motion to Compel at 9. In its Response to Motion to Compel, XTO Energy explains that it “has offered to produce the documents subject to a protective order” to “ensure that the documents retain their attorney-client protection.” Response to Motion to Compel at 10. Zurich Insurance contends that “a tri-partite relationship is created in Zurich's acceptance of the defense of XTO and that documents provided to Zurich as part of this defense would be protected as part of the attorney/client privilege.” Response to Motion to Compel at 7. Although Zurich Insurance initially argued that a protective order is not necessary to preserve privilege, it later agreed that it could enter into a protective order, given that the Plaintiffs-in-Intervention sought to intervene. See Tr. at 101:1-7 (Custer); Tr. at 101:24-102:1 (Johansen). 2. The Subpoena. On September 18, 2015, Zurich Insurance issued its first set of discovery requests to XTO Energy, requesting: (i) “Any agreements between Holland & Hart, LLP and any insurance company regarding rates for legal services for the past five (5) years, redacting any privileged information”; and (ii) “Any billing documents for services provided by Holland & Hart, LLP related to the defense of an insured at the request of an insurance company for the past five (5) years, redacting any privileged Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 145 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 9 information.” Motion to Quash Response at 2. Motion to Quash Response at 2. XTO Energy objects to both requests. See Motion to Quash at 2-3; Motion to Quash Response at 2. Despite these objections, Zurich Insurance issued a subpoena to Holland & Hart on November 19, 2015 with identical requests to those it asked for in discovery. See Motion to Quash at 3; Subpoena to Produce Documents, Information, or Objects or to Permit Inspection of Premises in a Civil Action (dated November 19, 2015), filed December 1, 2015 (Doc. 36-2) (“Subpoena”). 3. The Motion to Quash. *9 In the Motion to Quash, Holland & Hart requests that the Court quash Zurich Insurance's Subpoena, or issue a protective order. See Motion to Quash at 1. Holland & Hart explains that subpoenas issued to opposing counsel “are strongly disfavored and are generally improper.” Motion to Quash at 3. It contends that Zurich Insurance can subpoena and depose Holland & Hart only if “(1) no other means exist to obtain the information than to depose opposing counsel; (2) the information sought is relevant and nonprivileged; and (3) the information is crucial to the preparation of the case.” Motion to Quash at 3 (describing the test, which the United States Court of Appeals for the Tenth Circuit has adopted, set forth in Shelton v. Am. Motors Corp., 805 F.2d 1323, 1327 (8th Cir.1987)(“the Shelton test”)). Holland & Hart argues that Zurich Insurance cannot meet these requirements. See Motion to Quash at 3. Holland & Hart further asserts that rule 45(d) of the Federal Rules of Civil Procedure requires the Court to quash a subpoena that requires disclosure of privileged matter. See Motion to Quash at 4. It argues that the Court should quash the subpoena or enter a protective order, because the subpoena “requests privileged agreements and billing statements, and redacting the privileged information would be unduly burdensome.” Motion to Quash at 4. It contends that the subpoena would provide information which is minimally relevant, which would not outweigh the heavy burden on Holland & Hart of redacting the information. See Motion to Quash at 5. Finally, Holland & Hart argues that technical errors in the subpoena violates rule 45. See Motion to Quash at 5-6. It therefore asks the Court to award it the “reasonable attorneys' fees it incurred in bringing this motion.” Motion to Quash at 6. Zurich Insurance responded on December 15, 2015. See Defendant Zurich American Insurance Company's Response to “Motion to Quash or Motion for Protective Order Regarding Subpoena to Nonparty Holland & Hart LLP,” filed December 15, 2015 (Doc. 39)(“Motion to Quash Response”). It argues that its request “complies with the test discussed in Shelton,” because no other means exist to obtain Holland & Hart's legal fees, which “is a central issue in this case.” Motion to Quash Response at 3. Zurich Insurance asserts that the information is essential to the case, because it supports Zurich Insurance's argument that it was justified in denying XTO Energy coverage under the Zurich Policy. See Motion to Quash Response at 4. Specifically, Zurich Insurance contends that it was entitled to deny coverage, because XTO Energy acted in comparative bad faith by requesting unreasonable rates. See Motion to Quash Response at 4. Zurich Insurance argues that, to prove this claim, it must have the information it requests in the subpoena. See Motion to Quash Response at 4. Zurich Insurance further asserts that it does not seek any privileged information, because “information regarding legal fee arrangements is [ ] not subject to the attorney- client privilege.” Motion to Quash Response at 3. Additionally, Zurich Insurance contends that its request is not overly burdensome and that Holland & Hart “is certainly capable of providing the responsive information without providing every billing entry for the past five (5) years.” Motion to Quash Response at 4. Furthermore, Zurich Insurance states that its subpoena complies with rule 45, despite a technical error on the first page, meaning that Holland & Hart is not entitled to an attorney's fees award. See Motion to Quash Response at 5. Holland & Hart replied, reiterating that the subpoena's requests are irrelevant. See Reply in Support of Motion to Quash or Motion for Protective Order Regarding Subpoena to Nonparty Holland & Hart LLP, filed January 4, 2016 (Doc. 49)(“Motion to Quash Reply”). It emphasizes that, “when a Subpoena is directed to opposing counsel, the requesting party must meet a higher burden-the discovery must be crucial to the requesting party's case, not simply relevant.” Motion to Quash Reply at 2. Holland & Hart maintains that several jurisdictions “have rejected a comparative bad faith defense in the insurance context,” which means that the requested discovery “is thus not relevant to a valid claim or defense.” Motion to Quash Reply at 2. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 146 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 10 *10 Holland & Hart next contends that Zurich Insurance can prove its case through other means, so the discovery is not essential to the case. See Motion to Quash Reply at 2-3. Holland & Hart suggests that Zurich Insurance can: (i) hire an expert to opine on the rates' reasonableness; or (ii) request from XTO Energy the rates that XTO Energy has agreed to pay to Holland & Hart or to other law firms that represent XTO Energy. See Motion to Quash Reply at 3. Holland & Hard concludes by emphasizing the burden that the discovery requests place on it. See Motion to Quash Reply at 5. 4. The Hearing. The Court held a hearing on March 1, 2016 to address the Motion to Quash and the Motion to Compel. See Transcript of Hearing (taken March 1, 2016) (“Tr.”). 6 XTO Energy explained that the Defendants have “asserted an affirmative defense of comparative bad faith against XTO, and in its papers it has alleged that the reasonableness of Holland & Hart's rate is relevant to the comparative bad faith defense.” Tr. at 84:20-24 (Custer). It argued that the only relevant issue to the bad faith defense is XTO Energy's actions rather than Holland & Hart's actions. See Tr. at 85:1-4 (Custer). It stressed that “Zurich needs to be able to show that XTO itself acted in bad faith,” and that “Zurich has cited nothing to support that the acts of Holland & Hart could be or should be imputed to XTO in a comparative bad faith defense.” Tr. at 85:9-14 (Custer). 6 The Court's citations to the transcript of the hearing refer to the court reporter's original, unedited version. Any final transcript may contain slightly different page and/or line numbers. XTO Energy also raised the same arguments it made in its Motion to Quash. See Tr. at 86:1-87:23 (Custer). It reiterated that Zurich Insurance can discover whether Holland & Hart's rates are reasonable in numerous other ways. See Tr. at 86:1-7 (Custer). It conceded that “fee agreements are generally not privileged,” but contended that “they may contain privileged information.” Tr. at 87:7-13 (Custer). It explained that combing through “potentially hundreds if not thousands of pages of billing documents and hav[ing] to redact all the information, simply so that Zurich can see the rates that Holland & Hart has charged to other clients ... [is] simply not reasonable.” Tr. at 87:18-23 (Custer). Finally, XTO Energy asserted that Zurich Insurance's subpoena is “woefully overbroad.” Tr. at 89:13 (Custer). It stated that the proper method to assess a fee's reasonableness is to consider “the prevailing market rate and the locality.” Tr. at 89:13-17 (Custer). It argued that, in contrast, Zurich Insurance seeks all billing documents in every location. See Tr. at 89:14-20 (Custer). Zurich Insurance then argued that it should be able to obtain the desired information through both the subpoena and its Motion to Compel. See Tr. at 91:10- 92:7 (Johansen). Zurich Insurance responded that a determination of the fees' reasonableness is not “solely relevant to a comparative bad faith analysis.” Tr. at 91:10-12 (Johansen). It stated that the information is also relevant to Zurich Insurance's defense against XTO Energy's breach-of-contract claim. See Tr. at 91:10-15 (Johansen). Further, it argued that Holland & Hart put the specific hourly rate at issue by saying “Holland & Hart's rates are reasonable for this work, and Air Tech is legally obligated to pay those rates.” Tr. at 91:19-25 (Johansen). It agreed “to consider a narrower scope” of discovery, but stated that it “would like to know what Holland & Hart charges other insurance companies.” Tr. at 92:3-7 (Johansen). *11 XTO Energy asserted that it did not have to give this information to Zurich Insurance “simply because XTO does not have this information.” Tr. at 95:11-14 (Custer). In response to Zurich Insurance's arguments on the Motion to Compel, XTO Energy grouped the discovery requests into two sets: (i) Request for Production Nos. 5 and 6 and Interrogatory Nos. 7 and 10; and (ii) Requests for Production Nos. 11, 12, and 13. With respect to the first group, XTO Energy argued that the information that Zurich Insurance requested was not in XTO Energy's control or possession. See Tr. at 96:5- 11 (Custer). Interrogatory No. 7 asks for Holland & Hart's hourly billing rates charged to any insurance company in the past five years, not limited to any representation of XTO. Interrogatory No. 10 asks for information regarding Zurich's retention of Holland & Hart within the past five years. In request for production five and six Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 147 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 11 [they] asked for Holland & Hart's billing agreements with insurance companies regarding Holland & Hart's rates and for billing documents provided by Holland & Hart related to the defense of an insured for the past five years. As the requests make clear, Zurich is asking for information regarding Holland & Hart's representation of not just XTO, but other clients as well. And what's important is that Zurich has propounded those requests on XTO. That is not information that is within XTO's possession, custody or control. Tr. at 96:16-25 (Custer). XTO Energy asserted that other courts “have found that the client is not in possession, custody, or control of documents or information that the attorney has that are unrelated to that attorney's representation of the client.” Tr. at 97:7-10 (Custer). It further stated: “It is inconceivable that the attorney should be compelled to produce the document belonging to another client because the adversary of one of his clients demands it.” Tr. at 98:4-7 (Custer). Regarding the second group of requests, XTO Energy explained that Zurich Insurance requested Holland & Hart's engagement agreement with XTO Energy and for XTO Energy's billing documents. See Tr. at 100:23-101:1 (Custer). It stated that XTO Energy and Zurich Insurance “spoke before this hearing and agreed that the parties could probably work something out on that issue and enter into a protective order, given that the landscape of the case has changed.” Tr. at 101:1-7 (Custer). It therefore requested that the Court deny the Motion to Compel as to Requests for Production Nos. 11, 12, and 13 to “allow the parties to try to figure out a solution among themselves that protects XTO's information.” Tr. at 101:15-18 (Custer). Zurich Insurance stated that it agreed with XTO Energy regarding the second group of requests-Requests for Production Nos. 11, 12, and 13- and that the parties could arrive at an agreement. See Tr. at 101:24-102:1 (Johansen). In reference to the remaining requests, Zurich Insurance asserted that it is willing to work with XTO Energy to obtain the information it needs, but maintained that it is entitled to the information. See Tr. at 102:23-103:2 (Johansen). RELEVANT LAW REGARDING DISCOVERY Rule 34 of the Federal Rules of Civil Procedure governs discovery requests for tangible objects. See Fed.R.Civ.P. 34. Rule 34(a) states: A party may serve on any other party a request within the scope of Rule 26(b): (1) to produce and permit the requesting party or its representative to inspect, copy, test, or sample the following items in the responding party's possession, custody, or control: *12 (A) any designated documents or electronically stored information-including writings, drawings, graphs, charts, photographs, sound recordings, images, and other data or data compilations-stored in any medium from which information can be obtained either directly or, if necessary, after translation by the responding party into a reasonably usable form; or (B) any designated tangible things; or (2) to permit entry onto designated land or other property possessed or controlled by the responding party, so that the requesting party may inspect, measure, survey, photograph, test, or sample the property or any designated object or operation on it. Fed.R.Civ.P. 34(a). Rule 26(b)(1) explains that the proper scope of discovery is “any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case....” Fed.R.Civ.P. 26(b)(1). The factors that bear upon proportionality are: “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.” Fed.R.Civ.P. 26(b)(1). Federal courts have held that the scope of discovery under rule 26 is broad. See Gomez v. Martin Marrietta Corp., 50 F.3d 1511, 1520 (10th Cir.1995); Sanchez v. Matta, 229 F.R.D. 649, 654 (D.N.M.2004)(Browning, J.) (“The federal courts have held that the scope of discovery should Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 148 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 12 be broadly and liberally construed to achieve the full disclosure of all potentially relevant information.”). The federal discovery rules reflect the courts' and Congress' recognition that “mutual knowledge of all the relevant facts gathered by both parties is essential to proper litigation.” Hickman v. Taylor, 329 U.S. 495, 507 (1947). A district court is not, however, “required to permit plaintiff to engage in a ‘fishing expedition’ in the hope of supporting his claim.” McGee v. Hayes, 43 Fed.Appx. 214, 217 (10th Cir.2002)(unpublished). 7 “ ‘Discovery ... is not intended to be a fishing expedition, but rather is meant to allow the parties to flesh out allegations for which they initially have at least a modicum of objective support.’ ” Rivera v. DJO, LLC, No. CIV 11-1119 JB/RHS, 2012 WL 3860744, at *1 (D.N.M. Aug. 27, 2012) (Browning, J.)(quoting Tottenham v. Trans World Gaming Corp., No. CIV 00-7697 WK, 2002 WL 1967023, at *2 (S.D.N.Y. June 21, 2002)(Knapp, J.)). See Hardrick v. Legal Servs. Corp., 96 F.R.D. 617, 618 (D.D.C.1983)(Burnett, M.J.) (noting that courts do and should remain concerned about “fishing expeditions, discovery abuse and inordinate expense involved in overbroad and far-ranging discovery requests”)(internal quotation marks omitted). “[B]road discovery is not without limits and the trial court is given wide discretion in balancing the needs and rights of both plaintiff and defendant.” Gomez v. Martin Marietta Corp., 50 F.3d at 1520 (internal quotation marks omitted). 7 McGee v. Hayes is an unpublished opinion, but the Court can rely on an unpublished opinion to the extent its reasoned analysis is persuasive in the case before it. See 10th Cir. R. 32.1(A), 28 U.S.C. (“Unpublished opinions are not precedential, but may be cited for their persuasive value.”). The Tenth Circuit has stated: In this circuit, unpublished orders are not binding precedent, ... and ... citation to unpublished opinions is not favored.... However, if an unpublished opinion ... has persuasive value with respect to a material issue in a case and would assist the court in its disposition, we allow a citation to that decision. United States v. Austin, 426 F.3d 1266, 1274 (10th Cir.2005). The Court concludes that McGee v. Hayes, Miller v. Regents of the Univ. of Colo., 188 F.3d 518, 1999 WL 506520 (10th Cir.1999), and SEC v. Dowdell, 144 Fed.Appx. 716 (10th Cir.2005) have persuasive value with respect to a material issue, and will assist the Court in its disposition of this Memorandum Opinion and Order. *13 The 2000 amendments to rule 26(b)(1) began narrowing the substantive scope of discovery and injected courts deeper into the discovery process. See Simon v. Taylor, 2015 WL 2225653, at *23 (D.N.M. April 30, 2015)(Browning, J.). Before the 2000 amendments, rule 26(b)(1) defined the scope of discovery as follows: Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending actions, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. The information sought need not be admissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence. Fed.R.Civ.P. 26(b)(1)(1996). The 2000 amendments made the following changes, shown here in redline form with the deleted language stricken and the added material underlined: Parties may obtain discovery regarding any matter, not privileged, that which is relevant to the subject matter involved in the pending actions, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 149 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 13 The information sought need not be admissible at the trial if discovery the information sought appears reasonably calculated to lead to the discovery of admissible evidence. Fed.R.Civ.P. 26(b)(1). Putting aside the changes to the last sentence-which the advisory committee's notes make clear was a housekeeping amendment to clarify that inadmissible evidence must still be relevant to be discoverable-the 2000 amendments have two effects: (i) they narrow the substantive scope of discovery in the first sentence; and (ii) they inject courts into the process in the entirely new second sentence. In 1978, the Committee published for comment a proposed amendment, suggested by the Section of Litigation of the American Bar Association, to refine the scope of discovery by deleting the “subject matter” language. This proposal was withdrawn, and the Committee has since then made other changes in the discovery rules to address concerns about overbroad discovery. Concerns about costs and delay of discovery have persisted nonetheless, and other bar groups have repeatedly renewed similar proposals for amendment to this subdivision to delete the “subject matter” language. Nearly one-third of the lawyers surveyed in 1997 by the Federal Judicial Center endorsed narrowing the scope of discovery as a means of reducing litigation expense without interfering with fair case resolutions. [Federal Judicial Center, T. Willging, J. Shapard, D. Stienstra, & D. Miletich, Discovery and Disclosure Practice, Problems, and Proposals for Change] 44- 45 (1997). The Committee has heard that in some instances, particularly cases involving large quantities of discovery, parties seek to justify discovery requests that sweep far beyond the claims and defenses of the parties on the ground that they nevertheless have a bearing on the “subject matter” involved in the action. *14 The amendments proposed for subdivision (b) (1) include one element of these earlier proposals but also differ from these proposals in significant ways. The similarity is that the amendments describe the scope of party-controlled discovery in terms of matter relevant to the claim or defense of any party. The court, however, retains authority to order discovery of any matter relevant to the subject matter involved in the action for good cause. The amendment is designed to involve the court more actively in regulating the breadth of sweeping or contentious discovery. The Committee has been informed repeatedly by lawyers that involvement of the court in managing discovery is an important method of controlling problems of inappropriately broad discovery. Increasing the availability of judicial officers to resolve discovery disputes and increasing court management of discovery were both strongly endorsed by the attorneys surveyed by the Federal Judicial Center. See Discovery and Disclosure Practice, supra, at 44. Under the amended provisions, if there is an objection that discovery goes beyond material relevant to the parties' claims or defenses, the court would become involved to determine whether the discovery is relevant to the claims or defenses and, if not, whether good cause exists for authorizing it so long as it is relevant to the subject matter of the action. The good-cause standard warranting broader discovery is meant to be flexible. The Committee intends that the parties and the court focus on the actual claims and defenses involved in the action. The dividing line between information relevant to the claims and defenses and that relevant only to the subject matter of the action cannot be defined with precision. A variety of types of information not directly pertinent to the incident in suit could be relevant to the claims or defenses raised in a given action. For example, other incidents of the same type, or involving the same product, could be properly discoverable under the revised standard. Information about organizational arrangements or filing systems of a party could be discoverable if likely to yield or lead to the discovery of admissible information. Similarly, information that could be used to impeach a likely witness, although not otherwise relevant to the claims or defenses, might be properly discoverable. In each instance, the determination whether such information is discoverable because it is relevant to the claims or defenses depends on the circumstances of the pending action. The rule change signals to the court that it has the authority to confine discovery to the claims and defenses asserted in the pleadings, and signals to the parties that they have no entitlement to discovery to develop new claims or defenses that are not already identified in the pleadings. In general, it is hoped that reasonable lawyers can cooperate to manage discovery without the need for judicial intervention. When judicial intervention is invoked, the actual scope of discovery should be determined according to the reasonable needs Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 150 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 14 of the action. The court may permit broader discovery in a particular case depending on the circumstances of the case, the nature of the claims and defenses, and the scope of the discovery requested. The amendments also modify the provision regarding discovery of information not admissible in evidence. As added in 1946, this sentence was designed to make clear that otherwise relevant material could not be withheld because it was hearsay or otherwise inadmissible. The Committee was concerned that the “reasonably calculated to lead to the discovery of admissible evidence” standard set forth in this sentence might swallow any other limitation on the scope of discovery. Accordingly, this sentence has been amended to clarify that information must be relevant to be discoverable, even though inadmissible, and that discovery of such material is permitted if reasonably calculated to lead to the discovery of admissible evidence. As used here, “relevant” means within the scope of discovery as defined in this subdivision, and it would include information relevant to the subject matter involved in the action if the court has ordered discovery to that limit based on a showing of good cause. Finally, a sentence has been added calling attention to the limitations of subdivision (b)(2)(i), (ii), and (iii). These limitations apply to discovery that is otherwise within the scope of subdivision (b)(1). The Committee has been told repeatedly that courts have not implemented these limitations with the vigor that was contemplated. See 8 Federal Practice & Procedure § 2008.1 at 121. This otherwise redundant cross-reference has been added to emphasize the need for active judicial use of subdivision (b)(2) to control excessive discovery. Cf. Crawford-El v. Britton, 118 S.Ct. 1584, 1597 (1998) (quoting Rule 26(b)(2)(iii) and stating that “Rule 26 vests the trial judge with broad discretion to tailor discovery narrowly”). *15 Fed.R.Civ.P. 26 advisory committee's notes (emphasis added). One gets the impression from reading the advisory committee's notes that the amendment was not intended to exclude a delineable swath of material so much as it is intended to send a signal to district judges to become more hands-on in the process of regulating-mostly limiting- discovery on relevance grounds alone. The “two effects” of the 2000 amendments might, thus, be only one effect: directing district judges to roll up their sleeves and manage discovery, and to do so on the basis of relevance. The change in substantive scope from “subject matter,” to “claim or defense,” would, therefore, seem to exist more to “add teeth” to the relevance standard than to effectuate a substantive narrowing. The amendments sent a signal to district judges to become more hands-on in the process of regulating-mostly limiting-discovery on relevance grounds alone. They directed district judges to roll up their sleeves and manage discovery, and to do so on the basis of relevance. The change in substantive scope from “subject matter,” to “claim or defense,” added teeth to the relevance standard more than it substantively narrowed discovery. It is not surprising that the Supreme Court and Congress would want to increase judicial presence: “relevance” is a liberal concept in the context of trial, see Fed.R.Evid. 401 (“Evidence is relevant if: (a) it has any tendency to make a fact more or less probable than it would be without the evidence; and (b) the fact is of consequence in determining the action.”). Of course, regardless of this individual court's philosophical thoughts about the new rules, courts should also seek to give substantive content to amendments. Read literally, the rule does not permit parties to discover information relevant only to the claim or defense of another party; they must use discovery only to investigate their own claims and defenses. More problematically, however, the rule may prevent using the Federal Rules' compulsory discovery process to obtain “background” information not specifically relevant to any one claim or defense-e.g., a plaintiff naming a pharmaceutical company as a defendant and then using discovery to educate itself generally about medicine, biochemistry, and the drug industry by using the defendant's expertise. In In re Cooper Tire & Rubber Co., 568 F.3d 1180 (10th Cir.2009), the Tenth Circuit clarified that the 2000 Amendments to rule 26 “implemented a two-tiered discovery process; the first tier being attorney-managed discovery of information relevant to any claim or defense of a party, and the second being court-managed discovery that can include information relevant to the subject matter of the action.” 568 F.3d at 1188. The Tenth Circuit further stated that, when a party objects that discovery goes beyond that relevant to the claims or defenses, “the court would become involved to determine whether the discovery is relevant to the claims or defenses and, if not, whether Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 151 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 15 good cause exists for authorizing it so long as it is relevant to the subject matter of the action.” This good-cause standard is intended to be flexible. When the district court does intervene in discovery, it has discretion in determining what the scope of discovery should be. “[T]he actual scope of discovery should be determined according to the reasonable needs of the action. The court may permit broader discovery in a particular case depending on the circumstances of the case, the nature of the claims and defenses, and the scope of the discovery requested.” *16 568 F.3d at 1188-89 (quoting the advisory committee's notes to the 2000 amendments to Fed.R.Civ.P. 26(b)(1)) (citations omitted)(footnote omitted)(alteration in original). The 2015 amendments to rule 26(b)(1) continued this process of narrowing the substantive scope of discovery and injecting courts further into the discovery process. The 2015 amendment made notable deletions and additions, both of which aimed to emphasize the need to make discovery proportional to the needs of the case. See Fed.R.Civ.P. 26(b)(1). Rule 26(b)(1), with the deletions and additions, provides: (1) Scope in General. 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 including the existence, description, nature, custody, condition and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. All discovery is subject to the limitations imposed by Rule 26(b) (2)(C). [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)(alterations added). The first deletion removes the statement that discovery is available for any matter relevant to any party's claim or defense, “including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter.” Fed.R.Civ.P. 26(b)(1) (pre-December 2015 version). The Committee Notes express that this deletion does not make a substantive change. Rather, the deletion was made because “[d]iscovery of such matters is so deeply entrenched” in standard discovery that including it would be “clutter.” Fed.R.Civ.P. 26(b) advisory committee's note to 2015 amendment. 8 8 The Court regrets this deletion. Moving things out of the text of a statute often creates mischief, especially for courts that rely heavily on the text's plain language. The drafters might be astonished how often the Court sees objections to interrogatories and requests that seek basic information about documents. The rule is well-established because the deleted language was in the rule; now that the language is not in the rule, the rule may be eroded or, more likely, ignored or overlooked by those who do not spend time in the weeds of the advisory notes. What the advisory comments describe as “clutter” is a simple instruction to practitioners who do not practice in federal court every day for every case. This deletion might incrementally increase unnecessary litigation rather than shorten it. Some of the amendments seem more designed to help the nation's large corporations, represented by some of the nation's most expensive law firms, cut down expenses than they are to help courts and practitioners in more routine cases. Regarding the second deletion, the Committee Notes explain that the former provision for discovery of relevant but inadmissible information that appears “reasonably calculated to lead to the discovery of admissible evidence” is also deleted. 9 Fed.R.Civ.P. 26(b) advisory committee's note to 2015 amendment. The phrase has been used by some, incorrectly, to define the scope of discovery. As the Committee Note to the 2000 amendments observed, use of the “reasonably calculated” phrase to define the scope of discovery “might swallow any other limitation on the scope of Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 152 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 16 discovery.” The 2000 amendments sought to prevent such misuse by adding the word “Relevant” at the beginning of the sentence, making clear that “ ‘relevant’ means within the scope of discovery as defined in this subdivision ...” The “reasonably calculated” phrase has continued to create problems, however, and is removed by these amendments. It is replaced by the direct statement that “Information within this scope of discovery need not be admissible in evidence to be discoverable.” Discovery of nonprivileged information not admissible in evidence remains available so long as it is otherwise within the scope of discovery. *17 Fed.R.Civ.P. 26 advisory committee's note to 2015 amendment. The deletion, therefore, did not necessarily change the scope of discovery, but clarified it. Accordingly, “[r]elevance is still to be ‘construed broadly to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on’ any party's claim or defense.” State Farm Mutual Auto. Ins. Co. v. Fayda, 2015 WL 7871037, at *2 (quoting Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978)). 9 Arguably, older lawyers will have to learn a new vocabulary and ignore the one they have used for decades. If the changes were not made to change the scope of discovery, it is unclear what the benefit of all this really is. The most notable addition to rule 26(b) is the proportionality concept. Rule 26(b)(2)(C)(iii) has always limited overly burdensome discovery and required proportionality. See Fed.R.Civ.P. 26(b)(2)(C)(iii)(pre- 2015 version). The proportionality requirement was relocated to 26(b)(1) to address the “explosion” of information that “has been exacerbated by the advent of e-discovery.” 10 Fed.R.Civ.P. 26(b) advisory committee's note to 2015 amendment. Describing how e-discovery is the driving factor in the 2015 amendment, the Notes state: The burden or expense of proposed discovery should be determined in a realistic way. This includes the burden or expense of producing electronically stored information. Computer- based methods of searching such information continue to develop, particularly for cases involving large volumes of electronically stored information. Courts and parties should be willing to consider the opportunities for reducing the burden or expense of discovery as reliable means of searching electronically stored information become available. Fed.R.Civ.P. 26(b) advisory committee's note to 2015 amendment. 10 This relocation-rather than substantive change- is one reason that the Court is skeptical that the 2015 amendments will make a considerable difference in limiting discovery or cutting discovery costs. Courts have been bringing common sense and proportionality to their discovery decisions long before the 2015 amendments. See Aguayo v. AMCO Ins. Co., 59 F.Supp.3d 1225, 1275 (D.N.M.2014)(Browning, J.)(“[T]he Court expects that discovery and motion practice bear some proportionality to the case's worth.”); Cabot v. Wal- Mart Stores, Inc., 2012 WL 592874, at *11-12 (limiting the scope of discovery because it was unduly burdensome in relation to the relevance and need). The real import of the rule is that it will likely lead to more “proportionality” objections and more disputes that the district courts will have to resolve, which is what the drafters apparently intended. It is unclear how more judicial involvement in discovery can be squared with a federal court docket that is at a breaking point already. It is also unclear what was wrong with the old goal of discovery of being largely self-executing. The new rules also require attorneys to learn the new vocabulary of “proportionality,” delete their old stock legal sections from their briefs, and rewrite these new sections to use the correct language. Older lawyers must be particularly alert to read and learn the new rules, read the comments, and understand the thrust of the drafting. Finally, given that “proportionality” is a very subjective standard, it will be hard for any court to sanction any attorney for raising this objection. In sum, the rules are just as likely to increase the costs of discovery as to decrease it. *18 Chief Justice Roberts' 2015 Year-End Report on the Federal Judiciary indicates that the addition of proportionality to rule 26(b) “crystalizes the concept of reasonable limits on discovery through increased reliance on the common-sense concept of proportionality.” 11 Chief Justice John Roberts, 2015 Year-End Report Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 153 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 17 on the Federal Judiciary at 6, Supreme Court of the United States, available at http://www.supremecourt.gov/ publicinfo/year-end/year-endreports.aspx (“2015 Year- End Report”). He states that the proportionality concept seeks to “eliminate unnecessary or wasteful discovery,” and to impose “careful and realistic assessment of actual need.” 2015 Year-End Report at 7. This assessment may, as a practical matter, require “judges to be more aggressive in identifying and discouraging discovery overuse by emphasizing the need to analyze proportionality before ordering production of relevant information.” State Farm Mutual Auto. Ins. Co. v. Fayda, 2015 WL 7871037, at *2 (S.D.N.Y. Dec. 3, 2015)(Francis IV, M.J.)(internal quotation marks omitted). The burden of demonstrating relevance remains on the party seeking discovery, and the newly revised rule “does not place on the party seeking discovery the burden of addressing all proportionality considerations.” Fed.R.Civ.P. 26(b) (1) advisory committee's notes to 2015 amendment. See Dao v. Liberty Life Assurance Co. of Boston, 2016 WL 796095, at *3 (N.D.Cal.2016)(LaPorte, M.J.) (observing that the 2015 amendment “reinforces the Rule 26(g) obligation of the parties to consider these factors in making discovery requests, responses or objections”); Williams v. U.S. Envt'l Servs., LLC, 2016 WL 617447, at *1 n.2. In general, “the parties' responsibilities [ ] remain the same” as they were under the rule's earlier iteration so that the party resisting discovery has the burden of showing undue burden or expense. Fed.R.Civ.P. 26(b)(1) advisory committee's notes to 2015 amendment. See Dao v. Liberty Life Assurance Co. of Boston, 2016 WL 796095, at *3 (noting that, “while the language of the Rule has changed, the amended rule does not actually place a greater burden on the parties with respect to their discovery obligations”). 11 The Rules Enabling Act, 28 U.S.C. §§ 2071-2077, empowers the federal courts to prescribe rules for the conduct of their business. See 28 U.S.C. § 2071. The Judicial Conference-the policy making body of the federal judiciary-has overall responsibility for formulating those rules. See Chief Justice John Roberts, 2015 Year-End Report on the Federal Judiciary at 6, Supreme Court of the United States, available at http://www.supremecourt.gov/ publicinfo/year-end/year-endreports.aspx (“2015 Year-End Report”). The Chief Justice leads the Judicial Conference. The Judicial Conference's Committee on Rules of Practice and Procedure, known as the Standing Committee, enlists guidance from advisory committees and conferences to draft proposed rules and amendments for the Judicial Conference's consideration. See 2015 Year-End Report. Chief Justice Roberts, a former clerk for Chief Justice William Rehnquist, appointed the Honorable David Campbell, United States District Judge for the District of Arizona, also a former Rehnquist clerk and President George W. Bush appointee, to chair the Civil Rules Advisory Committee. Campbell and David Levi, Dean of the Duke University School of Law, a former clerk to Justice Lewis Powell, and former chief judge of the United States District Court for the Eastern District of California, appointed as United States Attorney by President Ronald Reagan and appointed to the Eastern District of California by President George W. Bush, led the effort to increase proportionality and hands-on judicial case management in the 2015 amendments. See Report to the Standing Committee at 4, Advisory Committee on Civil Rules (May 8, 2013), available at http://www.uscourts.gov/rules-policies/archives/ committee-reports/advisory-committee-rules-civil- procedure-may-2013. After the Judicial Conference concurred on the 2015 amendments, it sent the proposed rules and amendments to the Supreme Court, which approved them. Chief Justice Roberts submitted the proposed rules to Congress for its examination. See 2015 Year-End Report at 6. Because Congress did not intervene by December 1, the new rules took effect. Some scholars have noted that the rules reflect the conservative nature of those who have participated in drafting the amendments. See Edward A. Purcell, Jr., From the Particular to the General: Three Federal Rules and the Jurisprudence of the Rehnquist and Roberts Courts, 162 U. Pa. L.Rev. 1731 (2014); Corey Ciocchetti, The Constitution, The Roberts Court, and Business: The Significant Business Impact of the 2011-2012 Supreme Court Term, 4 Wm. & Mary Bus. L.Rev. 385 (2013). In particular, the New Mexico Trial Lawyer published an article asserting that the amendments favored corporate defendants, which was partially the result of Chief Justice Roberts' appointment of “corporate-minded judges to the Rules Advisory Committee that drafted the amendments.” Ned Miltenberg & Stuart Ollanik, The Chief Umpire is Changing the Strike Zone at 1, The New Mexico Trial Lawyer (Jan./Feb.2016). The Court shares some of the concerns with the new amendments being pro-business and giving corporations new tools to limit plaintiffs' discovery. *19 Like with the 2000 amendments, it is unsurprising that the drafters are unable to articulate precise language narrowing the substantive scope of discovery. Instead Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 154 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 18 of being Aristotelian and trying to draft rules, the drafters largely opted to make federal judges Plato's enlightened guardians. They have decided that no single general rule can adequately take into account the infinite number of possible permutations of different claims, defenses, parties, attorneys, resources of parties and attorneys, information asymmetries, amounts in controversy, availabilities of information by other means, and other factors. They have dropped all discovery disputes into judges' laps. The drafters have decided that this determination requires the individualized judgment of someone on the scene, and that presence is what the rulemakers want when they: (i) encourage district judges to take a firmer grasp on the scope of discovery; and (ii) put their thumbs on the scale in favor of narrower discovery in the rule's definition of the scope of discovery. LAW REGARDING MOTIONS TO COMPEL Rule 37 provides enforcement mechanisms for rule 34. According to rule 37, if a party does not respond to an interrogatory or to a request for production, the party requesting the discovery may move the Court to compel the opposing party to respond. See Fed.R.Civ.P. 37(a) (2)(B). “[A]n evasive or incomplete disclosure, answer, or response is to be treated as a failure to disclose, answer, or respond.” Fed.R.Civ.P. 37(a)(3). See Lewis v. Goldberry, No. CIV 11-0283 JB/ACT, 2012 WL 681800, at *4 (D.N.M. Feb. 27, 2012) (Browning, J.). Rule 37(a) provides: On notice to other parties and all affected persons, a party may move for an order compelling disclosure or discovery. The motion must include a certification that the movant has in good faith conferred or attempted to confer with the person or party failing to make disclosure or discovery in an effort to obtain it without court action. Fed.R.Civ.P. 37(a). Under rule 37(a)(4), “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). If a party refuses to turn over documents through proper discovery, a defendant should move to compel production pursuant to rule 37. See Lane v. Page, 727 F.Supp.2d 1214, 1236 n.15 (D.N.M.2010)(Browning, J.). LAW REGARDING RULE 45 “Discovery of non-parties must be conducted by subpoena pursuant to Fed.R.Civ.P. 45.” Myers v. Andzel, No. CIV 06-14420 RWS, 2007 WL 3256879, at *1 (S.D.N.Y.2007)(Sweet, J.). See, e.g., Highland Tank & Mfg. Co. v. PS Int'l, Inc., 227 F.R.D. 374, 379 (W.D.Pa.2005)(Gibson, J.)(“Rule 45 is the only discovery method whereby information may be obtained from a nonparty to the suit.”); Blazek v. Capital Recovery Assocs., Inc., 222 F.R.D. 360, 361 (E.D.Wis.2004)(Adelman, J.) (“[A]ny person may be required to produce documents and any property may be inspected.... If the person is not a party to the litigation, the party seeking such discovery must utilize a subpoena to compel such discovery.”). Accordingly, courts have denied motions to compel non- parties to produce information where the moving party did not first attempt to subpoena the information that it sought to compel. In Harco National Insurance Co. v. Sleegers Engineering, Inc., No. CIV 06-11314 TLL, 2014 WL 5421237 (E.D.Mich. Oct. 22, 2014), for example, the Honorable Thomas L. Ludington, United States District Judge for the Eastern District of Michigan, denied the plaintiff's motion to compel a former defendant to produce information because the plaintiff had never subpoenaed the information that it sought to compel. See 2014 WL 5421237, at *4. Judge Ludington stated: By the terms of Rule 45, a party seeking discovery from a non-party must serve that non-party with a subpoena. Here, there is no evidence that [the plaintiff] served a subpoena on [the former defendant], nor does [the former defendant] make any representations that it did so. Because [the plaintiff] has not complied with the first step of seeking discovery from a non-party, its motion to compel will be denied. *20 2014 WL 5421237, at *4. Cf. Smith v. Fla. Dep't of Corr., 369 Fed.Appx. 36, 38 (11th Cir.2010)(holding that the district court did not abuse its discretion when it denied the plaintiff's motion to compel a non-party to produce information without validly serving the non-party with a subpoena). Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 155 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 19 Rule 45 was amended on December 1, 2013 in two significant ways. First, revised rule 45(a)(2) provides that subpoenas are issued by the court in which the action is pending, rather than by the court where compliance is sought. Accordingly, the issuing court will always be the trial court and parties no longer have to serve subpoenas from the district in which the information or witnesses sought are located. See Fed.R.Civ.P. 45(a)(2)(providing that subpoenas “must issue from the court where the action is pending”). In line with the broadened authority that rule 45(a)(2) establishes for the trial court, amended rule 45(b)(2) establishes nationwide service of process -eliminating the previous discrepancy between federal service of process rules in criminal and civil cases. See Fed.R.Civ.P. 45(b)(2) (providing for the service of a subpoena “at any place within the United States”). Second, revised rule 45(d)(3) provides that motions to quash or enforce a subpoena can be brought in the district where compliance is required-i.e., the district in which the subpoena's recipient resides or works- rather than the issuing court-i.e., the trial court. See Fed.R.Civ.P. 45(d)(3). The new rule 45(f), however, authorizes the enforcement court where compliance is required to transfer a motion to quash or enforce a subpoena back to the trial court that issued the subpoena in two limited instances: (i) if the person subject to the subpoena consents to the transfer; or (ii) “if the court finds exceptional circumstances.” Fed.R.Civ.P. 45(f). The advisory committee notes provide some guidance as to when exceptional circumstances may be found: The prime concern should be avoiding burdens on local nonparties subject to subpoenas, and it should not be assumed that the issuing court is in a superior position to resolve subpoena-related motions. In some circumstances, however, transfer may be warranted in order to avoid disrupting the issuing court's management of the underlying litigation, as when that court has already ruled on issues presented by the motion or the same issues are likely to arise in discovery in many districts. Transfer is appropriate only if such interests outweigh the interests of the nonparty served with the subpoena in obtaining local resolution of the motion. Fed.R.Civ.P. 45 advisory committee's note to the December 1, 2013, amendments. LAW REGARDING QUASHING SUBPOENAS “A court may quash or modify a subpoena pursuant to rule 45(c).” Morales v. E.D. Etnyre & Co., 228 F.R.D. 694, 696 (D.N.M.2005)(Browning, J) (citing Fed.R.Civ.P. 45(c)). Rule 45(d)(3)(A)(iv) states that the Court “must quash or modify a subpoena that ... subjects a person to undue burden.” Fed.R.Civ.P. 45(d)(3)(A)(iv). Furthermore, rule 45(c)(3)(B) states that a court “may, on motion, quash or modify the subpoena if it requires ... disclosing a trade secret or other confidential research, development, or commercial information.” Fed.R.Civ.P. 45(d)(3)(B). “The party ... moving to quash a subpoena has the burden to demonstrate good cause and/or privilege to be protected.” Morales v. E.D. Etnyre & Co., 228 F.R.D. at 696. See Sentry v. Shivers, 164 F.R.D. 255, 256 (D.Kan.1996)(Rushfelt, M.J.)(“[A] party seeking a protective order also has the burden to show good cause for it.”). Generally, “only the party or person to whom the subpoena is directed has standing to move to quash or otherwise object to a subpoena.” Beach v. City of Olathe, Kansas, No. 99-2217GTV, 2001 WL 1098032, at *1 (D.Kan. Sept. 17, 2001)(Waxse, M.J.)(citing Hertenstein v. Kimberly Home Health Care, Inc., 189 F.R.D. 620, 635 (D.Kan.1999)(Rushfelt, M.J.)). Moreover, “[a]bsent a claim of privilege, a party has no standing to challenge a subpoena to a nonparty.” Trujillo v. Bd. of Educ. of the Albuquerque Pub. Schs., No. CIV 03-1185 JB/LFG, 2007 WL 2296916, at *1 (D.N.M. June 26, 2007)(Browning, J.) (quoting Donahoo v. Ohio Dep't of Youth Servs., 211 F.R.D. 303, 306 (N.D.Ohio 2002)). “The exception to this rule is that ‘a party has standing to move to quash a subpoena addressed to another if the subpoena infringes upon the movant's legitimate interests.’ ” Trujillo v. Bd. of Educ. of the Albuquerque Pub. Schs., 2007 WL 2296916, at *1 (quoting United States v. Raineri, 670 F.2d 702, 712 (7th Cir.1982)). LAW REGARDING PROTECTIVE ORDERS Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 156 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 20 *21 Federal district courts have broad discretion over discovery. See Gomez v. Martin Marietta Corp., 50 F.3d 1511, 1520 (10th Cir.1995). “The trial court has discretion to grant a protective order pursuant to rule 26(c) of the Federal Rules of Civil Procedure.” Morales v. E.D. Etnyre & Co., 228 F.R.D. at 696 (citing Thomas v. Int'l Bus. Machines, 49 F.3d 478, 482 (10th Cir.1995)). Rule 26(c) provides that, upon a showing of good cause, a court may “issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense,” which order may include forbidding disclosure or discovery. Fed.R.Civ.P. 26(c)(1)(A). See Miller v. Regents of the Univ. of Colo., 188 F.3d 518, 1999 WL 506520, at *12 (10th Cir.1999)(unpublished table decision)(reasoning that “[t]he district court is in the best position to weigh these variables and determine the appropriate limits because, unlike an appellate court, the district court has the ability to view firsthand the progression of the case, the litigants, and the impact of discovery on parties and nonparties”). “Federal Rule of Civil Procedure 26(c) expressly limits who may move for a protective order to parties or the person from whom discovery is sought.” SEC v. Dowdell, 144 Fed.Appx. 716, 722-23 (10th Cir.2005)(unpublished)(noting that a third party may not move for a rule 26(c) protective order if it is not a party to the underlying action, has not intervened, or has not been served a subpoena seeking discovery). “It is the party seeking the protective order who has the burden to show good cause for a protective order.” Velasquez v. Frontier Med. Inc., 229 F.R.D. 197, 200 (D.N.M.2005)(Browning, J.). See Murphy v. Gorman, 271 F.R.D. 296, 303 (D.N.M.2010)(Browning, J.). The party seeking the protective order must submit “a particular and specific demonstration of fact, as distinguished from stereotyped and conclusory statements.” Gulf Oil Co. v. Bernard, 452 U.S. 89, 102 n.16 (1981)(internal quotation marks omitted). Although rule 26(c) is silent regarding the time within which the movant must file for a protective order, the United States Court of Appeals for the Tenth Circuit has held that “a motion under [rule] 26(c) for protection ... is timely filed if made before the date set for production.” In re Coordinated Pretrial Proceedings in Petroleum Prods. Antitrust Litig., 669 F.2d 620, 622 n.2 (10th Cir.1982)(quoting In re Halkin, 598 F.2d 176, 193 (D.C.Cir.1979), overruled on other grounds by Seattle Times Co. v. Rhinehart, 467 U.S. 20, 33 (1984)). LAW REGARDING DEPOSITIONS OF COUNSEL In managing discovery, rule 26(c) provides that the court, upon a showing of good cause, “may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.” Fed.R.Civ.P. 26(c). The Tenth Circuit has explained that “[r]ule 26(c) is broader in scope than the attorney work product rule, attorney-client privilege and other evidentiary privileges because it is designed to prevent discovery from causing annoyance, embarrassment, oppression, undue burden or expense not just to protect confidential communications.” Boughton v. Cotter Corp., 65 F.3d 823, 829-30 (10th Cir.1995). Moreover, the Tenth Circuit has acknowledged special problems that arise when a party attempts to depose the opposing party's attorney. See Boughton v. Cotter Corp., 65 F.3d at 829-30. As the United States Court of Appeals for the Eighth Circuit stated in Shelton v. American Motors Corp.: Taking the deposition of opposing counsel not only disrupts the adversarial system and lowers the standards of the profession, but it also adds to the already burdensome time and costs of litigation. It is not hard to imagine additional pretrial delays to resolve work-product and attorney-client objections, as well as delays to resolve collateral issues raised by the attorney's testimony. Finally, the practice of deposing opposing counsel detracts from the quality of client representation. Counsel should be free to devote his or her time and efforts to preparing the client's case without fear of being interrogated by his or her opponent. Moreover, the “chilling effect” that such practice will have on the truthful communications from the client to the attorney is obvious. *22 805 F.3d 1323, 1327 (8th Cir.1986). The law therefore permits trial courts to issue protective orders pursuant to rule 26(c) that bar depositions of opposing counsel. In Boughton v. Cotter Corp., the Tenth Circuit adopted a three-prong test to be used in analyzing whether Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 157 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 21 a party can take opposing counsel's deposition. See Archuleta v. City of Santa Fe, 2005 WL 3662903 (D.N.M., Aug.10, 2005)(Browning, J.)(citing Boughton v. Cotter Corp., 65 F.3d at 829-30). In the Tenth Circuit, courts may issue such protective orders when any one or more of those prongs are not met. See Archuleta v. City of Santa Fe (citing Boughton v. Cotter Corp., 65 F.3d at 830)(“[O]rdinarily the trial court ... has the discretion under Rule 26(c) to issue a protective order against the deposition of opposing counsel when any one or more of the three ... criteria for deposition listed above are not met.”); Thiessen v. Gen. Elec. Capital Corp., 267 F.3d 1095, 1112 (10th Cir.2001). The first prong of the Boughton v. Cotter Corp. factors is that “no other means exist to obtain the information than to depose opposing counsel.” Boughton v. Cotter Corp., 65 F.3d at 829 (citing Shelton v. Am. Motors Corp., 805 F.2d at 1327); E.E.O.C. v. Roswell Radio, Inc., 2007 WL 2305521 at, *3 (D.N.M., June 12, 2007)(Browning, J.). The second prong is that “the information sought is relevant and nonprivileged.” Boughton v. Cotter Corp., 65 F.3d at 829; E.E.O.C. v. Roswell Radio, Inc., 2007 WL 2305521 at, *3. The third and final prong is that “the information is crucial to the preparation of the case.” Boughton v. Cotter Corp., 65 F.3d at 829; E.E.O.C. v. Roswell Radio, Inc., 2007 WL 2305521, at *3. The party seeking to take the deposition of opposing counsel bears the burden of establishing that the three factors are satisfied. See Boughton v. Cotter Corp., 65 F.3d at 831 n.10. ANALYSIS Rule 33 of the Federal Rules of Civil Procedure restricts discovery to information within the responding party's “possession, custody, and control,” while rule 34 restricts discovery to information within the responding party's availability. Zurich Insurance's discovery requests ask for information that is largely outside of XTO Energy's control and availability under both rules. Accordingly, the Court denies the Motion to Compel. The Court will also grant the Motion to Quash, because: (i) Zurich Insurance did not comply with rule 45's requirements; and (ii) its discovery requests impose an undue burden on Holland & Hart. Because the discovery requests impose an undue burden on Holland & Hart, the Court must award costs and fees pursuant to rule 45(c). I. THE COURT DENIES THE MOTION TO COMPEL. Rule 34 allows discovery of documents only within the responding parties “possession, custody, or control.” Fed.R.Civ.P. 34(a)(1). Because Request for Production Nos. 5 and 6 ask for documents outside of XTO Energy's possession, custody, or control, the Court denies the Motion to Compel for these requests. Rule 33 requires a party to respond to interrogatories only with information that is available to them. See Fed.R.Civ.P. 33(a)(1). Because Interrogatories Nos. 7 and 10 ask for information that is not available to XTO Energy, the Court also denies the Motion to Compel for these requests. Finally, pursuant to the parties' agreement at the hearing, the Court will allow the parties to resolve the disputes surrounding Request for Production Nos. 10, 11, 12, and 13. A. THE COURT DENIES THE MOTION TO COMPEL WITH RESPECT TO REQUEST FOR PRODUCTION NOS. 5 AND 6. Request for Production Nos. 5 and 6 ask XTO Energy to provide documentation regarding Holland & Hart's agreements with other clients and the associated billing rates. *23 Request for Production No. 5: Please provide any agreements between Holland and Hart, LLP and any insurance company regarding rates for legal services for the past five (5) years, redacting any privileged information. Request for Production No. 6: Please provide any billing documents for services provided by Holland and Hart, LLP related to the defense of an insured at the request of an insurance company for the past five (5) years, redacting any privileged information. Response to Motion to Compel at 7. Rule 34 allows a party to serve requests to produce certain items “on any other party ... in the responding party's possession, custody, or control. ” Fed.R.Civ.P. 34(a) (1)(emphasis added). See Hickman v. Taylor, 329 U.S. at 504 (explaining that rule 34 “is limited to parties to the Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 158 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 22 proceeding, thereby excluding their counsel or agents”). Although Zurich Insurance sent the discovery request to XTO Energy, the requests ask for information in Holland & Hart's possession and custody. As XTO Energy has neither possession nor custody of the requested information or documents, whether it must disclose the information turns on whether it controls the information. See United States v. 2121 Celeste Road SW, Albuquerque, N.M., 307 F.R.D. 572, 590 (D.N.M.2015)(Browning, J.) (denying a motion to compel, because the discovery requested was not in the opposing party's custody or control); Ice Corp. v. Hamilton Sundstrand Corp., 245 F.R.D. 513, 516 (D.Kan.2007)(Sebelius, J.) (stating that a party can obtain discovery of information if it can “meet the burden of proving that the Defendants do have the requisite ‘control’ of the documents”); Heartland Surgical Specialty Hospital, LLC v. Midwest Division, Inc., 2007 WL 950282, at *17 n.23 (D.Kan. March 26, 2007). The party seeking production bears the burden of proving that the opposing party has the control which rule 34 requires. See Norman v. Young, 422 F.2d 470, 472 (10th Cir.1970); United States v. Intern. Union of Petroleum & Indus. Workers, 870 F.2d 1450, 1452 (9th Cir.1989). “Neither legal ownership nor physical possession of [a] document ... is required for a non-party to control it.” Simon v. Taylor, 2014 WL 6633917, at *34 (internal quotation marks omitted). “Instead, courts have broadly construed control as ‘the legal right, authority, or practical ability to obtain the materials sought upon demand.’ ” United States v. 2121 Celeste Road SW, Albuquerque, N.M., 307 F.R.D. at 590 (quoting S.E.C. v. Credit Bancorp, Ltd., 194 F.R.D. 469, 471 (S.D.N.Y.2000)). See Super Film of Am., Inc. v. UCB Films, Inc., 219 F.R.D. 649, 653 (D.Kan.2004)(concluding that control comprehends not only possession, but “the right, authority, or ability to obtain the documents”). Applying this standard, courts have found that corporations control documents in their subsidiaries' hands, clients control case files in their attorneys' hands, and patients control health records in their healthcare providers' hands. See United States v. Stein, 488 F.Supp.2d 350, 360-62 (S.D.N.Y.2007)(Kaplan, J.); CSI Inv. Partners II, L.P. v. Cendant Corp., 2006 WL 617983, at *6 (S.D.N.Y. March 13, 2006)(Eaton, M.J.)(compelling a client's attorney to disclose documents in the attorney's possession regarding the attorney's representation of that particular client, but only insofar as the documents were relevant). An employee's or corporation's ability to access the documents in the normal course of business weighs in favor of finding control. See, e.g., Gerling Int'l Ins. Co. v. Comm'r of Internal Revenue, 839 F.2d 131, 140-41 (3d Cir.1988)(where “agent-subsidiary can secure documents of the principal-parent to meet its own business needs ... the courts will not permit the agent- subsidiary to deny control for purposes of discovery”); Camden Iron & Metal v. Marubeni America Corp., 138 F.R.D. 438, 441 (D.N.J.1991)(including “demonstrated access to documents in the ordinary course of business” in list of factors to be considered in determining control). *24 Courts have specifically considered whether clients control information in their attorneys' hands. Because a client has the right “to obtain copies of documents gathered or created by its attorneys pursuant to their representation of that client, such documents are clearly within the client's control.” Am. Soc. For Prevention of Cruelty to Animals v. Ringling Bros. and Barnum & Bailey Circus, 233 F.R.D. 209, 212 (D.D.C.2006)(Facciola, M.J.). See Poppino v. Jones Store Co., 1 F.R.D. 215, 219 (W.D.Mo.1940)(“It is quite true that if an attorney for a party comes into possession of a document as attorney for that party his possession of the document is the possession of the party.”)(emphasis in original). Consequently, a party may be required to produce a document that it has turned over to its attorney when the document relates to the attorney's representation of that client on a specific matter. See In re Ruppert, 309 F.2d 97, 98 (6th Cir.1962)(per curiam). See Hanson v. Garland S.S. Co., 34 F.R.D. 493, 495 (N.D.Ohio 1964)(Connell, J.) (concluding that witness statements taken by a party's attorney in preparation of the case were within the party's control and subject to production under rule 34 on a proper showing); Kane v. News Syndicate Co., 1 F.R.D. 738, 738-39 (S.D.N.Y.1941)(Mandelbaum, J.) (determining that a plaintiff in an action for copyright infringement could require the defendants' attorneys to produce a document from which the plaintiff hoped to ascertain whether material had been obtained from his copyrighted works). The mere fact, however, that the attorney for a party has possession of a document does not make his possession of the document the possession of the party. The paper may be one of his private papers which he had before the relation of Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 159 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 23 attorney and client was established. It is inconceivable that he should be required to produce such a paper for the inspection of his client's adversary. The paper which he has in his possession may be the property of some other client. It is inconceivable that he should be compelled to produce the document belonging to another client because the adversary of one of his clients demands it. Poppino v. Jones Store Co., 1 F.R.D. at 219. See Hobley v. Burge, 433 F.3d 946 (7th Cir.2006)(observing that a party may not have had control over its former attorney's documents); Ontario Inc. v. Auto Enterprises, Inc., 205 F.R.D. 195 (E.D.Mich.2000). Simply put, if a person, corporation, or a person's attorney or agent can pick up a telephone and secure the document, that individual or entity controls it. See Simon v. Taylor, 2014 WL 6633917, at *34 (“Control is defined as the legal right to obtain documents upon demand.”). Although Zurich Insurance argues that Holland & Hart can give the requested documents to XTO Energy, see Reply to Motion to Compel at 1-2, it does not explain how XTO Energy has any right to obtain information and documents that do not relate to its own engagement of Holland & Hart. In most cases in which courts have required parties to turn over documents that their attorneys hold, the documents relate to the attorney's work on the specific case at hand. See In re Ruppert, 309 F.2d at 98; Hanson v. Garland S.S. Co., 34 F.R.D. at 495. For example, in CSI Investment Partners II, L.P. v. Cendant Corp., the Honorable Douglas Eaton, United States Magistrate Judge for the Southern District of New York, compelled a client to disclose documents in its attorney's possession regarding the attorney's representation of that particular client on that specific case, and only insofar as those documents were relevant. See 2006 WL 617983, at *6. Zurich Insurance's requests are not so limited. Unlike the movant in CSI Investment Partners II, L.P. v. Cendant Corp., Zurich Insurance seeks all agreements between Holland & Hart and any insurance company regarding rates for the past five years, and all billing documents regarding Holland & Hart's representation of any insured clients spanning the past five years. The mere fact that Holland & Hart “has possession of a document does not make [its] possession of the document the possession of the party.... It is inconceivable that [it] should be compelled to produce the document belonging to another client because the adversary of one of [its] clients demands it.” Poppino v. Jones Store Co., 1 F.R.D. at 219. Accordingly, Zurich Insurance has not demonstrated that XTO Energy has control over the vast majority of the documents requested, and the Court denies the Motion to Compel with respect to Request for Production Nos. 5 and 6. *25 The only billing documents over which XTO Energy would conceivably have control are those documents related to Holland & Hart's representation of XTO Energy as an insured. Even then, it is unclear whether XTO Energy would have control over this information, as another insurer funded the defense rather than XTO Energy. Nonetheless, even if XTO Energy could demand access to billing documents relating to Holland & Hart's representation of XTO Energy, the Court denies the discovery request as overbroad and unduly burdensome. See Fed.R.Civ.P. 26(b), (g); In re First Peoples Bank Shareholders Litig., 121 F.R.D. 219, 226-27 (D.N.J.1988)(Simandle, M.J.)(allowing limited discovery to determine reasonable attorney's fees, but only for a “table summarizing the hourly rates requested and approved for each petitioning attorney,” and denying: (i) the request for all “[d]ocuments setting forth the historic billing rates for all partners, associates, and paralegals whose fees are requested”; and (ii) the request for “[b]illing records and other documents setting forth records of billing rates in non-contingent fee clients”). “The billing rates to clients in other types of matters are not sufficiently germane to require the broad based discovery of other unrelated filed which is sought in this request.” In re First Peoples Bank Shareholders Litig., 121 F.R.D. at 227. See In re Fine Paper Antitrust Litig., 751 F.2d 562, 586-87 (3d Cir.1984). As to the rate that Holland & Hart is charging XTO Energy in this case, there does not seem to be any dispute. The Court will not require XTO Energy to produce documents related to the rates charged in this case. See Blowers v. Lawyers Co-op. Pub. Co., Inc., 526 F.Supp. 1324, 1327- 28 (W.D.N.Y.1981)(holding that the plaintiff was not “entitled to discover information concerning the amount of legal fees incurred by defendants in this action,” because the “hourly rates charged to defendants by their attorneys in this particular case is simply not relevant in determining the prevailing hourly rate in the area”). Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 160 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 24 Accordingly, the Court denies the Motion to Compel regarding Request for Production Nos. 5 and 6. B. THE COURT DENIES THE MOTION TO COMPEL WITH RESPECT TO INTERROGATORY NOS. 7 AND 10. Interrogatory No. 7 asks XTO Energy to state the hourly billing rates charged by Holland and Hart to any insurance company represented by Holland and Hart or who has retained Holland and Hart to represent an insured for the past five (5) years, including rates for Shareholders, Associates and Paralegals. Please include the name of the insurance company, the nature of the case, and the address of the insurance company. Interrogatory No. 7. Interrogatory No. 10 asks XTO Energy to determine “if Holland and Hart has been retained by Zurich within the past five (5) years” and to “state the name of the case, the nature of the case, and the agreed upon hourly rate Zurich paid to Holland and Hart in each case.” Interrogatory No. 10. “That responsive information is within the control of a non-party is immaterial.” Pulsecard, Inc. v. Discover Card Servs., Inc., 168 F.R.D. 295, 310 (D.Kan.1996). “Interrogatories may relate to any matters which can be inquired into under Rule 26(b)(1).” Fed.R.Civ.P. 33(c). Courts have interpreted rule 33 to require answering parties to provide only information that is “available” to the party. Myhre v. Seventh-Day Adventist Church Reform Movement American Union Intern. Missionary Soc., 298 F.R.D. 633, 647 (S.D.Cal.2014)(“A party answering interrogatories has an affirmative duty to furnish any and all information available to the party.”). See Bryant v. Armstrong, 285 F.R.D. 596, 612 (S.D.Cal.2012)(Brooks, J.); National Fire Ins. Co. of Hartford v. Jose Trucking Corp., 264 F.R.D. 233, 238 (W.D.N.C.2010)(Howell, M.J.)(stating that an answering party cannot “ignore information immediately available to him or under his control”); American Intern. Specialty Lines Ins. Co. v. NWI-I, Inc., 240 F.R.D. 401, 413 (N.D.Ill.2007); Essex Builders Group, Inc. v. Amerisure Ins. Co., 230 F.R.D. 682, 685 (M.D.Fla.2005). Accordingly, parties need not obtain responsive information not available to them from entities outside of their control. See Pulsecard, Inc. v. Discover Card Servs., Inc., 168 F.R.D. at 310. In those cases in which courts have determined that a client has access to information that its attorney possesses, the requested information related to the attorney's investigation or preparation for that particular case and for that specific client. See Wycoff v. Nochols, 32 F.R.D. 370, 371-72 (W.D.Miss.1963). The plain definition of “available” connotes both that which is “easy or possible to get or use,” and “present or ready for use.” Available, Merriam-Webster, http://www.merriam-webster.com/dictionary/available. “ ‘Availability’ is necessarily an elastic concept, because what is ‘available’ cannot be determined without reference to the efforts made to secure it.” Law v. Nat'l Collegiate Athletic Ass'n, 167 F.R.D. 464, 477 (D.Kan.1996) vacated on different grounds sub nom. Univ. of Texas at Austin v. Vratil, 96 F.3d 1337 (10th Cir.1996). Here, the party holding the information-Holland & Hart-has refused to make the information available to XTO Energy. See Response to Motion to Compel at 7-11. Law firms do not routinely make this sort of information available to any client who demands it. While the attorney-client privilege does not protect fee arrangements, “disclosing the actual fee contracts has the potential for revealing confidential information along with unprotected fee information.” In re Grand Jury Subpoenas, 906 F.2d 1485, 1492 (10th Cir.1990). Similarly, billing sheets or timesheets also may contain privileged information. See In re Grand Jury Subpoenas, 906 F.2d at 495. Law firms have an interest in maintaining client confidences and protecting their own information. XTO Energy, therefore, does not have the power to compel Holland & Hart to release information relating to other clients simply because it is a client. *26 The Court further notes that Holland & Hart is not strategically withholding information to defeat the interrogatory. It has suggested other methods for Zurich Insurance to obtain some of the information it seeks. See Response to Motion to Compel at 6-7 (suggesting that Zurich Insurance search its own records using tax identification numbers to identify those cases in which Zurich Insurance retained Holland & Hart as counsel and the rates and nature of the case); id. at 5 (suggesting that Zurich Insurance search for rates that comparable law firms charge in the same market for comparable work to determine whether Holland & Hart's rates are reasonable). Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 161 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 25 Again, the Court recognizes that a very limited amount of the information desired may be available from XTO Energy. For the reasons stated above, however, the Court denies discovery as unduly burdensome and excessive and disproportionate to the needs of the case. The Court therefore denies the Motion to Compel regarding Interrogatory Nos. 7 and 10. C. PURSUANT TO THE PARTIES' AGREEMENT AT THE HEARING, THE COURT WILL ALLOW THE PARTIES TO RESOLVE THE DISPUTES SURROUNDING REQUEST FOR PRODUCTION NOS. 10, 11, 12, AND 13. XTO Energy and Zurich Insurance “agreed that the parties could probably work something out” regarding Request for Production Nos. 10, 11, 12, and 13, and would “enter into a protective order, given that the landscape of the case has changed.” Tr. at 101:1-7 (Custer). XTO Energy therefore requested that the Court deny the Motion to Compel as to Request for Production Nos. 10, 11, 12, and 13 to “allow the parties to try to figure out a solution among themselves that protects XTO's information.” Tr. at 101:15-18 (Custer). Zurich Insurance stated that it agreed with XTO Energy and that the parties could arrive at an agreement. See Tr. at 101:24-102:1 (Johansen). The Court will therefore deny the Motion to Compel and allow the parties to arrive at their own agreement. II. THE COURT WILL GRANT THE MOTION TO QUASH. The Subpoena does not comply with rule 45's requirements, making it unenforceable. Additionally, the Subpoena imposes an undue burden on Holland & Hart. The Court will therefore grant the Motion to Quash. Because rule 45 requires the Court to impose sanctions when a subpoena imposes an undue burden on the responding party, the Court will also award costs and fees to Holland & Hart. A. THE SUBPOENA DOES NOT COMPLY WITH RULE 45'S REQUIREMENTS. Rule 45 requires a subpoena to “state the court from which it issued.” Fed.R.Civ.P. 45(a)(1)(A)(i). It further provides that, if a subpoena commands document production, “then before it is served on the person to whom it is directed, a notice and a copy of the subpoena must be served on each party.” Fed.R.Civ.P. 45(a)(4). The notice requirement's purpose is to enable the opposing party to object. See Fed.R.Civ.P. 45(a)(4) advisory committee's notes to 2013 amendment. Zurich Insurance did not comply with either requirement. First, the Subpoena does not state from which court it is issued, as rule 45(a)(1)(A) requires. Second, Zurich Insurance did not provide notice to XTO Energy before it served the subpoena on Holland & Hart. This failure prevented XTO Energy from objecting to the Subpoena before its service on Holland & Hart. Zurich Insurance does not deny that the Subpoena is inadequate. See Response to Motion to Quash at 5. Because the Subpoena is facially invalid, it is therefore unenforceable. See A.H. ex rel Hohe v. Knowledge Learning Corp., 2010 WL 395184, at *2 (D.Kan. Oct. 8, 2010)(Waxse, J.) (holding that the subpoenas were procedurally invalid and therefore unenforceable); U.S. Bancorp Equip. Fin., Inc. v. Babylon Transit, Inc., 2010 WL 3071667, at *3 (E.D.N.Y. Aug. 4, 2010)(Boyle, J.)(same). B. THE SUBPOENA IMPOSES AN UNDUE BURDEN ON HOLLAND & HART. In the Subpoena, Zurich Insurance requests: (i) “Any agreements between Holland & Hart, LLP and any insurance company regarding rates for legal services for the past five (5) years, redacting any privileged information”; and (ii) “Any billing documents for services provided by Holland & Hart, LLP related to the defense of an insured at the request of an insurance company for the past five (5) years, redacting any privileged information.” Subpoena at 4. Rule 45(d)(3)(A)(iv) states that the Court “shall quash or modify [a] subpoena if it ... subjects a person to undue burden.” Fed.R.Civ.P. 45(d)(3)(A)(iv). Holland & Hart bears the burden of demonstrating good cause to quash the subpoena or to obtain a protective order. See Morales v. E.D. Etnyre & Co., 228 F.R.D. at 696; Velasquez v. Frontier Med. Inc., 229 F.R.D. 197, 200 (D.N.M.2005)(Browning, J.). See Murphy v. Gorman, 271 F.R.D. 296, 303 (D.N.M.2010)(Browning, J.). In the alternative, XTO Energy asks that the Court forbid the requested discovery pursuant to rule 26(c). See Motion to Quash at 4. Rule 26(c) provides that, upon a showing of good cause, a court may “issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.” Fed.R.Civ.P. 26(c)(1)(A). “Rule 26(c) is broader in scope than the attorney work product rule, attorney-client Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 162 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 26 privilege and other evidentiary privileges because it is designed to prevent discovery from causing annoyance, embarrassment, oppression, undue burden or expense not just to protect confidential communications.” Boughton v. Cotter Corp., 65 F.3d at 829-30. Consequently, even though an attorney's fee arrangements may not be confidential communications that the attorney-client privilege protects, rule 26(c) and rule 45 may nonetheless prevent disclosure. *27 The Court must determine “whether a request contained in a subpoena duces tecum is overly broad or seeks irrelevant information under the same standards as set forth in Rule 26(b) and as applied to Rule 34 requests for production.” Stewart v. Mitchell Transp., 2002 WL 1558210, at *3 (D.Kan. July 11, 2012). 12 Under these rules, “[u]ndue burden is identified by looking at factors such as relevance, the need for the documents, the breadth of the document request, the time period covered by such request, the particularity with which the documents are described, and the burden imposed.” Moore v. Hartman, 241 F.R.D. at 63. See Wiwa v. Royal Dutch Petroleum Co., 392 F.3d 812, 818 (5th Cir.2004)(“Whether a burdensome subpoena is reasonable ‘must be determined according to the facts of the case,’ such as the party's need for the documents and the nature and importance of the litigation.”); Williams v. City of Dallas, 178 F.R.D. 103, 109 (N.D.Tex.1998)(Fitzwater, J.)(determining whether a subpoena presents an undue burden by considering the information's relevance, the need for the information, the request's breadth, the time period covered, the particularity with which the party describes the request, and the burden imposed). Holland & Hart argues that the request imposes two burdens: (i) finding the responsive documents; and (ii) redacting confidential information. See Motion to Quash at 4-5. In describing the burden of finding responsive documents, it states that it typically “represents policyholders and not insurance carriers, so searching for particular cases where an insurer happened to fund a defense would require a specialized, costly and time-consuming search.” Response to Motion to Compel at 9. While computer searches typically make responding to these requests easier, Holland & Hart demonstrates that, because Zurich Insurance asks for information relating to those cases in which insurers fund the defense, responding to this request would require more time and effort. See Response to Motion to Compel at 9. The Court doubts that finding such cases would require significantly more effort however, as Holland & Hart likely has engagement letters with insurance companies that a computer search could probably identify. Nevertheless, finding the responsive documents is only part of the burden that Zurich Insurance's request imposes. 12 The United States Court of Appeals for the Ninth Circuit discussed the meaning of “undue burden” in rule 45: The plain language of the provision suggests that sanctions may be imposed when a subpoenaing attorney unfairly harms a subpoena recipient by acting carelessly or in bad faith while issuing and serving a subpoena. Id. The history of Rule 45 provides guidance on how subsection (c)(1) should be interpreted. Rule 45 was amended in 1991 to bring the protections for subpoenaed parties under the single subdivision of Rule 45(c) (1). 9A Charles Alan Wright, Arthur R. Miller, Mary Kay Kane & Richard L. Marcus, Federal Practice and Procedure § 2463 (3d ed.2012). But the advisory committee notes suggest that the amendment did not effect a “change in existing law” and was designed to codify the extant practice, including to give “specific application” to the principles stated in Rule 26(g). Fed.R.Civ.P. 45(c) advisory committee's note; see also Wright, Miller, Kane & Marcus, supra, § 2463. Federal Rule of Civil Procedure 26(g)(1)(B) requires parties seeking discovery to act (1) consistently with the rules of existing law or with good reason to change the law; (2) without bad faith; and (3) reasonably without imposing undue burden or expense considering the needs of the case. Per the terms of Rule 26(g)(3), violation of any one of these duties without substantial justification results in sanctions. Fed.R.Civ.P. 26(g)(3). Because Rule 45(c)(1) gives “specific application” to Rule 26(g), it follows that a violation of any one of the Rule 26 duties will be relevant to assessing propriety of sanctions under Rule 45(c)(1)'s “undue burden” language. This approach is consistent with the interpretation of other courts. See, e.g., Builders Ass'n of Greater Chi. v. City of Chi., 215 F.R.D. 550, 553-54 (N.D.Ill.2003). Mount Hope Church v. Bash Back!, 705 F.3d 418, 425-26 (9th Cir.2012)(internal footnotes omitted). With respect to redacting confidential information, the attorney-client privilege does not protect fee arrangements. In re Grand Jury Subpoenas, 906 F.2d 1485, 1492-93 (10th Cir.1990). Despite this fact, “disclosing Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 163 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 27 the actual fee contracts has the potential for revealing confidential information along with unprotected fee information.” In re Grand Jury Subpoenas, 906 F.2d at 1492-93. Billing sheets or timesheets also may contain privileged information. See In re Grand Jury Subpoenas, 906 F.2d at 495. As the requested information contains privileged information, responding to the request would require a “line by line review of potentially thousands of pages of documents.” Motion to Quash at 5. Furthermore, the Subpoena requests all of Holland & Hart's billing documents for the past five years for services relating to an insured. See Subpoena at 4. Redacting all of this information from so many documents imposes a considerable burden on Holland & Hart. *28 In comparison to the burden imposed, the information requested is minimally relevant. Zurich Insurance allegedly needs this information to determine whether Holland & Hart's rates are reasonable. See Motion to Compel at 4. The Tenth Circuit instructs courts to determine fees' reasonableness by comparing a particular law firm's rates to rates that other law firms charge to clients for comparable work in a comparable market. See Ramos v. Lamm, 713 F.2d 546, 555 (10th Cir.1983)(directing courts to establish “a billing rate for each lawyer based upon the norm for comparable private firm lawyers in the area in which the court sits”); Gottlieb v. Barry, 43 F.3d 474, 485 n.8 (10th Cir.1994)(“In this circuit, we generally do limit the hourly rate to one ‘based upon the norm for comparable private firm lawyers in the area in which the court sits....' ”). Holland & Hart operates in many different states across the county. See Response to Motion to Compel at 5. The rates Holland & Hart charges other clients in different legal markets for different work is not relevant to determining whether the rates that Holland & Hart is charging to litigate the Manley and Betancur cases in Eddy County, New Mexico are reasonable. Because courts in the Tenth Circuit determine a fee's reasonableness by referencing rates charged “in the area in which the court sits,” information relating to Holland & Hart's representation of insurance companies in other areas for other work is not necessary. Ramos v. Lamm, 713 F.2d at 555. Because the discovery request would include some documents relating to cases within the relevant geographic region for comparable work, the information may be somewhat relevant to Zurich Insurance's breach-of- contract defense. This information would not, however, be substantially relevant to Zurich Insurance's affirmative defense of comparative bad faith. First, Zurich Insurance has not shown that New Mexico has adopted a comparative bad-faith defense in the insurance context. Notably, most jurisdictions have expressly rejected a comparative bad-faith defense, including California, the U.S. Virgin Islands, Hawaii, Montana, Iowa, Florida, Oklahoma, and Oregon. See Kransco v. Am. Empire Surplus Lines Ins. Co., 2 P.3d 1 (Cal.2000)(rejecting a comparative bad-faith defense); In re Tutu Water Wells Contamination Litig., 78 F.Supp.2d 436, 1999 WL 1128792, at *18 (D.V.I. Nov. 29, 1999)(declining to recognize affirmative defense of comparative bad faith); Wailua Associates v. Aetna Cas. And Sur. Co., 183 F.R.D. 550, 560 (D.Haw.1998)(same); Stephens v. Safeco Ins. Co. of Am., 258 Mont. 142, 852 P.2d 565, 567 (1993)(same); Kelly v. State Farm Mut. Auto. Ins. Co., 764 F.Supp. 1337 (S.D.Iowa 1991), summary judgment granted sub nom. Weber v. State Farm Mut. Auto. Ins. Co., 873 F.Supp. 201 (S.D.Iowa); Nationwide Prop. & Cas. Ins. Co. v. King, 568 So.2d 990, 990-01 (Fla.Dist.Ct.App. 4th Dist.1990)(same); Stumpf v. Cont'l Cas. Co., 102 Or.App. 302, 794 P.2d 1228, 1233 (1990)(same). These courts have taken the position that an insured's misconduct must be treated as a defense to liability under the policy rather than as a basis for a reduction of the award against the insured. See Kransco v. Am. Empire Surplus Lines Ins. Co., 2 P.3d at 13-14. In 2008, the Honorable Stephen Brown, United States Magistrate Judge for the Southern District of Florida, wrote that “no Court has ever permitted” a comparative bad-faith defense, and that “[c]ourts in Florida and around the nation have rejected these defenses.” Royal Indem. Co. v. Liberty Mut. Fire Ins. Co., 2008 WL 557963, at *1 (S.D.Fla. Feb. 28, 2008). Although New Mexico has not rejected a comparative bad-faith defense, it has not recognized one either. In Jessen v. National Excess Insurance Co., 1989-NMSC- 040, 776 P.2d 1244, the Supreme Court of New Mexico held that it was not error to refuse to instruct the jury on comparative bad faith, but stated that it did “not decide whether such an instruction necessarily would be inappropriate in another case.” See 1989-NMSC-040, ¶ 22, 776 P.2d at 1249. As support for the comparative bad faith defense, the defendant insurer in Jessen v. National Excess Insurance Co. cited the California case that first adopted the defense, California Casualty General Insurance Co. v. Superior Court of San Bernardino County, 173 Cal.App.3d 274 (1985)(“California Casualty ”). Jessen Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 164 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 28 v. National Excess Insurance Co., 1989-NMSC-040, ¶ 22, 776 P.2d at 1249. After the Supreme Court of New Mexico decided Jessen v. National Excess Insurance Co., however, the Supreme Court of California expressly rejected California Casualty and declined to recognize a comparative bad-faith defense. See Kransco v. Am. Empire Surplus Lines Ins. Co., 97 Cal.Rptr.2d 151, 160, 2 P.3d 1, 12 (2000). It “disagre[ed] with the California Casualty court's extension of tort comparative fault principles to an insured's contractual breach of the covenant of good faith and fair dealing.” Kransco v. Am. Empire Surplus Lines Ins. Co., 97 Cal.Rptr.2d 151, 160, 2 P.3d at 11-12 & n.11. It explained the inequity in applying comparative tort principles to the insurer-insured relationship: *29 The [California Casualty] court reasoned that the comparative fault tort doctrine should apply to insurance bad faith cases because breach of the covenant is a tort ... What the California Casualty court overlooked, however, is that it is an insurer's breach of the covenant of good faith and fair dealing that is governed by tort principles ... An insured's breach of the covenant is not a tort, and hence does not give rise to tort damages recoverable by the insurer. Kransco v. Am. Empire Surplus Lines Ins. Co., 97 Cal.Rptr.2d at 162 n.11, 2 P.3d at 11 n.11 (alterations in original). 13 13 Less than one year ago, the United States Court of Appeals for the Sixth Circuit similarly described an insured's misconduct as sounding in contract. Accordingly, it rejected a reverse bad faith claim and observed that “[a] common law tort claim for reverse bad faith has not been recognized in any jurisdiction.” State Auto Property and Cas. Ins. Co. v. Hargis, 785 F.3d 189, 198 (6th Cir.2015). Like California, New Mexico recognizes the unequal bargaining power inherent in the insurer-insured relationship, which suggests that it may also determine that an insured's misconduct sounds only in contract and cannot offset damages under a comparative bad- faith theory. See Dellaira v. Farmers Ins. Exchange, 2004-NMCA-132, ¶ 14, 102 P.3d 111, 114. The Court of Appeals of New Mexico has described the “special and unique” insurer-insured relationship as involving an “inherent lack of balance” and presenting “the potential for the insurer to unscrupulously exert its unequal bargaining power at a time when the insured is particularly vulnerable.” Dellaira v. Farmers Ins. Exchange, 2004- NMCA-132, ¶ 14, 102 P.3d 111, 114. See Radian Asset Assur. Inc. v. College of the Christian Bros. of N.M., 2011 WL 10977180, at *25 (D.N.M. Jan. 24, 2011)(Browning, J.). This unequal relationship has led New Mexico courts to recognize breach of the implied covenant of good faith as tortious only “where a special relationship between the parties arises, because of the unbalanced and adhesive nature of the contract between the parties.” City of Raton v. Arkansas River Power Authority, 611 F.Supp.2d 1190, 1207 (D.N.M.2008)(Browning, J.). See Heimann v. Kinder-Morgan CO2 Co., L.P., 2006-NMCA-127, ¶ 18, 144 P.3d 111, 117 (stating that the “claim for breach of good faith and fair dealing sounds in contract, at least when no ‘special relationship’ such as that between an insured and insurer exists”). New Mexico case law therefore indicates a willingness to conclude in a related context that insureds are in need of protection that insurers are not. Allowing the insurer to allege a tort claim against the insured-or to reduce tort damages for bad faith-would undermine the conclusion that insureds need protection that insurers do not. In the comparative bad faith context, therefore, New Mexico case law suggests that bad-faith conduct by the insurer may give rise to tort liability, while misconduct by the insured may give rise only to contractual liability. If the insured's conduct is contractual in nature, then New Mexico courts would not likely allow an insured's misconduct to reduce tort damages under a comparative bad-faith defense. 14 See Kransco v. Am. Empire Surplus Lines Ins. Co., 97 Cal.Rptr.2d at 162 n.11, 2 P.3d at 11 n.11. 14 New Mexico courts refuse to recognize other defenses based on the character of the underlying action. For example, New Mexico courts reject comparative negligence as a defense to intentional torts. See Garcia v. Gordon, 2004-NMCA-114, ¶ 6, 98 P.3d 1044, 1046. New Mexico has previously described the “reasoning for not comparing the fault attributable to the negligence of a plaintiff with the fault attributable to the commission of such an ‘intentional tort’ ”: It is the rule of law in virtually all states that fault should not be apportioned between an intentional tortfeasor and a merely negligent Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 165 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 29 victim. The reasons underlying this rule are persuasive. Intentional torts are punished not because the actor failed to use reasonable care, but because the actor intended the act. The difference between the victim's actions and the defendant's action is not one of degree, but of kind, and they are therefore not comparable. Garcia v. Gordon, 2004-NMCA-114, 98 P.3d 1044, 1046 (quoting Florenzano v. Olson, 387 N.W.2d 168, 176, n. 7 (Minn.1986)). The reasoning for rejecting a comparative negligence defense in a comparative bad faith case does not directly apply to the comparative bad faith context, where both actors allegedly commit intentional conduct. Nevertheless, that New Mexico rejects a comparative negligence defense based on the character of the action suggests that it may follow California and reject the comparative bad- faith defense, because it characterizes the insured's breach of a covenant “not as a tort,” but as a breach of contract. *30 Furthermore, an insurer still has remedies for an insured's breach of the covenant of good faith and fair dealing, which would “adequately serve to protect an insurer from the insured's misconduct without creating the logical inconsistencies and troublesome complexities of a defense of comparative bad faith.” Kransco v. Am. Empire Surplus Lines Ins. Co., 97 Cal.Rptr. 2d at 165, 2 P.3d at 14. Mainly, evidence of an insured's misconduct may factually disprove the insurer's liability for bad faith by showing that the insurer acted reasonably under the circumstances. See Ronald J. Clark, Dianne K. Kailey & Linda M. Bolduan, Defenses to Bad Faith Actions-Comparative Bad Faith, 3 Law and Practice of Insurance Coverage Litigation § 28:35 (2015). The insured's breach of the covenant of good faith and fair dealing is also separately actionable as a contract claim, and an insured's fraudulent misconduct may give raise to a tort action. See Kransco v. Am. Empire Surplus Lines Ins. Co., 97 Cal.Rptr.2d at 165 n.11, 2 P.3d at 13-14. The Honorable Alan Kay, United States District Judge for the District of Hawaii, described the limited effect of rejecting a comparative bad- faith defense: The rejection of comparative bad faith does not mean that an insurer will be held liable for delays which it did not cause, or other conduct which was not undertaken in bad faith. Rather, the Court's holding means that if an insurer acts in bad faith, it is liable in tort, and the fact that the insured simultaneously acted in bad faith will not reduce or relieve this liability, although it may give rise to a contractual or equitable defense, or may disprove the insurer's bad faith entirely. Wailua Assocs. v. Aetna Cas. and Sur. Co., 183 F.R.D. at 561. Moreover, even if the defense exists, the requested discovery is not essential to Zurich Insurance's preparation of the case. “Comparative bad faith is an affirmative defense doctrine ... whereby a defendant to a tort bad faith action can assert that the plaintiff's own bad faith contributed to the damage,” thereby reducing or barring a judgment. Larry Garrett, Comparative Fault in Legal Malpractice and Insurance Bad Faith: An Argument for Symmetry, 21 Rev. Litig. 663, 675 (Summer 2002). See generally Douglas H. Houser et al., Comparative Bad Faith: The Two-Way Street Opens for Travel, 23 Idaho L.Rev. 367 (1987); Patrick E. Shipstead & Scott S. Thomas, Comparative and Reverse Bad Faith: Insured's Breach of Implied Covenant of Good Faith and Fair Dealing as Affirmative Defense of Counterclaim, 23 Tort & Ins. L.J. 215 (1987); William S. Anderson, Placing a Check on an Insured's Bad Faith Conduct: The Defense of “Comparative Bad Faith”, 35 South Tex. L.Rev. 485 (1994). Although no case law is directly on point, commentators have suggested that a comparative bad-faith defense may be applicable where an insured breaches the cooperation clause in an insurance policy and thereby prejudices the insurer. See Ronald J. Clark, Dianne K. Kailey & Linda M. Bolduan, Defenses to Bad Faith Actions-Comparative Bad Faith, 3 Law and Practice of Insurance Coverage Litigation § 28:35 (2015). To prove this defense, therefore, Zurich Insurance must show that XTO Energy or Holland & Hart, acting on behalf of XTO Energy, refused to negotiate or cooperate with Zurich Insurance. Zurich Insurance can argue this defense using less burdensome means than obtaining all of Holland & Hart's agreements and billing documents related to the defense of any insured over the past five years. See Malcom D. Smithson and Christine B. Smithson Trusts v. Amerada Hess Corp., 2007 WL 5685112, at *10 (D.N.M.2007)(Browning, J.)(issuing a protective order because the plaintiffs did not demonstrate that no other means exist to obtain the information sought). Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 166 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 30 Zurich Insurance can use its communications with XTO Energy and Holland & Hart. It may search its own records to determine what it pays law firms in the relevant geographic area, or it may conduct a market study to determine the prevailing rates. Zurich Insurance can compare Holland & Hart's rates to rates that courts have recently approved in attorney's fee awards. It also has access to information sought in Interrogatory No. 10-the cases in which it retained Holland & Hart. Furthermore, it could have requested from XTO Energy the rates that XTO Energy has agreed to pay to other law firms that represent XTO Energy in similar cases. It can inquire into whether XTO Energy and Holland & Hart negotiated over these particular rates. Those cases allowing disclosure of an attorney's fee arrangement have done so only where the party demonstrates that “there is a legitimate need” and only with respect to the client's own fee arrangement. See United States v. Hodge and Zweig, 548 F.2d 1347, 1353 (9th Cir.1977)(allowing discovery of a client's fee arrangement with his attorney to determine whether the payment for the attorney was made pursuant to a conspiratorial agreement in furtherance of a continuing drug conspiracy). “[E]ven if relevant, discovery is not permitted where no need is shown, or compliance would be unduly burdensome, or where harm to the person from whom discovery is sought outweighs the need of the person seeking discovery of the information.” Cabot v. Wal-Mart Stores, Inc., 2012 WL 592874, at *9 (D.N.M. Feb. 16, 2012)(Browning, J.)(citing Miscellaneous Docket Matter No. 1 v. Miscellaneous Docket Matter No. 2, 197 F.3d 922, 925 (8th Cir.1999)). A court “must limit the frequency or extent of discovery” when “the discovery sought ... can be obtained from some other source that is more convenient, less burdensome, or less expensive.” Fed.R.Civ.P. 26(b)(2)(C). See Cabot v. Wal-Mart Stores, Inc., No. CIV 11-0260 JB/RHS, 2012 WL 592874, at *12; Cent. Valley Chrysler Valley Jeep, Inc. v. Witherspoon, 2006 WL 1883363, at *4 (E.D.Cal. July 7, 2006)(O'Neill, J.) (recognizing that the defendants did not need to produce “publicly available literature regarding global warming” under rule 26(b) as there was a more convenient, less burdensome, or less expensive manner to obtain the discovery). The requested discovery is therefore not crucial to Zurich Insurance's case. See In re Fine Paper Antitrust Litig., 751 F.2d 562, 586-87 (3d Cir.1984)(finding no abuse of discretion in district court's quashing of subpoenas served upon counsel); Blowers v. Lawyers Co-op. Pub. Co., Inc., 526 F.Supp. 1324, 1327- 28 (W.D.N.Y.1981)(holding that the plaintiff was not “entitled to discover information concerning the amount of legal fees incurred by defendants in this action,” because the “hourly rates charged to defendants by their attorneys in this particular case is simply not relevant in determining the prevailing hourly rate in the area”). Accordingly, Holland & Hart has demonstrated that complying with the Subpoena would impose an undue burden under rules 26 and 45. *31 Furthermore, although the Tenth Circuit does not require the Court to issue a protective order for subpoenas duces tecum under the Shelton test, it provides persuasive evidence that the Court should do so here. See E.E.O.C. v. Roswell Radio, Inc., 2007 WL 2305521, at *4 (stating that, even though the Shelton test “may not necessarily apply” once an attorney has withdrawn from the case, “the three-part test will be useful in determining whether the Court should compel her deposition”); Valencia v. Colo. Cas. Ins. Co., 2007 WL 5685360, at *4 (D.N.M. Dec. 8, 2007)(Browning, J.)(quashing subpoenas duces tecum addressed to the defendant's attorney, because the plaintiff's discovery request imposed an undue burden, and noting that the plaintiff could not meet all three of the Shelton test's criteria). When the Court adopted the Shelton test in Boughton v. Cotter Corp., the Tenth Circuit did not require trial courts to enter protective orders under certain circumstances. See Boughton v. Cotter Corp., 65 F.3d at 829 (“[W]e need only make the more limited holding that ordinarily the trial court at least has the discretion under Rule 26(c) to issue a protective order against the deposition of opposing counsel when any one or more of the three Shelton criteria for deposition listed above are not met.”)(emphasis in original). Rather, it held that a trial court has discretion to allow a party to depose opposing counsel if: “(1) no other means exist to obtain the information than to depose opposing counsel; (2) the information sought is relevant and nonprivileged; and (3) the information is crucial to the preparation of the case.” Boughton v. Cotter Corp., 65 F.3d at 829 (citing Shelton, 805 F.2d at 1327). See Thiessen v. Gen. Elec. Capital Corp., 267 F.3d 1095, 1112 n.15. “While a protective order may not be mandatory if the criteria are met, the Tenth Circuit made clear that the trial court generally has discretion to issue a protection order when one or more criteria are not met.” Malcolm D. Smithson & Christine B. Smithson Trusts v. Amerada Hess Corp., 2007 WL 5685112, at *9 (citing E.E.O.C. v. Roswell Radio, Inc., 2007 WL 2305521, at *3). Accordingly, whether the Court is discussing subpoenas for attorney depositions Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 167 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 31 or subpoenas duces tecum, the Shelton test as stated by the Tenth Circuit does not require the Court to enter a protective order. Nevertheless, that Zurich Insurance cannot meet all three Shelton factors provides additional evidence that the Court should not require Holland & Hart to produce the requested information. Courts in the Tenth Circuit have applied the Shelton test's reasoning to subpoenas duces tecum, because “[t]he use of a subpoena duces tecum to attempt to obtain opposing counsel's documents and files is equally improper and may be more burdensome than merely attempting to obtain testimony.” Kirzhner v. Silverstein, 2011 WL 1321750, *3 (D.Colo. Apr. 5, 2011)(Boland, M.J.), objections sustained in part and overruled in part, 870 F.Supp.2d 1145, 1151 (D.Colo. Jan. 12, 2012)(concluding that the magistrate judge's protective order quashing the defendants' efforts to obtain documents from the plaintiff's counsel was not clearly erroneous, and observing that Shelton and Boughton v. Cotter Corp. supported the result). The Eighth Circuit's reasoning for protecting attorneys from depositions also applies here. See Shelton, 805 F.2d at 1327. Allowing discovery of the fees that a law firm charges to other clients will increase the time and costs of litigation as law firms spend time objecting to discovery requests and filing motions to quash subpoenas duces tecum. Depending on the discovery request, law firms may also raise work-product and attorney-client privilege objections. Along the same lines, counsel will have to devote time to redacting documents to protect its own information rather than devoting that time to preparing his client's case. Accordingly, the Shelton test provides added support that the Court should quash the Subpoena. As described above, the Subpoena is minimally relevant and not crucial to Zurich Insurance's case. The Court will therefore quash the Subpoena. C. THE COURT WILL AWARD COSTS AND FEES PURSUANT TO RULE 45. Under rule 45(d)(1), “a party or attorney responsible for issuing and serving a subpoena must take reasonable steps to avoid imposing undue burden or expense on a person subject to the subpoena.” Fed.R.Civ.P. 45(d) (1). If an attorney does not comply with this duty, the court “must enforce this duty and impose an appropriate sanction-which may include lost earnings and reasonable attorney's fees.” Fed.R.Civ.P. 45(d)(1). The Court considers expense-shifting under rule 45(d)(1), because XTO Energy won on its request that the Court quash the Subpoena and because the “central underlying issue here was the propriety of the subpoena.” Muslim Community Ass'n of Ann Arbor v. Pittsfield Township, 2015 WL 5132583, at *2 (E.D.Mich.2015)(Grand, M.J.). Holland & Hart “attempted to confer with Zurich in good faith to avoid the expense of this motion and the undue burden responding to the Subpoena would impose.” Motion to Quash at 6. Holland & Hart “explained to Zurich that the Subpoena was overbroad, sought irrelevant and privileged information, and was unduly burdensome, and accordingly requested Zurich withdraw or modify the Subpoena.” Motion to Quash at 6-7. Zurich Insurance did not attempt to narrow the request to seek only those documents in XTO Energy's control; it did not send an interrogatory seeking only rates in some cases; it did not seek information limited to New Mexico cases. Instead of a rifle shot, Zurich Insurance sent a shotgun blast. Rather than narrowly tailoring the request to get some specific information that might be relevant and useful, the Subpoena seems to be designed more to be an “in your face” request to XTO Energy's lawyers, intended to burden and harass rather than to get a little bit of good information. See In re First Peoples Bank Shareholders Litig., 121 F.R.D. 219 (D.N.J.1988)(stating that discovery relating to an attorney's fee award “must not launch an excursion into the barely relevant or beyond the borderline of harassment”). *32 Zurich Insurance did not comply with existing law pursuant to rule 26(g)(1)(B), because its Subpoena was facially and procedurally invalid. See supra at 44-45. “District courts have found that parties fail to comply with existing law when they do not follow the subpoena procedures in Rule 45.” Mount Hope Church v. Bash Back!, 705 F.3d at 425-26 (citing Murphy v. Bd. of Ed., 196 F.R.D. 220, 224-25 (W.D.N.Y.2000)(Larimer, J.) (enforcing rule 11 sanctions for failing to notify opposing counsel of subpoenas)). Zurich Insurance's refusal to withdraw or modify its defective subpoena caused XTO Energy to incur the expense of filing the Motion to Quash. See Precourt v. Fairbank Reconstruction Corp., 280 F.R.D. 462, 472 (D.S.D.2011)(Schreier, J.); Night Hawk Ltd. v. Briarpatch Ltd., L.P., 2003 WL 23018833, at *9 (S.D.N.Y. Dec. 23, 2003)(Sweet, J.)(“Sanctions are properly imposed and attorney's fees are awarded where, as here, the party improperly issuing the subpoena refused to withdraw it, requiring the non-party to issue a motion to quash.”); Green v. MOBIS Alabama, LLC, 2014 WL 2041857, at *2- Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 168 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 32 3 (M.D.Ala. May 16, 2014)(awarding costs and fees where party “failed to take any steps, let alone any reasonable ones, to avoid imposing an undue burden or expense on [the subpoenaed person]”). Zurich Insurance does not show that it attempted to discover the information it seeks by searching its own records or through any other means before sending the Subpoena, and the broad request imposes a considerable logistical burden on Holland & Hart. Compare Mount Hope Church v. Bash Back!, 705 F.3d 418, 425 (9th Cir.2012)(concluding that rule 45(d) sanctions were improper when “the subpoenaing party acted in good faith, narrowly tailored its discovery request” so that it did not impose a logistical burden on the responding party, but lost “a motion to compel based on unpersuasive legal arguments”). Further, Zurich Insurance did not negotiate reasonable parameters on the Subpoena. See Tiberi v. CIGNA Ins. Co., 40 F.3d 110, 112 (5th Cir.1994)(reversing a sanctions award where the issuing party engaged in “sufficient good faith efforts to negotiate reasonable parameters on the subpoena”). Accordingly, Zurich Insurance did not “take reasonable steps to avoid imposing undue burden or expense” on Holland & Hart. Fed.R.Civ.P. 45(d)(1). See Green v. MOBIS Alabama, LLC, 2014 WL 2041857, at *2-3 (awarding costs and fees where party “failed to take any steps, let alone any reasonable ones, to avoid imposing an undue burden or expense on [the subpoenaed person]”). The Court will therefore award costs and fees against Zurich Insurance. The Court is sympathetic to Zurich Insurance's suspicion that Holland & Hart is charging more than what it normally charges for insurance defense work. An hourly rate of $400.00 is a considerable amount for insurance defense work in New Mexico. A $400.00 rate is a considerable amount for any commercial litigation in New Mexico. Typically, law firms that perform insurance defense work have lower rates, because the work is often less complex than top-flight commercial cases. These law firms make up for the lower rates with a higher volume of insurance defense work rather than working one big case every so often. Holland & Hart appears to be charging its usual top rates to XTO Energy rather than the insurance rate, or a negotiated rate for a repeat client. The Court has approved rates of $300.00 per hour, see Ysasi v. Brown, 2015 WL 403930, at *28 (D.N.M. Jan. 7, 2015)(Browning, J.), and other judges in New Mexico have found rates of $350.00 per hour reasonable, but most rates in New Mexico are lower, see New Mexico v. Valley Meat Co., LLC, 2015 WL 9703255, at *23 (D.N.M. Dec. 14, 2015)(Browning, J.). [T]he state's top attorneys charge above that amount -[$200.00], see Jackson v. Los Lunas Center, 489 F.Supp.2d 1267, 1273 & n.4 (D.N.M.2007)(Parker, S.J.) (discussing fees of up to $305.25 per hour and finding those fees reasonable); Kelley v. City of Albuquerque, No. 03-507, 2005 WL 3663515, at *16 (D.N.M. Oct. 24, 2005)(Browning, J.)(finding that $250 per hour for Albuquerque attorneys is a reasonable fee), and New Mexico is a relatively poor state, with some of the lowest hourly rates in the country. The Court has previously stated that $200.00 per hour is a “relatively low rate” for attorneys in New Mexico. Lane v. Page, 862 F.Supp.2d 1182, 1257 (D.N.M.2012) (Browning, J.). See also Copar Pumice Co., Inc. v. Morris, No. CIV 07-0079 JB/ACT, 2012 WL 2383667, at *19, *21 (D.N.M. Jun. 13, 2012)(Browning, J.) (finding that “(i) $235.00 per hour for partners; (ii) $200.00 per hour for senior associates; (iii) $150.00 per hour for other associates; and (iv) $75.00 per hour for paralegals,” are reasonable rates in New Mexico); Avendano v. Smith, No. CIV 11-0556, 2011 WL 5822733, at *2 (D.N.M. Nov. 3, 2011) (Browning, J.) (finding rates of $180.00 per hour reasonable); Pedroza v. Lomas Auto Mall, Inc., 716 F.Supp.2d 1031, 1050- 51 (D.N.M.2010)(Browning, J.)(finding that $150.00 per hour is a “very reasonable” rate for commercial litigators in New Mexico); Mountain Highlands, LLC v. Hendricks, No. CIV 08-0239, 2010 WL 1631856, at * *9-10 (D.N.M. Apr. 2, 2010)(Browning, J.)(approving an hourly rate of $170.00 to $210.00 per hour as reasonable for commercial litigation); Wiatt v. State Farm Ins. Cos., No. CIV 07-0526 JB/KBM, 2008 WL 2229630, at * *4-5 (D.N.M. Mar. 24, 2008)(Browning, J.)(holding that a fee of $200.00 per hour for insurance defense work was reasonable); Allahverdi v. Regents of Univ. of N.M., No. CIV 05-0277, 2006 WL 1304874, at *2 (D.N.M. Apr. 25, 2006)(Browning, J.) (finding hourly rate of $225.00 reasonable in a public- employment dispute); Two Old Hippies, LLC v. Catch the Bus, LLC, 277 F.R.D. 448, 465 (D.N.M.2011) (Browning, J.)(finding that $275.00 per hour is a reasonable rate for an attorney who is “one of the more seasoned and experienced commercial litigators in the District of New Mexico,” and $195.00 is a reasonable rate for an “excellent associate.”). The Honorable William P. Johnson, District Judge for the United States Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 169 of 177 XTO Energy, Inc. v. ATD, LLC, Slip Copy (2016) 2016 WL 1730171 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 33 District Court for the District of New Mexico, has found that a rate of $350.00 per hour is appropriate for one of “one of New Mexico's preeminent trial lawyers,” who has demonstrated “superb trial advocacy skills” in a police misconduct civil rights case. Martinez v. Carson, No. 08-CV1046 WJ/LFG, Mem. Op. and Order Granting in Part Plaintiff's Motion for Attorney Fees and Expenses (Doc. 231), at 7 (D.N.M. Aug. 11, 2011)(Johnson, J.). Judge Johnson has also found that a rate of $175.00 per hour is reasonable for an attorney who has been practicing law for five years. See No. 08-CV-1046, Mem. Op. and Order Granting in Part Plaintiffs' Motion for Attorney Fees and Expenses (Doc. 231) at 8. The Honorable Judith C. Herrera, District Judge for the United States District Court for the District of New Mexico, has approved fee awards of: $350 per hour for lawyers who graduated from law school before 1996; $300 per hour for lawyers who graduated between 1996 and 2000; $225 per hour for lawyers how graduated between 2001 and 2006; and $150 per hour for lawyers who graduated in 2007 and afterwards ... [and] $95 per hour for legal interns and legal support staff. Valdez v. Herrera, No. 09- CV-0668 JCH/DJS, Order Granting Attorneys' Fees at 3 (Doc. 149)(D.N.M. Mar. 21, 2011)(Herrera, J.). See Mackey v. Staples, Inc., No. 09-CV-0023 JCH/ WPL, Order Granting Attorneys' Fees and Costs (Doc. 199) at 5 (D.N.M. Mar. 4, 2011)(Herrera, J.)(awarding fees at a rate of $350.00 per hour to civil rights litigators with thirty-seven years of experience); Johnson v. Life Ins. Co. of N. Am., No. 05-CV-0357 JCH/ RLP, Memorandum Opinion and Order (Doc. 127) at 4 (D.N.M. Mar. 13, 2009)(Herrera, J.)(finding that $105.00 per hour is a reasonable rate for a paralegal with nine years of experience). The Honorable John E. Conway, Senior District Judge for the United States District Court for the District of New Mexico, has awarded fees in the range of $200.00 to $300.00 for attorneys in a police misconduct case. See Avila v. Ratchner, No. 01-CV-0349 JC/LAM, Memorandum Opinion and Order (Doc. 214) at 6-7 (D.N.M. Sept. 27, 2010)(Conway, S.J.). Five years ago, the Honorable Robert C. Brack, District Judge for United States District Court for the District of New Mexico, found that $175.00 per hour was a reasonable rate for an associate attorney with five years of experience who took an active role in a litigation. See Rivera v. Smith's Food & Drug Centers, No. 05-CV-1049 RB/ACT, Memorandum Opinion and Order (Doc. 177) at 10- 12 (D.N.M. June 28, 2007)(Brack, J.). The Honorable Robert H. Jacobvitz, Bankruptcy Judge for the United States Bankruptcy Court for the District of New Mexico, found that hourly rates of $60.00 for paralegals is reasonable. See In re Fincher, No. 13-08-11454 JA, 2012 WL 1155719, at *5 (Bankr.D.N.M. Apr. 5, 2012) (Jacobvitz, J.) *33 In re Thornburg Mortg., Inc. Sec. Litig., 912 F.Supp.2d 1178, 1258 n.41 (D.N.M.2012)(Browning, J.). A $400.00 rate would be close to the top, if not the top of the rates that the Court has approved or seen in New Mexico, and that rate has not been for insurance work. In any case, while the Court is skeptical that a $400.00 rate is reasonable for insurance defense rates, Zurich Insurance does not need to hammer Holland & Hart and XTO Energy with unduly burdensome discovery to prove the point. It can hire an expert on insurance defense, on complex commercial litigation, and on attorney's fees, and make the point easier. IT IS ORDERED that: (i) Defendant Zurich American Insurance Company's Motion to Compel Discovery from Plaintiff, filed December 2, 2015 (Doc. 37), is denied; (ii) Plaintiff XTO Energy, Inc.'s Motion to Quash or Motion for Protective Order Regarding Subpoena to Nonparty Holland & Hart LLP, filed December 1, 2015 (Doc. 36), is granted; and (iii) the Court awards costs and fees to Holland & Hart. All Citations Slip Copy, 2016 WL 1730171 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 170 of 177 York International Corporation v. Liberty Mutual Insurance Company, Slip Copy (2016) 2016 WL 775050 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2016 WL 775050 Only the Westlaw citation is currently available. United States District Court, M.D. Pennsylvania. York International Corporation, Plaintiff v. Liberty Mutual Insurance Company, Defendant. Civ. No. 1:10-CV-0692 | Signed 02/29/2016 MEMORANDUM SYLVIA H. RAMBO, United States District Judge *1 Presently before the court are Defendant's objections to Plaintiff's requests for payment of defense and indemnification costs pursuant to insurance contracts between the parties. For the reasons stated herein, the court will overrule Defendant's objections and order Defendant to pay the defense and indemnification costs. I. Background The parties are familiar with the background of this litigation, and detailed accounts of the factual and procedural history have been set forth at length in the court's previous memoranda. See generally York Int'l Corp. v. Liberty Mut. Ins. Co., 10-cv-0692, 2015 WL 4162981 (M.D. Pa. July 9, 2015); York Int'l Corp. v. Liberty Mut. Ins. Co., Civ. No. 10-cv-0692, 2011 WL 2111989 (M.D. Pa. May 26, 2011). Accordingly, the court will not repeat those facts herein, and will discuss only the relevant procedural history leading to the instant dispute. A. Relevant Procedural History On May 26, 2011, the court ordered Defendant, the insurer of Plaintiff's predecessor corporate entity, York Corporation, to defend and indemnify Plaintiff against asbestos-related actions filed throughout the United States that name either Plaintiff or York Corporation as a defendant and allege an injury caused by a York Corporation product during the coverage period provided by four consecutive one-year insurance policies between the parties (the “York Policies”), which ranged from October 1, 1952 through October 1, 1956. (See Doc. 52.) On October 28, 2014, after continued disagreement between the parties as to which underlying asbestos complaints triggered Defendant's duties of defense and indemnification, the court ordered the parties to submit a stipulation as to the list of cases for which Plaintiff sought either defense or indemnification, and ordered Plaintiff to disclose its costs in those cases as well as documents sufficient to support a finding that Defendant had a duty to defend or indemnify in each case. (See Doc. 75.) The parties subsequently filed cross-motions for partial summary judgment as to whether New York or Pennsylvania law applied to the interpretation of the York Policies (Docs. 82 & 83), and Defendant filed objections to Plaintiff's requests for defense and indemnification costs (Doc. 98). In its July 9, 2015 memorandum, the court found that Pennsylvania law applied to the York Policies. (See Doc. 106.) Defendant then filed a motion for reconsideration as to the choice of law, which the court denied on October 13, 2015. (Docs. 112 & 113.) With the choice of law now finally decided, Defendant's objections to Plaintiff's requests for costs are ready for the court's consideration. II. Discussion Defendant propounds several general objections to Plaintiff's requests for defense and indemnification, as well as specific objections to many of the underlying complaints. Defendant's general objections are as follows: (1) Plaintiff has not met its burden of providing sufficient documentation to show that the underlying complaints involve injury covered by the York Policies; (2) Defendant's liability should be reduced as to cases that include exposure to asbestos-containing products sold by Plaintiff's corporate predecessors other than York Corporation; (3) Defendant is liable only for a percentage of the costs incurred by Plaintiff in the underlying cases, pursuant to New York law; (4) Plaintiff cannot seek full reimbursement for underlying cases in which defense invoices reflect a cost sharing agreement between Plaintiff and its co-defendants or other insurers; and (5) Defendant is not liable for defense or indemnification costs incurred prior to receiving notice of the underlying cases or for ten of the underlying cases for which it received untimely notice by Plaintiff. (See Doc. 98, pp. 3-5.) Defendant's specific objections to many of the underlying cases rely on its general objections, and therefore the court will resolve Defendant's general objections first. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 171 of 177 York International Corporation v. Liberty Mutual Insurance Company, Slip Copy (2016) 2016 WL 775050 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 A. General Objections 1. Objection One: Plaintiff's documentary support is insufficient *2 Defendant's first general objection is that Plaintiff has not provided sufficient support for its requests for defense and indemnification. Defendant argues that Plaintiff provided only the complaint and defense invoices for sixty-four of the seventy underlying cases. (Doc. 98, p. 3 of 24.) Additionally, Defendant argues that those defense invoices include time spent on discovery, and that some of them indicate that the underlying plaintiff's injuries fall outside of the York Policies' coverage. (Id. at pp. 3-4 of 24.) Plaintiff argues in response that it is only seeking reimbursement of defense costs, which requires nothing more than the underlying complaint alleging an injury potentially covered by the York Policies and the amount incurred by Plaintiff to defend the action. (Doc. 100, p. 7 of 53.) Plaintiff states it submitted the amount paid, a check number, and a check date along with each defense invoice to support its claims for defense costs. (Id.) Under Pennsylvania law, an insurer's duty to defend is determined exclusively by consideration of the allegations set forth in the underlying complaint. Kvaerner Metal Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888, 896 (Pa. 2006). In fact, “no extrinsic evidence is permitted.” Westport Ins. Corp. v. Black, Davis & Shue Agency, Inc., 513 F. Supp. 2d 157, 163 (M.D. Pa. 2007). An insurer's duty to defend is triggered “whenever the complaint filed by the injured party may potentially come within the policy's coverage,” Allstate Ins. Co. v. Drumheller, 185 F. App'x 152, 154 n.2 (3d Cir. 2006) (citing Pac. Indem. Co. v. Linn, 766 F.2d 754, 760 (3d Cir. 1985)), and continues “until there is no possibility that the underlying plaintiff could recover on a covered claim.” Frog, Switch & Mfg. Co., Inc. v. The Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir. 1999). Here, the court previously held that Defendant had a duty to defend all complaints that named either Plaintiff or York Corporation as a defendant and alleged an injury attributable to a York Corporation product during the time period from October 1, 1952, through October 1, 1956. (See Doc. 52.) Defendant does not dispute that the underlying complaints meet the criteria in the court's prior order. Likewise, Defendant does not dispute that Plaintiff provided the underlying complaint, defense invoices, total amounts paid, check numbers, and check dates for each request for reimbursement. Rather, Defendant argues that some of the defense invoices include time spent on discovery and demonstrate that the liability at issue was outside of the York Policies' coverage. (Doc. 98, p. 3 of 24.) However, discovery is a necessary part of most litigation and is therefore included in Defendant's duty to defend, once triggered. Moreover, Defendant must defend all claims that potentially fall within the York Policies' coverage until there is no possibility of a covered claim. Frog, Switch, 193 F.3d at 746. Although the defense invoices may demonstrate that liability for the underlying injury fell outside the scope of the York Policies, the complaints themselves indisputably establish the possibility of a covered claim for purposes of Defendant's duty to defend. Accordingly, Defendant's first general objection will be overruled. 1 1 Defendant objects to Plaintiff's requests for costs in the Steffens, Sherman, Leary, Dykeman, Douglass, and Dahl actions on the basis that Plaintiff did not produce the discovery in the underlying actions which was the basis of the costs. As stated herein, Plaintiff has no duty to produce such documents in seeking its defense costs, and these objections will be overruled. 2. Objection Two: the York Policies do not cover Plaintiff's corporate predecessors other than York Corporation Defendant' s second general objection is that it should not be responsible for the full costs of defense and indemnity as to twelve settled underlying cases because they include Plaintiff's corporate predecessors other than York Corporation, and in several of those cases the underlying plaintiff may have been exposed to asbestos- containing products sold by entities other than York Corporation. (Doc. 98, p. 4 of 24.) This objection fails, however, for the same reasons as discussed above with regard to Defendant's first general objection. The inclusion of claims that would not be covered under the York Policies, along with claims that, if true, would be covered, does not relieve Defendant of its duty to defend because “ ‘[u]nder Pennsylvania law, when an insured tenders multiple claims to an insurer for defense, the insurer is obligated to undertake defense of the entire suit as long as at least one claim is potentially covered by the Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 172 of 177 York International Corporation v. Liberty Mutual Insurance Company, Slip Copy (2016) 2016 WL 775050 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 policy.’ +” Post v. St. Paul Travelers Ins. Co., 691 F.3d 500, 517-18 (3d Cir. 2012) (quoting Caplan v. Fellheimer Eichen Braverman & Kaskey, 68 F.3d 828, 831 n.1 (3d Cir. 1995)). *3 Unlike the duty to defend, an insurer is only obligated to indemnify its insured for damages actually covered by the policy. See Fed. Ins. Co. v. Dentsply Int'l Inc., Civ. No. 06-cv-0991, 2007 WL 4150664, *1 n.3 (M.D. Pa. Nov. 19, 2007) (citing Caplan, 68 F.3d at 831 n.1). While “there is no blanket rule giving rise to a duty to indemnify where the insured settles the underlying action[,]” Am. W. Home Ins. Co. v. Donnelly Distribution, Inc., 523 F. App'x 871, 874 (3d Cir. 2013) (citing Regis Ins. Co. v. All Am. Rathskeller, Inc., 976 A.2d 1157, 1161 n.8 (Pa. Super. Ct. 2009)), where an insurer does not seek a declaration as to whether the underlying injury is a covered claim under the relevant insurance policy, the insurer must indemnify its insured for the cost of settlement as long as “the settlement is reasonable and negotiated in good faith.” Mega Constr. Corp. v. Quincy Mut. Fire Ins. Co., 42 F. Supp. 3d 645, 660 (E.D. Pa. 2012) (citing Alfiero v. Berks Mut. Leasing Co., 500 A.2d 169, 172 (Pa. Super. Ct. 1985)). Although an insurer's duty to indemnify is narrower than the duty to defend, here Defendant's duty to indemnify is undisturbed regarding the settled underlying cases. Defendant has not argued that the settled cases were outside the possibility of coverage or sought a declaration to that effect, and Defendant also does not argue that the settlements were unreasonable. Rather, Defendant contends that, because non-covered claims were included in the settlement, its liability for indemnification should be reduced. However, there is no basis for such a reduction under Pennsylvania law and, indeed, Defendant offers no support for its position. Therefore, Defendant's second general objection will be overruled. 3. Objection Three: Defendant is liable only for a percentage of the costs for covered claims Defendant's third general objection to Plaintiff's requests for costs is that, under New York law, Defendant is only liable for its pro rata share of the costs paid for covered claims based on the amount of time Defendant was on the risk. (Doc. 98, p. 4 of 24.) However, the court rejected this argument when it denied Defendant's motion for partial summary judgment as to choice of law, explaining that, under Pennsylvania law, “once the liability of a given insurer is triggered, it is irrelevant that additional exposure or injury occurred at times other than when the insurer was on the risk. The insurer in question must bear potential liability for the entire claim.” York Int'l Corp., 2015 WL 4162981, at *12 (quoting J.H. France Refractories Co. v. Allstate Ins. Co., 626 A.2d 502, 508 (Pa. 1993)). Accordingly, Defendant's third general objection will be overruled as to all of the underlying cases. 4. Objection Four: Plaintiff had cost sharing agreements Defendant's fourth general objection is that Plaintiff's defense invoices identify cost sharing agreements between Plaintiff and insurers for other corporate entities associated with Plaintiff, and that Defendant should only be liable for Plaintiff's percentage share of the cost, rather than the full amounts requested by Plaintiff. (Doc. 98, pp. 4-5 of 24.) Plaintiff contends that the cost sharing agreements are irrelevant because they are associated with a wholly unrelated case in an Illinois county court, and that it only submitted to Defendant the amounts that it actually paid in defending the underlying covered claims. (Doc. 100, pp. 13-15 of 53.) *4 The court agrees that the cost share agreements are irrelevant to Plaintiff's contractual right to have Defendant reimburse it for costs it actually incurred on covered claims. The fact that other defendants or insurers may have paid additional amounts does not affect Defendant's duties of defense and indemnification owed to Plaintiff. Thus, Defendant's fourth general objection will be overruled. 5. Objection Five: Untimely Notice Defendant's fifth and final general objection is that Plaintiff did not provide notice for ten of the underlying claims until November 6, 2014, and that Defendant should not be liable for defense or indemnity costs incurred prior to receipt of notice, or claims for which timely notice was not provided. (Doc. 98, p. 5 of 24.) Plaintiff argues in response that, while it provided courtesy copies of those ten underlying complaints on November 6, 2014, it had given Defendant access to them in an electronically accessible database known as the “eRoom” within nineteen days of each underlying complaint being filed. (Doc. 100, pp. 15-16 of 53.) Plaintiff further argues Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 173 of 177 York International Corporation v. Liberty Mutual Insurance Company, Slip Copy (2016) 2016 WL 775050 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 that, even if notice of those ten claims was late, Defendant would need to show that it was prejudiced by such late notice in order to avoid its defense and indemnification obligations. (Id. at p. 16 of 53.) As noted by Plaintiff, Pennsylvania law requires a showing of prejudice for an insurer to avoid its obligations due to late notice. See Brakeman v. Potomac Ins. Co., 371 A.2d 193, 196-98 (Pa. 1977). The Third Circuit has “recognized that ‘the Brakeman rule applies even to policies between sophisticated parties' +” in the primary insurance context, because “Brakeman rested above all on the court's unwillingness to permit a forfeiture of insurance protection ‘unless a sound reason exists for doing so.’ +” Pac. Emp'rs Ins. Co. v. Global Reinsurance Corp. of Am., 693 F.3d 417, 435 (3d Cir. 2012) (quoting Trs. of the Univ. of Pa. v. Lexington Ins. Co., 815 F.2d 890, 897 (3d Cir. 1987)) (quoting Brakeman, 371 A.2d at 197). Here, Defendant has not alleged that it suffered any prejudice due to Plaintiff's allegedly late notice. Accordingly, Defendant's fifth general objection will be overruled. The court will now turn to Defendant's specific objections. A. Specific Objections 2 2 In its specific objections, Defendant references the individual underlying claims by the last name of the plaintiff in each matter. For convenience and continuity, the court will use Defendant's designations. In addition to its general objections, Defendant makes specific objections as to several individual underlying cases. As noted above, many of these so-called specific objections actually rely on one or more of Defendant's general objections. 1. DiGrande, Nishimura, Simons, and Saathoff Defendant argues with regard to these underlying actions that it should only be responsible for a small portion of Plaintiff's actual defense and indemnification costs based on its second and third general objections, namely that Defendant can reduce its liability where another entity is named as a co-defendant in the underlying case, and that it should only be responsible for a pro rata amount of Plaintiff's costs based on New York law. As discussed above, the court will overrule General Objection Two because there is no basis to sustain it, and the court will overrule General Objection Three because it is Pennsylvania, rather than New York, law that applies to the York Policies. Accordingly, the court will overrule Defendant's objections to Plaintiff's costs in the DiGrande, Nishimura, Simons, and Saathoff actions. 2. Lentfer, Troglia, Richardson, Pesce, McIndoe, Lenhard, and Bernardo *5 Defendant again relies on its general objections, rather than any specific objections, in arguing that it should only be responsible for a small percentage of Plaintiff's incurred defense and indemnity costs with regard to these underlying actions. Here, Defendant relies on General Objection Three, i.e., that it is only responsible for its pro rata share of costs under New York law, and General Objection Four, i.e., that the cost share agreements Plaintiff had with other defendants in the underlying cases should reduce Defendant's liability. (Doc. 98, pp. 6-7 of 24.) As stated above, the court will overrule those general objections, and, likewise, Defendant's objections to the Lentfer, Troglia, Richardson, Pesce, McIndoe, Lenhard, and Bernardo claims. 3. Robbins Defendant objects to paying the costs associated with Robbins because the underlying plaintiff's date of first exposure to asbestos-containing products occurred after the period covered by the York Policies. (Doc. 98, pp. 7-8 of 24.) Plaintiff contends that the underlying complaint names York Corporation, and an exhibit to the complaint states that the underlying plaintiff's date of first exposure was prior to the expiration of the York Policies, thereby triggering Defendant's duty to defend. (Doc. 100, p. 23 of 53.) Plaintiff further argues that there are additional facts supporting coverage within the underlying discovery record showing that the underlying plaintiff was exposed to asbestos-containing insulation on York Corporation air conditioning units in the 1950s. (Id. at p. 24 of 53.) Thus, Plaintiff argues that the settlement of the Robbins action included a claim that could have been covered by the York Policies, and for which Defendant owes indemnification. (Id.) Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 174 of 177 York International Corporation v. Liberty Mutual Insurance Company, Slip Copy (2016) 2016 WL 775050 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 The court will overrule Defendant's objection as to the Robbins defense costs, because the complaint meets the requirements outlined in this court's prior order. 3 (See Doc. 75.) Likewise, the court will overrule Defendant's objection as to indemnity because there was never a determination that the underlying plaintiff's injury could not possibly have been covered by the York Policies, and Defendant has not argued that the settlement was unreasonable or not negotiated in good faith. See Am. W. Home Ins. Co., 523 F. App'x at 874 (citing Regis Ins. Co., 976 A.2d at 1161 n.8); see also Mega Constr. Corp., 42 F. Supp. 3d at 660 (citing Alfiero, 500 A.2d at 172). 3 The same is true with regard to Defendant's objections to the payment of defense costs in the Jones and Kuhn actions. In each underlying case, Plaintiff has provided a complaint alleging a potentially covered claim, along with proof of the actual amounts it spent defending the case. Accordingly, the court will overrule Defendant's objections to these actions for the same reason it is overruling Defendant's objections to the payment of defense costs in Robbins. 4. Barley Defendant relies on its first and fourth general objections in arguing that it owes no defense costs for the Barley action. (Doc. 98, p. 10 of 24.) In opposing Defendant's objections, Plaintiff contends that the Barley complaint triggers Defendant's duty to defend and that Defendant is improperly relying on extrinsic evidence to avoid its duty. (Doc. 100, p. 27 of 53.) The court agrees with Plaintiff. The duty to defend is determined solely upon the four corners of the complaint. Kvaerner, 908 A.2d at 896. Defendant cites to defense invoices and discovery items to show that the plaintiff in Barley had a date of first exposure to asbestos-containing products outside the York Policies' period of coverage. However, Plaintiff has not sought indemnification from Defendant, and instead only seeks reimbursement of defense costs. Because the underlying complaint alleged an injury potentially covered by the York Policies, Defendant had a duty to defend and is therefore obligated to pay those costs. 4 Further, the court has already overruled Defendant's fourth general objection, that cost share agreements should reduce its portion of liability. Therefore, Defendant's objections to the Barleycosts will be overruled. 5 4 Defendant objects to the Clemmer, Goss, Wahner, Whinery, Cantley, Fanelli, and Loewen defense requests for the same reasons, and those objections will likewise be overruled. As previously stated herein, Defendant's duty to defend, once triggered by a complaint alleging injury potentially covered by the York Policies, continues until there is no possibility of a covered claim. 5 Defendant similarly objects, on the bases of its first general objection - that Plaintiff did not provide sufficient documentary support for its claimed costs - and its fourth general objection - that its liability should be reduced according to Plaintiff's cost share agreements - to Plaintiff's requests for costs in the following actions: Wichman, Toomey, Talbot, Saathoff, Romine, Phillips, Moore, Marcelja, Lovett, Loewen, Lee, Kuhn, Jones, Holbrook, Hale, Groves, Gisler, Fisher, Fanelli, Drivon, DeKraai, De La Rosa, Datis, Cantley, and Brasher. Because the court has overruled Defendant's first and fourth general objections, the objections to these individual underlying cases will also be overruled. 5. Cressy *6 Defendant objects to Plaintiff's request for defense costs in Cressy because discovery revealed that the underlying plaintiff was exposed to asbestos in products not manufactured or sold by York Corporation. (Doc. 98, p. 11 of 24.) Plaintiff argues in response that Defendant is merely relying on its general objections and that the underlying complaint triggered Defendant's duty to defend. (Doc. 100, pp. 29-30 of 53.) While it appears, from documents from the underlying case cited by Defendant, that the parties in the underlying action discussed, at some point in discovery, that no York Corporation products had been identified as a cause of the underlying plaintiff's injury, (see Doc. 100, p. 11 of 24), such a discussion between the parties in the underlying action did not foreclose all “possibility that the underlying plaintiff could recover on a covered claim.” Frog, Switch, 193 F.3d at 746. As stated above, an insurer's duty to defend is triggered whenever a claim may potentially be covered. See Am. & Foreign Ins. Co. v. Jerry's Sport Ctr., Inc., 2 A.3d 526, 541 (Pa. 2010) (“[I]t is the potential, rather than the certainty, of a claim falling within the insurance policy that triggers the Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 175 of 177 York International Corporation v. Liberty Mutual Insurance Company, Slip Copy (2016) 2016 WL 775050 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 insurer's duty to defend.”) (citation and internal quotation marks omitted). In order to eliminate any uncertainty as to the duty to defend, an insurer may bring a declaratory judgment action to resolve the question of coverage. Id. at 542. Even if the insurer is successful in the declaratory judgment action, however, that victory for the insurer does not “retroactively eliminate the insurer's duty to defend the insured during the period of uncertainty.” Id. (citing Liberty Mut. Ins. Co. v. FAG Bearings Corp., 153 F.3d 919, 924 (8th Cir. 1998)). Where an insurer elects to neither bring a declaratory judgment action nor defend its insured, “the insurance company's refusal to defend at the outset of the controversy is a decision it makes at its own peril.” Id. (citing Casper v. Am. Guar. & Liab. Ins. Co., 184 A.2d 247, 248 (Pa. 1962)) (quoting Cadwallader v. New Amsterdam Cas. Co., 152 A.2d 484, 488 (Pa. 1959)). Here, Defendant did just that. By not defending Plaintiff or seeking declaratory judgment in the underlying case as to the duty to defend, Defendant took the risk that there might be a covered claim. That potential for a covered claim triggered Defendant's duty to defend, which would not be terminated until there was no possibility of a covered claim, or, in other words, until there was a judicial determination that no covered claim existed. See Erie Ins. Exch. v. Transamerica Ins. Co., 533 A.2d 1363, 1368 (Pa. 1987) (“[I]t is the duty of the insurer to defend until such time as the claim is confined to a recovery that the policy does not cover.”); see also Stein v. N. Assurance Co. of Am., 617 F. App'x 28, 30-31 (2d Cir. 2015) (citing Avondale Indus., Inc. v. Travelers Indem. Co., 774 F. Supp. 1416, 1425 (S.D.N.Y. 1991)) (The “duty to defend continues until judicial determination, either in [the] underlying action or in [the] coverage action, of [the] issue relevant to coverage.”) (citation omitted) (alterations in original). Here, there was no such judicial determination and, therefore, the court will not relieve Defendant of its duty to defend based on a discussion occurring between the parties during discovery. Accordingly, Defendant's objection will be overruled as to the defense costs incurred in the Cressy action. 6 6 Defendant objects to Plaintiff's requests for defense costs in Brasher and Romine for the same reasons, but with even less certainty regarding the impossibility of a covered claim. Thus, for reasons similar to those stated with regard to Cressy, Defendant's objections to Plaintiff's requests for defense costs in Brasher and Romine will likewise be overruled. 6. Fisher *7 Defendant objects to Plaintiff's request for reimbursement of defense costs in the Fisher action based on its first and second general objections, and because the underlying plaintiff's direct exposure to asbestos- containing products occurred after the York Policies' coverage period. (Doc. 98, p. 17 of 24.) Plaintiff contends that the underlying complaint alleges a potentially covered claim and obligates Defendant to reimburse Plaintiff for its costs in defending the case. (Doc. 100, pp. 38-39 of 53.) Because the court has already overruled Defendant's general objections, it will therefore reject them here as bases for Defendant to avoid its duty to defend. Plaintiff has provided an underlying complaint alleging a potentially covered claim, along with proof of the actual amounts it incurred in defending the case. Defendant has not shown that the possibility of a covered claim was extinguished at any time in the underlying litigation and therefore Defendant remains obligated to pay for the defense of the case. Thus, Defendant's objections to the payment of defense costs for the Fisher action will be overruled. 7 7 Defendant advances the same objections to the payment of defense costs in the Leary and Talbot actions, and those objections will likewise be overruled. B. Miscellaneous Objections In addition to its general and specific objections, Defendant also objects to the payment of defense costs for twelve unresolved cases in the state of Utah, 8 as well as four other cases for which no defense costs have been incurred. (Doc. 98, pp. 23-24 of 24.) As to the Utah cases, Defendant objects that the defense invoices provided do not reflect meaningful legal work. As stated above, however, if Defendant wished to be involved in the defense of the underlying cases and oversee counsel providing that defense, including auditing or objecting to defense invoices, it had the opportunity to do so when presented with notice of the claim, and it refused. See Jerry's Sport Ctr., 2 A.3d at 545 (stating that where an insurer chooses to defend an action against its insured, it allows the insurer “to monitor and review defense fees, compare them to [the insurer]'s preferred billing guidelines, and refer the Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 176 of 177 York International Corporation v. Liberty Mutual Insurance Company, Slip Copy (2016) 2016 WL 775050 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 invoices to a third-party auditor for scrutiny.”). Because Defendant chose not to defend the underlying cases, it lost the opportunity to object to the reasonableness of the defense invoices. Accordingly, Defendant's objections to the Utah actions will be overruled. 8 The named Utah actions are as follows: Allred, Bell, Bird, Green, Johnson, Kohles, Olsen, Peterson, Ryser, Spainhower, Taylor, and Van Leeuwen. Finally, with regard to the four cases for which no costs have been incurred, Plaintiff contends that it has merely placed Defendant on notice that those underlying cases involve potentially covered claims and is reserving the right to submit costs in the future. (Doc. 100, p. 53 of 53.) Defendant has not made any objection on the basis that these cases do not involve potentially covered claims, and, therefore, Defendant's objection to these cases will be overruled. III. Conclusion For the reasons stated herein, the court will overrule all of Defendant's objections to Plaintiff's requests for payment of defense and indemnification costs in the underlying asbestos actions, and finds Defendant liable for the payment of those costs. An appropriate order will issue. All Citations Slip Copy, 2016 WL 775050 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:15-cv-00539-MWB Document 79-1 Filed 03/24/17 Page 177 of 177 IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA WESTFIELD INSURANCE COMPANY v. ICON LEGACY CUSTOM MODULAR HOMES and ICON LEGACY : : CIVIL ACTION NO. : 4:15-cv-00539-MWB : : (Hon. Matthew W. Brann) : : : Document filed electronically : CERTIFICATE OF SERVICE The undersigned hereby certifies that on this date a true and correct copy of the foregoing was served upon the following via electronic filing: Jonathan H. Rudd, Esq. Mcnees Wallace & Nurick P.O. Box 1166 100 Pine Street Harrisburg, PA 17108-1166 __________________________ Dated: March 24, 2017 James C. Clark, Esq. Case 4:15-cv-00539-MWB Document 79-2 Filed 03/24/17 Page 1 of 1
