United States District Court, E.D. Texas, Sherman Division
HIDDEN COVE PARK AND MARINA; MARINE QUEST HIDDEN COVE LP; MQTXM LLC
LEXINGTON INSURANCE COMPANY; AIG CLAIMS, INC.; CHAMPION COMMERCIAL INSURANCE AGENCY LLC
MEMORANDUM OPINION AND ORDER
L. MAZZANT UNITED STATES DISTRICT JUDGE.
23, 2017, the Court held a telephonic hearing regarding a
discovery dispute in this case. Having considered the
argument of counsel and letter briefing on the dispute, the
Court orders Defendants to produce unredacted claim notes
regarding loss reserve information. Defendants agreed to
produce the redacted claim notes dated October 1, 2015
through December 8, 2015. Plaintiffs may depose
Defendants' 30(b)(6) deponent limited to the information
included in the previously redacted claim notes.
and June 2015, severe storms caused damage to Plaintiffs'
properties. The properties are insured under a single
insurance policy issued by Defendant Lexington Insurance
Company (“Lexington”). Plaintiffs allege that
Lexington and AIG (collectively, “Defendants”)
failed to properly conduct an investigation into the cause of
loss, failed to issue timely payments, and wrongfully delayed
or denied claims. Plaintiffs brought claims against Lexington
for breach of contract, violations of the Texas Unfair Claims
Practices Act, non-compliance with Texas Insurance Code
Chapter 542, and breach of common law duty of good faith and
fair dealing. The central issue in the case is the
parties' interpretation of the “Flood”
exclusion contained in the policy and its effect on
of discovery, Defendants produced a redacted version of the
claim notes associated with Plaintiffs' claims.
Defendants redacted claim notes dated October 1, 2015 through
December 8, 2015 based on the work-product privilege.
Defendant also redacted claim notes relating to loss reserves
on the basis of relevance. Plaintiffs objected to these
redactions, and on May 23, 2017, the Court held a hearing
regarding the issue. The Court ordered Defendants to provide
unredacted copies of the claim notes for in camera inspection
and asked the parties to submit letter briefs addressing
production of the unredacted claim notes.
24, 2017, Defendants sent the Court unredacted versions of
the claim notes for in camera inspection. On May 26, 2017,
Plaintiffs sent the Court a letter regarding their request
for an unredacted version of Defendants' insurance claim
notes and the opportunity to redepose Defendants'
30(b)(6) representative regarding the redacted information.
Plaintiffs argued the notes between October 1, 2015 and
December 8, 2015 were not protected by the work-product
doctrine because the decision to pay the claim was not made
until December 8, 2015. Plaintiffs further argued that loss
reserve notes were relevant because “the reserve set
for the claim would provide insight into when Defendant
reached its conclusion regarding the flood sublimit, and how
long it took Defendant to reach that conclusion, evidence of
a potential breach of the Prompt Payment of Claims
Act.” Plaintiffs further argued loss reserve notes were
relevant to whether Defendants denied Plaintiffs claim in bad
faith “as it would demonstrate that it believed its own
liability to be higher than what it paid.”
30, 2017, Defendants sent the Court a response letter.
Defendants agreed to produce the redacted claims dated
between October 1, 2015 and December 8, 2015. However,
Defendants did not agree to remove redactions regarding loss
reserves. Defendants argue that notes regarding the loss
reserves are not relevant because “Defendants'
initial setting of reserves took place before they had a copy
of the policy in hand” and thus “the issue of
reserves had absolutely no relevance to the interpretation of
the policy language.” Defendants also objected to
Plaintiffs' request to redepose the 30(b)(6) deponent,
arguing the additional notes to be produced contain very
little, if any, new information.
31, 2017, Plaintiffs sent the Court a reply letter.
Plaintiffs argue that the notes regarding loss reserves are
discoverable because “reserve information in a bad
faith suit may be evidence of Defendant's state of mind
in adjusting the claim.” Plaintiffs further reply that
even if Defendants did not have a copy of the insurance
policy while adjusting the claim, Lexington could have easily
accessed its own insurance policy. Plaintiffs also argue that
the policy at issue was a renewal of the previous year's
policy, which was in Defendants' possession.
Federal Rule of Civil Procedure 26(b)(1), parties “may
obtain discovery regarding any nonprivileged matter that is
relevant to any party's claim or defense . . . .”
Fed.R.Civ.P. 26(b)(1). Relevance, for the purposes of Rule
26(b)(1), is when the request is reasonably calculated to
lead to the discovery of admissible evidence. Id.;
Crosby v. La. Health & Indem. Co., 647 F.3d 258,
262 (5th Cir. 2011). It is well-established that
“control of discovery is committed to the sound
discretion of the trial court.” Freeman v. United
States, 556 F.3d 326, 341 (5th Cir. 2009) (quoting
Williamson v. U.S. Dep't of Agric., 815 F.2d
368, 382 (5th Cir. 1987)).
Court finds the claim notes regarding loss reserve are
relevant to Plaintiffs' claims. “In cases involving
alleged bad faith on the part of the insurer in denying
coverage, the amount of the loss reserve set by the insurer
may be relevant because it could well belie a later claim
that the insurer thought in good faith that there was no
possibility of the claim falling within coverage."
Trinity E. Energy, LLC v. St. Paul Surplus Lines Ins.
Co., No. 4:11-CV-814-Y, 2013 WL 12124022, at *2 (N.D.
Tex. Mar. 8, 2013) (citations omitted). In the context of a
bad faith claim, "evidence regarding [Defendants']
loss reserves is irrelevant if it lacks any tendency to show
that [Defendants] knew or should have known that its
liability was reasonably clear, yet still denied
Plaintiffs' claim." Id.
argue the loss reserve information is irrelevant because they
set the reserves before making any interpretation regarding
the policy language. Defendants state they did not yet have
the policy when they set the reserves. However, the policy at
issue was a renewal of the previous year's policy. The
loss reserve information is relevant because it could show
that Defendant knew or should have known its liability was
reasonably clear, ...