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Vol. 5, Iss. 11
November 9, 2016

Federal Court Provides A Tutorial On “Other Claims” Discovery
Wow That’s A Lot Of Lawyers


First Horizon National Corp. v. Houston Casualty Company, No. 15-2235 (W.D. Tenn. Oct. 5, 2016) involves coverage for a $212.5 million settlement, of a False Claim Act claim, concerning errors and omissions in underwriting and origination of HUD mortgage loans. In general, one of the issues in the case was the applicability of an inter-related acts provision. It’s obviously a big case and it sounds pretty complicated. There are a lot of lawyers involved. The Lexis opinion lists 36 of them under the Counsel heading. The United States Constitution was ratified with just 39 signers.

The recent decision from the Tennessee federal court in First Horizon is long and generally involves the resolution of discovery disputes. I rarely address discovery dispute cases in Coverage Opinions. They are usually case specific -- not to mention deadly dull. But First Horizon caught my attention because of its lengthy treatment of the discoverability of an insurer’s treatment of similar claims. That is an interesting discovery issue and one with potentially significant (and labor intensive) consequences if allowed.

The insured propounded the following interrogatory on defendant insurers: “Identify by style of the case, case number, court, and status, any other lawsuit or litigation . . . initiated in the past 10 years, involving the denial of a claim (in whole or in part) for indemnification or defense pursuant to an executive risk insurance policy . . . similar to First Tennessee’s Policies, to which You have been a party, and where You asserted the defense that the underlying claim at issue was barred because it arises ‘out of the same or related Wrongful Acts’ (or similar language) contained in a matter reported under a prior policy period. Provide the status or outcome of each such matter.”

Not surprisingly the insurers objected to this discovery request. The court denied it for several reasons: “Under these circumstances, permitting the Plaintiffs to conduct ‘other claims’ discovery would indeed result in a fishing expedition, with little or no relevance to the Plaintiffs’ breach of contract or bad faith claim and with significant and disproportionate burden to the Defendants and the increased potential for further discovery disputes.”

However, of note, while the court denied the discovery request, it did not conclude that “other claims” discovery is per se prohibited. There had not yet been a determination whether the policy language at issue was ambiguous. Therefore, if any ambiguity were found to exist, the parties may present extrinsic evidence of the parties’ intent. Interestingly, the court then concluded that, even though there had not yet been a determination whether the policy language was ambiguous, it would address whether the materials sought would aid in the interpretation of the policy. The rationale being that, if discovery must wait until there were a finding of ambiguity, it would delay resolution of the dispute.

The court’s explanation, for its denial of “other claims” discovery, under these circumstances, is somewhat lengthy. To keep it simple I’ll set out verbatim a few of the reasons here. Needless to say, if you are involved with this issue, the case is a must read.

Relevance: “As the [Insurers] maintain, the positions they took in other claims depended on the policy language and the facts of the particular case, which are necessarily different from the policies and facts of the instant case. Even if the Defendants have in fact taken conflicting positions in the past regarding the same terms at issue in this case, it would not aid the court in interpreting the policy language at issue or in determining the Defendants’ intent in the instant case. Any relevance would be remote and the discovery requested would amount to nothing more than a fishing expedition. Further, even if such information may be considered remotely relevant, as discussed infra, its production would be unduly burdensome and disproportionate to this litigation.”

Even for purposes of bad faith, the court concluded that the “other claims” information was not relevant: “Discovery of ‘other claims’ is also irrelevant to the Plaintiffs’ bad faith denial of insurance coverage claim for the same reason that it is irrelevant to contract interpretation. Other bad faith claims ‘involve circumstances unique to each’ policyholder, such as different facts, different policies, and different applicable law.”

Unduly Burdensome and Disproportionate: “[T]he insurers’ files are not catalogued by coverage issues and each insurer would have to conduct a manual review of claims over the past 10 years to identify the claims that meet the criteria of the Plaintiffs’ interrogatory requests. Therefore, the Defendants cannot conduct a simple electronic search to produce the responsive documents. Furthermore, the Defendants have identified other substantial difficulties with the discovery requests. Even though the Plaintiffs indicated at the hearing that they were willing to limit the scope of requests, the requests are still burdensome. As previously indicated, the Defendants would have to identify the claims responsive to the requests, which task, they aver in their affidavits, would require thousands of hours of manual review. Once the claim files were identified, each Defendant would have to review each document in the file (because the Plaintiffs in essence request every document found in the claim file) and ensure that it does not contain privileged or confidential information, in some cases seek a court order or permission of the third party to produce the document, and ensure compliance with state law and regulation. Each Defendant estimates that these tasks would take thousands of hours to complete and would significantly interfere with their respective business operations.”

First Horizon is an interesting decision. While the court observed that “other claims” discovery is not per se prohibited, it also left no doubt that the barrier to obtaining such information is extremely high.

[The decision also addressed, in some detail, the discoverability of claims handling and underwriting manuals, reinsurance agreements and insurer reserves. All of the insured’s requests were denied.]

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