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Phoenix Insurance Co. v. Cantex Inc.

United States District Court, District of Colorado

April 14, 2015

THE PHOENIX INSURANCE COMPANY, THE TRAVELERS INDEMNITY COMPANY, and TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, Plaintiffs,
v.
CANTEX, INC., LANDMARK AMERICAN INSURANCE COMPANY, OLD REPUBLIC INSURANCE COMPANY, CONTINENTAL INSURANCE COMPANY, and AMERISURE INSURANCE COMPANY Defendants, and CANTEX, INC., Third Party Plaintiff,
v.
SCOTTSDALE INSURANCE COMPANY, and CONTINENTAL CASUALTY COMPANY, Third Party Defendants.

ORDER ON MOTIONS FOR PROTECTIVE ORDER

Nina Y. Wang United States Magistrate Judge.

This matter comes before the court on Third Party Defendant Scottsdale Insurance Company’s Motion for Protetctive [sic] Order filed April 7, 2015 [#224] and Insurers’[1] Motion for Protective Order filed April 7, 2015 [#228] (collectively, “Motions for Protective Order”). These motions were referred to this Magistrate Judge pursuant to the Order of Reference dated February 27, 2013 [#3] and Order of Reassignment dated February 9, 2015 [#218], as well as the Memoranda dated April 7 and 8, 2015, respectively [#226, #229]. The court has reviewed the papers filed by the Parties, the applicable case law, and heard argument by the Parties during the telephonic discovery conference on April 13, 2015. Having been sufficiently advised of the premises, IT IS ORDERED that the Motions for Protective Order are hereby DENIED.

BACKGROUND

Defendant Cantex, Inc. (“Cantex”) sued Concrete Management Corp. (“CMC”) and RBR Construction, Inc. (“RBR”), in an underlying construction defect case pending in Mohave County, Arizona. [#91]. In 2013, Plaintiffs the Phoenix Insurance Company, the Traveler’s Indemnity Company, and Travelers Property Casualty Company of America (collectively, “Plaintiffs”) defended RBR and CMC, under a reservation of rights, and then filed this declaratory judgment action requesting a declaration concerning their duty to defend and indemnify. [Id.] The case was then administratively closed pending the resolution of the underlying Arizona action. [#77].

After the verdicts in the underlying Arizona action were entered, Cantex entered an agreement in which RBR, CMC and Cantex agreed to the Judgment in Cantex’s favor against RBR in the amount of $5, 747, 658.18, plus interest, and in RBR’s favor against CMC in the amount of $4, 985, 018.56, plus interest, and less the amount, if any, which CMC’s insurers have reimbursed RBR’s insurers for RBR’s defense costs in the Underlying Litigation. [#106, at ¶ 26; #174 at ¶ 159]. CMC and RBR also assigned their claims against their insurers, including but not limited to Scottsdale Insurance Company (“Scottsdale”) and Continental Casualty Company (“Continental”) (collectively, “Third Party Defendants”) to Cantex. [#174].

Upon re-opening of this case, Cantex then asserted a Third Party Complaint against the Third Party Defendants, asserting a count for breach of contract and a count for the tort of bad faith. [#174]. Scottsdale and Continental each filed its own Motion to Dismiss the bad faith claim contained in Third Party Complaint, with Continental joining in the motion filed by Scottsdale as well. [#189, #194, #204]. Cantex and the Insurers now come before the court with a discovery dispute over the breadth of discovery.

In particular, Cantex served a Rule 30(b)(6) Deposition Notice to the Insurers, which include sixteen topics. [#224-1]. Of the sixteen topics, the Insurers object to eight of them, namely, Topics 1, 5, 6, 7, 12, 13, 15, and 16. [#228]. The Insurers organize their objections into three categories: (1) topics on drafting, marketing, negotiating, underwriting, issuing, producing and signing the Policies and other issues involving underwriting files (Topics 1 and 15) [#228 at 1-2]; (2) topics on the Insurers’ Decision on Duty to Defend (Topics 5, 6, 7, and 16) [id. at 2-4]; (3) discovery requests and 30(b)(6) topics on reserves and reinsurance [id. at 4-7]; and (4) discovery requests directed at the interpretation of the insurance contracts [Id. at 6-7]. Scottsdale states the categories as follows: (1) claims handling; (2) underwriting; and (3) reserve/reinsurance. [#224 at 3].

ANALYSIS

I. Standard of Review

The general test of discoverability is whether the materials or information sought by a discovery request “is relevant to any party's claim or defense.” Fed.R.Civ.P. 26(b)(1). This is a broad standard meant to allow the parties to discover the information necessary to prove or disprove their cases. Gomez v. Martin Marietta Corp., 50 F.3d 1511, 1520 (10th Cir. 1995). Upon a showing of “good cause” by the proponent of discovery, an even broader standard of “any matter relevant to the subject matter involved in the action” may be applied. In re Cooper Tire & Rubber Co., 568 F.3d 1180, 1188 (10th Cir. 2009). However, when the relevance of a discovery request is not apparent on the face of the request itself, the proponent of discovery bears the burden of making an initial, rebuttable showing of relevance. Thompson v. Jiffy Lube Int’l, Inc., No. 05–1203–WEB, 2007 WL 608343, at *8 n. 20 (D. Kan. Feb. 22, 2007).

In addition, the court considers the scope of the Rule 30(b)(6) topics as articulated. For a Rule 30(b)(6) deposition to function effectively, “the requesting party must take care to designate, with painstaking specificity, the particular subject areas that are intended to be questioned, and that are relevant to the issues in dispute. Berwick v. Hartford Fire Ins. Co., 2012 WL 573939, at *2 (D. Colo. Feb. 21, 2012). Against these standards, the court now turns to the categories of information in dispute between Cantex and the Insurers.

II. Topics 1 and 15

Topics 1 seeks testimony related to the drafting, marketing, negotiating, underwriting, issuing, producing, and signing the Policy, and all communications relating thereto, including but not limited to all communications with RBR and/or any broker that participated in selling the Policy to RBR [#224-1]. Topic 15 seeks information regarding the location, organization, and maintenance of claims records and underwriting files and any other information about claims regarding or relating to the Underlying Litigation and judgment resulting therefrom. In the Third Party Complaint, Cantex asserts claims for a breach of contract as well as the tort of bad faith in its Third Party Complaint against Scottsdale and Continental. [#174]. As an assignee of the insured, RBR, Cantex thus steps into the shoes of RBR (or CMC as the case might be) to assert bad faith claims that the insured had against its insurers. See Nunn v. Mid-Century Ins. Co., 244 P.3d 116, 119 (Colo. 2010). While there are pending Motions to Dismiss the bad faith claims, those have yet to be ruled upon, and therefore, the claims and underlying allegations remain in the case and subject to discovery.

Plaintiffs allege in the Third Party Complaint that Scottsdale and Continental breached their respective insurance contracts with the insured. While recognizing that the duty to indemnify is distinct and narrower than the duty to defend, the determination as to whether the insurers had a duty to indemnify RBR, and thus, Cantex as the assignee, is one that requires factual development as it is a question of fact. Cyprus Amaz Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 301 (2003). Cantex also alleges that Scottsdale and Continental ...


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