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GSL Group, Inc. v. Travelers Indemnity Co.

United States District Court, D. Colorado

September 6, 2019

GSL GROUP, INC., Plaintiff,


          Marcia S. Krieger Senior United States District Judge

         THIS MATTER comes before the Court pursuant to the Defendant's (“Travelers”) Objections (# 41) to the Magistrate Judge's December 5, 2018 Order (# 38) quashing, in part, Travelers' discovery subpoena, and third-party Impact Claim Services, Inc.'s (“Impact”) response (# 44); and Travelers' Motion for Leave to File a Second Amended Answer and Counterclaim (3 51), Plaintiff GSL Group, Inc.'s (“GSL”) response (# 53), and Travelers' reply (# 60). Also pending is Travelers' Motion to Stay Discovery (# 52) pending a ruling on its Objections, which the Court denies as moot.


         According to the Complaint (# 3), GSL owns certain commercial property in Denver, Colorado. Travelers is the insurer on an all-risk policy issued to GSL. On June 5, 2015, a hail storm allegedly caused damage to GSL's property, and GSL made claim on the Travelers policy. GSL retained a public adjuster, Derek O'Driscoll, and his firm, Impact Claim Services (collectively, “Impact” unless otherwise specified) to pursue the claim on its behalf.

         Travelers initially denied the claim because it found no damage to the property that was caused by the hail storm. For the remainder of 2015 and into early 2016, GSL repeatedly presented Travelers with additional information about the claim, requesting that it reconsider the denial. Travelers, for its part, maintained that coverage was properly denied. In February 2016, however, Travelers reversed course, finding that some of the damage claimed by GSL was covered and estimated the value of the claim to be $500, 000. The parties continued to discuss the claim and its valuation, and by July 2016, Travelers had revised its estimate of the covered loss to be more than $950, 000.

         In August 2016, however, purporting to tender payment of the undisputed amount of the claim, Travelers paid GSL about $275, 000. The parties continued to discuss the claim, its value, and Travelers' estimates through the remainder of 2016. Near the end of that year, GSL invoked the appraisal provision of the policy, by which each side nominated an appraiser and the two appraisers jointly selected an umpire to resolve valuation disputes. Each side nominated an appraiser. GSL's appraiser was Juan Cartaya. By September 2017, the appraisers had reached an agreed-upon valuation of the claim at approximately $1.6 million. In October 2017, Travelers paid the agreed-upon amount.

         GSL then commenced the instant action, alleging claims for: (i) common-law bad faith breach of contract, and (ii) unreasonable delay in payments in violation of C.R.S. § 10-3-1115 and -1116. In response, Travelers raised a number of affirmative defenses, including that GSL's claims were barred due to GSL's non-compliance with policy provisions requiring “that both parties select a competent and impartial appraiser.”

         In July 2018, the undersigned issued a decision in Copper Oaks Master Home Owners Association v. American Family Mut. Ins. Co., 2018 WL 3536324 (D.Colo. July 23, 2018), vacating an appraisal award upon a finding, among other things, that the insured's designated appraiser was not “impartial” as required by the parties' contract.[1] The instant case shares several commonalities with Copper Oaks. GSL's counsel is the Merlin Law Group (“Merlin”), which also represented the insured in the Copper Oaks matter. Travelers' counsel also represented the insurer in Copper Oaks. Both GSL and the insured in Copper Oaks retained Impact to serve as a public adjuster. Believing that it could challenge Mr. Cartaya's impartiality on the same grounds litigated in Copper Oaks, Travelers issued a subpoena to Impact, requesting production of some 19 categories of documents.[2]

         Impact objected to certain requests, and, following the Magistrate Judge's procedure for discovery disputes, requested (# 37) that the Magistrate Judge conduct a hearing to address it. Construing the dispute as raising a motion by Impact to quash the subpoena, the Magistrate Judge conducted a hearing on December 5, 2018. Extensive arguments were presented by Travelers and Impact (and, despite its concession that it lacked standing to challenge the Impact subpoena, from GSL as well). The Magistrate Judge ultimately quashed the subpoena as to some of Travelers' requests(# 38), directing Impact to produce only “the public adjusting file as it pertains to this case and this claim, and non-privileged communications regarding the GSL claim.” The Magistrate Judge found: (i) that there is a “high burden that applies when discovery is sought from non-parties” like Impact; (ii) that the cases Travelers relied upon - Copper Oaks and Auto-Owners Ins. Co. v. Summit Park Townhome Assn., 198 F.Supp.3d 1239 (D.Colo. 2016) - were distinguishable[3]. Furthermore, the standard for assessing Mr. Cartaya's alleged partiality was that provided by the then-applicable Colorado Court of Appeals decision in Owners Ins. Co. v. Dakota Station II Condominium Assn., 444 P.3d 784 (Colo.App. 2017), rev'd in part, 443 P.3d 47 (Colo. 2019), namely, whether Mr. Cartaya had “acted with bias, in bad faith, or dishonesty” when formulating his appraisal. The Magistrate Judge also found that concerns about Mr. Cartaya's partiality were somewhat vitiated by the fact that Travelers' appraiser ultimately agreed with Mr. Cartaya on the claim's valuation, and that the requests upon Impact about the potential partiality of Mr. Cartaya were unduly burdensome, particularly because Travelers sought “a broad swath of information, in some instances going back six years, simply because that is when Impact began doing business in Colorado.”

         Travelers filed timely Objections (# 41) to the Magistrate Judge's ruling. Travelers contends: (i) the Magistrate Judge erred in applying Fed.R.Civ.P. 26(b)'s standard of allowing discovery on relevant matters; (ii) the Magistrate Judge erred in requiring Travelers to prove the existence of a disputed fact - the parties' agreement to the requirements of the DORA bulletin - in order to obtain discovery (and that newly-disclosed evidence establishes that such an agreement existed); (iii) the Magistrate Judge erred in treating Impact as a non-party because Impact “voluntarily inject[ed] itself into the dispute” by entering into an agreement with GSL to serve as public adjuster and receive a contingent fee; and (iv) the Magistrate Judge erred in finding that Travelers' request for Impact's “native” Xactimate file was overly broad.

         Shortly thereafter, Travelers moved (# 51) for leave to file a Second Amended Answer so that it could assert new counterclaims based on its recent discovery of facts relating to Mr. Cartaya's alleged partiality: (i) a claim for a declaratory judgment that no coverage exists under the policy for GSL's claims because GSL did not comply with the policy's appraisal provision by appointing an impartial appraiser; (ii) a claim seeking vacatur of the appraisal award; (iii) a claim that GSL materially breached the parties' contract by appointing a partial appraiser and by concealing material facts from Travelers about Mr. Cartaya's partiality, (iv) and (v) claims for breach of the covenant of good faith and fair dealing and unjust enrichment, based on essentially the same facts as the breach of contract claim; and (vi) a claim for recoupment of the sums already paid by Travelers to GSL.


         A. Objections to the discovery ruling

         Pursuant to 28 U.S.C. § 636(b)(1)(A), the Court reviews discovery rulings made by the Magistrate Judge to determine whether they are “clearly erroneous or contrary to law.” See also Fed. R. Civ. P. 72(a). Under the “clearly erroneous” standard, the Court must affirm the ruling unless the Court has “a definite and firm conviction” that the Magistrate Judge “made a clear error of judgment or exceeded ...

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