Once upon a time in a far away land (South Dakota), a policyholder by the name of Mark Lillibridge purchased a builder’s risk policy from Nautilus Insurance Company in conjunction with the remodeling of his home. In the wake of a hailstorm that caused significant damage to his home, Lillibridge expected Nautilus to handle his claim expeditiously and with his best interests in mind. Lillibridge was let down by Nautilus and ultimately waged bad faith litigation against the carrier in the United States District Court of South Dakota.1
Lillibridge made numerous requests for production and interrogatories, most of which related to the carrier’s general business practices. Nautilus responded to this discovery request with unsubstantiated boilerplate objections. After failed discussions with the carrier regarding its lackluster discovery responses, Lillibridge asked the Court to order Nautilus to provide better responses. The outcome? Well, in sum, it is safe to say the Court understood what kind of documentation and information is fair game in bad faith litigation, especially bad faith litigation involving general business practice allegations.
The Lillibridge Court ordered Nautilus to produce documentation and information concerning the carrier’s litigation history because “prior bad faith litigation may be relevant to show Nautilus’s knowledge and conduct and whether a pattern and practice of inadequate investigation, offering unreasonably low settlement offers, or other reprehensible conduct is being repeated among policyholders.” For similar reasons, the Court also ordered Nautilus to produce testimony provided by its employees in past bad faith lawsuits. The Court also ordered Nautilus to produce various personnel files. Why? Because personnel files, among other things, can contain information pertaining to claim-specific disciplinary measures, performance ratings, and bonuses.
The insurer’s claim manuals, audit materials, and quality assurance materials were ordered produced because such documentation and information can provide, among other things, claim handling context – insight as to how claims are supposed to be handled. The Court also ordered Nautilus to produce documentation and information pertaining to employee bonuses, compensation, and incentives. Such information is germane to bad faith lawsuits because the claims department is supposed to adjust claims in an effort to find coverage, not in an effort to augment corporate profit (via claim denial or lowballing) and to consequentially obtain cushy bonuses. For similar reasons, the Court also ordered Nautilus to produce information concerning its loss ratio2 and cost containment/profit maximization directives. For reasons similar to those articulated with respect to litigation history documentation and information, the Court ordered Nautilus to produce information concerning regulatory complaints (e.g., market conduct examinations). In its order, the Court noted:
[A] consideration for a punitive damages claim is whether the insurance company repeated its misdeeds as a part of a larger pattern or whether its conduct in the plaintiff’s case was a mere mistake. Thus, the fact that there may have been other regulatory complaints in other states against Nautilus that are factually or legally similar to Lillibridge’s claim is relevant, and documents related to these regulatory complaints are also discoverable.
The discovery aspects of the Lillibridge decision are important, but there is more icing on the Lillibridge cake that could prove useful for policyholder practitioners. The Court ordered Nautilus to reimburse Lillibridge for the attorney’s fees and costs incurred as a result of the motion to compel “because most of Nautilus’s responses, objections, and nondisclosure were either boilerplate or not substantially justified.”
Make use of the Lillibridge decision, folks, it’s a beaut.
To read previous posts in my series on dynamite discovery decisions, click here.
1 Lillibridge v. Nautilus Ins. Co., No. 10-4105, 2013 WL 1896825 (D.S.D. May 3, 2013).
2 “For insurance, the loss ratio is the ratio of total losses incurred (paid and reserved) in claims plus adjustment expenses divided by the total premiums earned. For example, if an insurance company pays $60 in claims for every $100 in collected premiums, then its loss ratio is 60%.” http://en.wikipedia.org/wiki/Loss_ratio