Over five years ago, I had a hand in the motion practice that led to the lovely Viking Yacht Co. discovery order that is the focus of this post.1 So, in addition to discussing the order, I will share some snippets from the briefing that was at play.
The Viking Yacht Co. decision is pro-policyholder in several respects, but this post is confined to an aspect of the decision I believe is underutilized by policyholder attorneys. The law is pretty clear that policyholder attorneys can discover information and documents pertaining to similarly-situated insureds (or other claims) while immersed in an extra-contractual (a/k/a/ bad faith) action, to learn whether the insurer’s reprehensible claim handling was unique to the insured or a general business practice.2 But what about discovering information and documents pertaining to similarly-situated insureds (or other claims) while immersed in a breach of contract action? Well, as the Viking Yacht Co. decision makes clear, this kind of discovery can be fair game in a breach of contract action.
In Viking Yacht Co., the meaning and application of a “newly acquired property” policy provision was a central issue in the breach of contract of action.3 The discovery request in Viking Yacht Co. read as follows:
All claims files and other documents referencing or concerning, in any way, any instances in which [Affiliated FM has]:
(a) received notification from a policyholder o[f] newly acquired property, but [Affiliated FM] declined to add the newly acquired property to the policyholder’s policy other than by endorsement;
(b) [Affiliated FM] added newly acquired property to a policy by endorsement, but did so with an exclusion for wind and/or hail for that property;
(c) [Affiliated FM has] paid a claim for a loss by a policyholder after the policyholder notified [Affiliated FM] of newly acquired property, but [Affiliated FM] had not responded to the policyholder by adding the newly acquired property to the policy, adding the newly acquired property to the policy by endorsement, or denied the policyholder’s request to add the newly acquired property.
(d) [Affiliate FM has] rejected a claim for a loss by a policyholder after the policyholder notified [Affiliated FM] of newly acquired property, but [Affiliated FM] had not responded to the policyholder by adding the newly acquired property to the policy, adding the newly acquired property to the policy by endorsement, or denied the policyholder’s request to add the newly acquired property.
Affiliated FM’s objected to this request: “Affiliated FM objects to this Request in that it is overbroad, unduly burdensome and not reasonably likely to lead to discovery of relevant, admissible evidence. Furthermore, Affiliated FM objects to this Request in that it seeks ‘bad faith’ discovery, which is not discoverable until a determination of coverage on the underlying claim has been made.” Viking Yacht Co.’s motion to compel argued:
[Affiliated FM’s] practices concerning the application of the newly acquired property provision are acutely relevant to this case. This is because [Affiliated FM] takes contrary positions: on the one hand, [Affiliated FM] claims that Viking [Yacht Co.] would have been provided coverage had it not reported the newly acquired property until after the hurricane; and on the other hand, [Affiliated FM] claims that Viking [Yacht Co.] had to report the newly acquired property immediately. Viking [Yacht Co.] accordingly seeks to discover whether other [Affiliated FM] policyholders have inconsistently or singularly been treated the same way as a course of (mis)performance. Simply put, how [Affiliated FM] treats other policyholders with like issues is relevant to the interpretation which could or should be placed on the policy language and issues pertinent to Viking [Yacht Co.].
In reply to Affiliated FM’s response to the motion to compel, Viking Yacht Co. argued, in part:
[Affiliated FM’s] practice concerning the application of the Newly Acquired Property provision is narrowly tailored to obtain discovery acutely relevant to this case. How [Affiliated FM] has treated other policyholders with like issues is relevant to the interpretation of the relevant policy language and issues pertinent to this case. …
Courts nationwide have required insurers to produce the claims files of other insureds where the insurers made similar and unavailing arguments. See S.N.A. Nut Co. v. Nat’l Union Fire Ins. Co., 1996 WL 31155 at *4 (N.D. Ill. 1996) (approving bankruptcy court’s order sanctioning insurer for failing to produce 50 claim files relating to other insureds); see also Rhone-Poulenc Rorer Inc. v. Home Indem. Co., 1991 WL 78200 at *2-3 (E.D. Pa. 1991) (claims files of other insureds and the drafting history sought by the insured were ‘reasonably calculated to lead to the discovery of admissible evidence;’ other claims files ‘may show’ that the insurer has interpreted policy language inconsistently (citing Fed. R. Civ. P. 26(b)); Nestle Foods Corp. v. Aetna Cas. & Sur. Co., 135 F.R.D. 101, 106-107 (D.N.J. 1990) (requiring the production of other insureds’ claims files despite insurer’s argument that they were irrelevant and that the request was unduly burdensome); Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. EPT Management Company, et al., No. 1:06-CV-024-CAP (N.D. Ga. March 2, 2007) (finding claims files for third parties relevant and discoverable). …
The U.S. District Court for the Southern District of Florida agreed with Viking Yacht Co., holding:
Viking’s Motion as it relates to these Requests is granted. These Requests are clearly relevant to this case as the information obtained may shed light on the alleged inconsistent positions AFM has taken with regard to reporting requirements. How AFM treats other policyholders with like issues is manifestly relevant to the interpretation placed on the policy language.
Make use of the Viking Yacht Co. decision in your breach of contract actions, folks.
1 Viking Yacht Co. v. Affiliated FM Ins Co., No. 07–80341–CIV, 2008 WL 8715540 (S.D. Fla. Feb. 7, 2008).
2 Demonstrating a reprehensible general business practice can lead to punitive damages.
3 Contra proferentem is alive and well in Florida. Contra proferentem means that ambiguous contract language is to be construed against the party that drafted the contract. In the insurance world, insurance companies draft insurance contracts, not policyholders.