Court Limits Discovery in Absence of Bad Faith Claim

The United States District Court for the Middle District of Florida, applying federal law, has denied a motion to compel an insurer to produce its claims file, underwriting file, and claims handling protocols in coverage litigation, holding that such documents are not relevant in the absence of bad faith allegations. Koster v. Landmark Am. Ins. Co., 2016 WL 3014605 (M.D. Fla. May 20, 2016). The court further held that, while information about why the insurer denied coverage is relevant and discoverable, information about what steps the insurer took to arrive at that decision is not relevant in the absence of a bad faith claim and is therefore not discoverable.

Plaintiffs sued the insured accounting firm alleging sale of unregistered securities, breach of fiduciary duty, and unjust enrichment. The accounting firm’s insurer denied coverage based on prior litigation and professional services exclusions. The accounting firm settled the underlying claims and assigned its rights under the policy to the plaintiffs. In discovery, plaintiffs moved to compel the insurer to produce certain documents, including its claims file, underwriting file, and claims handling protocols.

The court denied the plaintiffs’ motion to compel in large part. In support of its relevance objections, the insurer argued that the requested materials only would be relevant to show how it handled the insured’s claims for coverage and therefore such requests would be premature unless and until plaintiffs alleged that the insurer’s denial of coverage was in bad faith. Plaintiffs argued that such documents would be relevant to interpreting allegedly ambiguous terms in the policy. In denying plaintiffs’ motion to compel with respect to the claims file, underwriting file, and claims handling protocols, the court concluded that plaintiffs failed to explain how such documents would clarify any purported ambiguities, and the materials would not be relevant to the coverage dispute.

The court also sustained the insurer’s objection to a contention interrogatory that broadly requested that the insurer provide all information it had for each of its denials, affirmative defenses, and counterclaims. The court concluded that contention interrogatories should be used sparingly and narrowly tailored rather than seeking a “detailed narrative of Defendant’s entire case.”