Harco Nat'l Ins. Co. v. Grant Thornton LLP

Harco Nat’l Ins. Co. v. Grant Thornton LLP, 2008 NCBC 5

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF WAKE

HARCO NATIONAL INSURANCE )
COMPANY, )
)
Plaintiff, )
) 05 CVS 2500
v. )
)
GRANT THORNTON LLP, )
)
Defendant. )

SIRIUS AMERICA INSURANCE )
COMPANY, )
)
Plaintiff, )
) 05 CVS 6212
v. )
)
GRANT THORNTON LLP, )
)
Defendant. )

HARCO NATIONAL INSURANCE )
COMPANY, )
)
Plaintiff, )
)
v. ) 05 CVS 2299
)
BDO SEIDMAN, LLP, )
)
Defendant. )

ORDER ON PLAINTIFF’S MOTION TO COMPEL GRANT THORNTON TO
RESPOND TO INTERROGATORY NO. 27
{1} This matter is before the Court on Plaintiff Harco National Insurance
Company’s (“Harco”) Motion to Compel additional information concerning
Defendant Grant Thornton’s (“Grant Thornton”) insurance coverage. Specifically
Harco seeks to learn how much coverage remains on the policies and information to
verify that amount. It already knows the face value of coverage available to Grant
Thornton for the years at issue.1
{2} Harco seeks to compel Grant Thornton to fully answer Interrogatory 27,
which asks:
For each insurance policy that does, will or may provide coverage,
whether by primary or excess coverage, for claims, causes of action or
damages claimed against Grant Thornton by Harco in the First
Amended Complaint, and as amended, in this action, please state:
a. Whether other claims have been made against the policy for the
2005 coverage year;
b. The amount of the claims, defense costs, and/or deductions
already subtracted from each policy for the 2005 coverage year;
and
c. The remaining balances of coverage on each policy for the 2005
coverage year.

(Pl.’s Mot. Compel ¶ 3.)
{3} It is undisputed that other claims have been made against those policies
which might provide coverage for the claims asserted by Harco in the Amended
Complaint and that defense costs have also been paid from those policies. The
policies are “claims made” policies. That means that the full coverage amount can
or may be eroded by prior claims and defense costs. Harco wants to know the
amount of the remaining coverage and what has caused the diminution in value.
{4} The motion to compel requires interpretation of North Carolina Rule of
Civil Procedure 26(b)(2). There is no North Carolina precedent for the specific
interpretation required here. Rule 26(b)(2) provides that a party “may obtain

1 The policies have been produced subject to the Protective Order in place in this case.
discovery of the existence and contents of any insurance agreement.” 2 Grant
Thornton would read this language restrictively to limit discovery to the actual
policies themselves. Harco would read this language broadly to include any
information about the availability of coverage. Neither interpretation is correct.
{5} The North Carolina Supreme Court has made it clear that the purpose of
the rule was to place parties on a level playing field in settlement negotiations. In
Marks v. Thompson, 282 N.C. 174, 192 S.E.2d 311 (1972), the Supreme Court
upheld lower court rulings requiring a defendant in an automobile negligence case
to disclose the amount of the coverage under his policies. In doing so, the Court
specifically stated that the purpose of the 1971 amendments to Rule 26 was to
“enable the parties to conduct settlement negotiations realistically, that is, with
equal knowledge of the true facts as to liability insurance coverage.” Id. at 181, 192
S.E.2d at 316. The result would be, in the Court’s words, “to equalize the
knowledge of both parties, with the result that settlements will be based more upon
a fair evaluation of plaintiff’s claim and less upon ignorant conjecture concerning
the depth of defendant’s pocket.” Id. at 187, 192 S.E.2d at 319 (quoting
Landkammer v. O’Laughlin, 45 F.R.D. 240 (S.D. Iowa 1968)). The clear direction of
the Marks decision is that when it comes time to negotiate, the amount of liability
coverage available to a defendant should be disclosed to the plaintiff. The Marks
case stands for no broader interpretation of the rule. It clearly stands for the
proposition that a plaintiff is entitled to know the “true facts” about the amount of
coverage. The true facts would consist of the actual amount remaining to be paid
under the policy if that amount differed from the face amount of the policy.
{6} Since the 1971 amendment to the rule was adopted, mediation has become
an accepted part of our litigation process and these parties will mediate this case
prior to trial. The parties are required to engage in mediation in good faith.

2 “A party may obtain discovery of the existence and contents of any insurance agreement under

which any person carrying on an insurance business may be liable to satisfy part or all of a judgment
which may be entered in the action or to indemnify or reimburse for payments made to satisfy the
judgment. Information concerning the insurance agreement is not by reason of disclosure admissible
in evidence at trial. For purposes of this subsection, an application for insurance shall not be treated
as part of an insurance agreement.” N.C.R. Civ. P. 26(b)(2).
Refusing to provide accurate information about liability insurance coverage would
not be mediating in good faith. To read the rule to permit obfuscation of the true
facts about coverage would render the Marks decision meaningless.
{7} The North Carolina rule is similar to Federal Rule of Civil Procedure
26(a)(1)(A)(iv). The federal rule has been fairly consistently interpreted to narrowly
restrict the information required to be produced. In fact some authorities and
federal decisions directly hold that the amounts remaining under coverage are not
required to be produced. Moore’s Federal Practice, Section 26.22 states the
following about the analogous federal rule: “Rule 26(a)(1)(A)(iv) merely requires the
disclosure of the insurance agreement itself, and does not require the production of
other documents relating to the insurance, such as information regarding the
remaining policy limits and information regarding any release of the insurer’s
obligations under the policy.” That interpretation is supported by the cases cited by
Grant Thornton. (Def.’s Resp. Br. Opp’n Mot. Compel 4–5 (listing cases supporting
the interpretation of federal Rule 26(a)(1)(A)(iv) stated above).)
{8} The rationale behind a narrow construction of the rule is clear. It
prevents discovery between parties from evolving into a needless side dispute over
what a defendant’s coverage ought to be — an issue unrelated to the merits of the
case. Here, Harco has asked for information that is in flux and may change with
frequency. It is not for this Court to resolve disputes between Grant Thornton and
its insurance companies, nor is that a matter in which Harco has any presently
vested interest. The additional information it seeks is not related to the merits of
this case and can only lead to unnecessary argument over the policy limits. The
additional policy information sought by Harco is not relevant to the merits of this
case. In addition, the information will change over time rendering the only
pertinent information the amount of coverage available when settlement
negotiations or mediation take place.
{9} Where the North Carolina Supreme Court has provided guidance on one
of our rules that differs from the interpretation of an analogous federal rule by the
federal courts, this Court is bound by the North Carolina Supreme Court’s direction.
Accordingly, the motion to compel is granted to the extent that Grant Thornton is
required to disclose to Harco the remaining amount of coverage under its applicable
liability insurance policies. Such disclosure shall be made at least ten days prior to
the beginning of mediation or settlement negotiations. The motion to compel is
denied to the extent it seeks additional information about the coverage.
{10} IT IS SO ORDERED this the 4th day of March 2008.

The Honorable Ben F. Tennille
Chief Special Superior Court Judge
for Complex Business Cases