Homeland Insurance Company of New York v. Powell Hospital District No 1 et al

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Case 1:15-cv-00031-ABJ Document 137 Filed 04/05/19 Page 1 of 11

UNITED STATES DISTRICT COUR
FOR THE DISTRICT OF WYOMING

HOMELAND INSURANCE COMPANY OF
NEW YORK,

Plaintiff,
Vv. Case Number: 1:15-cv-00031-ABJ

SCOTT J. GOLDSTEIN, on behalf of Powell
Valley Healthcare Inc,

Defendant,
AND

SCOTT J. GOLDSTEIN, on behalf of Powell
Valley Healthcare Inc,

Counter-Claimant,
Vv.

, HOMELAND INSURANCE COMPANY
OF NEW YORK and LEXINGTON
INSURANCE COMPANY,

Counter-Defendants.

ORDER ON DEFENDANT’S MOTION TO COMPEL
This matter comes before this Court upon Defendant’s Motion to Compel [Doc. 121].
Plaintiff Homeland Insurance Company of New York (“Homeland”) brought the underlying case
seeking a declaratory judgment as to its obligations under the insurance policy it issued to
Defendant Powell Valley Healthcare (“Powell”)! [Doc. 1 p. 2]. During the period in which

Homeland insured Powell, Powell was sued multiple times for negligent care provided by its Dr.

! Following Powell’s bankruptcy, Scott J. Goldstein became Powell’s Personal Injury Trustee, and
subsequently supplanted Powell as the party in this matter [Doc. 98}.

AUTHENTICATED
U.S. GOVERNMENT.
INFORMATION

GPO

1

Case 1:15-cv-00031-ABJ Document 137 Filed 04/05/19 Page 2 of 11

Jeffrey Hansen (“Dr. Hansen”). Jd. ‘In January 2016, the case was bifurcated, with the first phase
addressing the insurance coverage’s scope and the second phase, if necessary, addressing bad faith
[Doc. 57]. The facts of this case are complex and extensive and will not be set out herein. For
purposes of this motion it is only significant that a dispute exists as to the applicability of the
Homeland policy to certain malpractice claims related to Dr. Hansen which arose during the period
of coverage for the Homeland policy.

Powell now moves to compel all underwriting files related to Homeland’s Powell policy
and the identify of those who drafted and underwrote it [Doc. 122]. In addition, Powell seeks the
production of a privilege log identifying what specific underwriting documents Homeland is
withholding. Jd. The disputed requests are contained in Interrogatories 4 and 11, and Requests
for Production 3, 9, 14, 16, and 22 [Doc. 123-1]. Homeland has refused to produce these
documents and information, arguing Powell’s requests are irrelevant to the first phase claims and
that some of Powell’s requests are not properly before the Court [Doc. 123].

A. Standard of Review

The Federal Rules of Civil Procedure allow parties to

obtain discovery regarding any nonprivileged matter that is relevant to any party's

claim or defense and proportional to the needs of the case, considering the

importance of the issues at stake in the action, the amount in controversy, the

parties’ relative access to relevant information, the parties’ resources, the
importance of the discovery in resolving the issues, and whether the burden or
expense of the proposed discovery outweighs its likely benefit.

Fed.R.Civ.P. 26(b)(1).
Whether to permit discovery is “entrusted to the sound discretion of the trial courts.” Punt

v. Kelly Servs., 862 F.3d 1040, 1047 (10th Cir. 2017) (internal quotation marks omitted). If a

discovery request appears facially relevant, the burden is on the “resisting party to establish the

Case 1:15-cv-00031-ABJ Document 137 Filed 04/05/19 Page 3 of 11

request is not relevant by showing the request (1) does not come within the scope of relevance as
defined under Fed. R. Civ. P. 26(b)(1), or (2) is of such marginal relevance that the potential harm
occasioned by discovery would outweigh the ordinary presumption in favor of broad discovery.”
Sinclair Wyoming Ref. Co. v. A&B Builders, Ltd., 2017 WL 10309306, at *5 (D. Wyo. Oct. 31,
2017) (internal quotation marks omitted). Because this Court has diversity jurisdiction, Wyoming
law applies to the underlying substantive issues. Sanchez v. Home Depot, Inc.,2014 WL 2986672,
at *2 (D. Wyo. July 2, 2014).

B. Meet & Confer Requirements

Homeland claims Powell never conferred with them on their objections regarding Requests
for Production (“RFPs”) 14, 16 and 22 [Doc. 123 pp. 2-3]. According to Homeland, those RFPs
were contained in Powell’s second set of requests and were not discussed before filing this motion.
Id. Powell has not challenged Homeland’s characterization that the parties never conferred on
Powell’s objections to RFPs 14, 16, and 22.

This Court “will not entertain any motions relating to discovery disputes unless counsel
for the moving party has first conferred.” U.S.D.C.L.R. 37.1(b). Thus, the issue is not yet
properly before this Court, and the Court will only consider Interrogatories 4 and 11, and Requests
for Production 3 and 9. Should a dispute remain as to RFPs 14, 16 and 22, the parties are welcome
to raise the issue at a telephonic status conference to the degree the objections are not resolved by
this order.

C. Discovery

In determining the appropriate scope of discovery under the current Rule 26(b)(1) the court
must determine: (1) is the information privileged; (2) is it relevant to a claim or defense; and (3)

is it proportional to the needs of the case. Gordon v. T.G.R. Logistics, Inc., 321 F.R.D. 401, 402

Case 1:15-cv-00031-ABJ Document 137 Filed 04/05/19 Page 4 of 11

(D. Wyo. 2017). Powell seeks the underwriting files related to Homeland’s Powell policy and the
identify of those who drafted and underwrote it [Doc. 122]. This information, which would
elucidate the process by which Homeland prepared its Powell policy, is characterized by Powell
as “critical to the coverage determinations and policy provisions at issue.” Jd. at 8. Homeland
further claims these requests “may also be relevant to equitable considerations, such as estoppel”
and “may support reformation of the policy to reflect the parties’ intent pre-inception.” Jd. Finally,
Powell believes that identifying the employees directly involved in formulating the Homeland
policy, and identifying their notes and communications “may assist in determining whether there
is an ambiguity ... may also contain information regarding the interpretation and constructions of
the policy ... may bear on ambiguity of the policy, the parties’ intent for coverage, and may support
equitable relief.” Jd. at 8-10.

Powell cites numerous cases in which courts ordered the production of underwriting files
in similar circumstances [Doc. 122 pp. 9-10]. However, every case cited relies on a previous
version of Rule 26 that allowed for an arguably broader definition of relevancy — that requested
discovery was “reasonably calculated to lead to the discovery of admissible evidence.” In 2015,
Rule 26.1 was amended, dropping the “reasonably calculated” language in favor of “relevant to
any party's claim or defense and proportional to the needs of the case.” Fed. R. Civ. P. 26, Adv.
Comm. Notes, 2015 Amendments. The amendment to Rule 26 requires some reconsideration as
to the guidance of the prior cases but does not render them irrelevant.

Powell correctly cites to Wyoming case law allowing for the introduction of extrinsic
evidence to resolve such ambiguities [Doc. 122 p. 9]. But as Powell admits, “the question of
whether the policy provisions are ambiguous has not been determined” in this case. Jd. Under

Wyoming law, when a contract’s “provisions are clear and unambiguous, the examination is

Case 1:15-cv-00031-ABJ Document 137 Filed 04/05/19 Page 5 of 11

confined to the ‘four corners’ of the document to construe the intent of the parties.” Prudential
Preferred Properties v. J & J Ventures, Inc., 859 P.2d 1267, 1271 (Wyo. 1993). When an
insurance policy’s language is unambiguous, “extrinsic evidence is not admitted to contradict the
plain meaning.” Doctors’ Co. v. Ins. Corp. of Am., 864 P.2d 1018, 1024 (Wyo. 1993).

Homeland objects to the discovery requests regarding underwriting on the grounds that
such information is irrelevant to the determination of coverage. This position is supported by
Homeland’s citations to Wyoming law regarding contract interpretation, specifically that extrinsic
evidence is not admissible when the contract is unambiguous. Since there has been no finding that
the contract is ambiguous, any extrinsic evidence is not discoverable. In other words, no discovery
of extrinsic information should be allowed until an ambiguity is identified.

D. Law and Discussion

In Wyoming, insurance policies are treated under the same general rules as non-insurance
contracts. Albany County School Dist. No. 1, 763 P.2d 1255, 1258 (Wyo.1988). Nevertheless,
the unique nature of insurance contracts requires some modification of the interpretation process.

This Court has historically applied certain parameters to interpret insurance
policies. In Doctors’ Co. v. Ins. Corp. of America, 864 P.2d 1018, 1023-24
(Wyo.1993), we explained that courts interpret insurance policies like other
contracts but give the language the plain meaning a reasonable insured would
understand it to mean.

Our established rules of contract interpretation apply to insurance
policies. [St. Paul Fire and Marine Ins. Co. v.JAlbany County
School Dist. No. 1, 763 P.2d [1255] at 1258 [ (1988) }; Hursh
Agency, Inc. v. Wigwam Homes, Inc., 664 P.2d 27, 31 (Wyo.1983).
Interpretation is the process of ascertaining the meaning of the
words used to express the intent of the parties. Commercial Union
Ins, Co. v. Stamper, 732 P.2d 534, 539 (Wyo.1987); 4 Walter ELE.
Jaeger, Williston on Contracts § 600A at 286 (3d. ed.1961). The
intent of the parties is determined by considering the instrument
which memorializes the agreement of the parties as a whole.
Klutznick v. Thulin, 814 P.2d 1267, 1270 (Wyo.1991). This court
utilizes a standard of interpretation for insurance policies which

Case 1:15-cv-00031-ABJ Document 137 Filed 04/05/19 Page 6 of 11

declares that the words used are given the plain meaning that a
reasonable person, in the position of the insured, understands
them to mean. Worthington v. State, 598 P.2d 796, 806
(Wyo.1979); Wilson v. Hawkeye Casualty Co., 67 Wyo. 141, 215
P.2d 867, 873-74 (1950). See also Abifadel v. Cigna Ins. Co., 8
Cal.App.4th 145, 9 Cal.Rptr.2d 910, 919 (1992).

If the language is unambiguous, our examination is confined to the
“four comers” of an integrated contract and [parol] evidence is not
admitted to contradict the plain meaning. Prudential Preferred
Properties v. J and J Ventures, Inc., 859 P.2d 1267, 1271
(Wyo.1993). The language of an insurance policy is ambiguous if it
is capable of more than one reasonable interpretation. Helfand v.
National Union Fire Ins. Co. of Pittsburgh, Pa., 10 Cal.App.4th 869,
13 Cal.Rptr.2d 295, 299 (1992). Because insurance policies
represent contracts of adhesion where the insured has little or no
bargaining power to vary the terms, if the language is ambiguous,
the policy is strictly construed against the insurer. Albany County
School Dist. No. 1, 763 P.2d at 1258; 7 Walter H.E. Jaeger, Williston
on Contracts § 900 at 19, 29 (3d ed.1963). However, the language
will not be “ ‘tortured’ ” to create an ambiguity. Stamper, 732 P.2d
at 539 (quoting McKay v. Equitable Life Assur. Soc. of United
States, 421 P.2d 166, 168 (Wyo.1966)).

Id. (emphasis added). See also Kirkwood v. CUNA Mut. Ins. Soc'y, 937 P.2d 206,
208 (Wyo.1997) (interpreting an unambiguous insurance policy in the context ofa
summary judgment by giving the words used the plain meaning that a reasonable
person, in the position of the insured, would understand them to mean); Gainsco
Ins. Co. v. Amoco Prod. Co., 2002 WY 122, { 47, 53 P.3d 1051, 1066
(Wyo.2002) (stating “[w]e interpret insurance policies just as we interpret other
contracts, except that words used in an insurance policy are given the plain meaning
that a person in the position of the insured would understand them to mean”).
(emphasis in original)

North Fork Land & Cattle, LLLP, v. First American Title Insurance Company, 362 P.3d 341, 346-
47 (Wyo. 2015).

Homeland insists that the underwriting process is irrelevant to the interpretation of the
contract as all such information would be extrinsic evidence which is inadmissible since there is
no ambiguity identified in the insurance contract. This argument fails in a number of respects.

First of all, the Court is not addressing the issue of admissibility at this time, but rather discovery.

Case 1:15-cv-00031-ABJ Document 137 Filed 04/05/19 Page 7 of 11

Homeland seems to equate admissibility with discoverability. In addition, Homeland fails to
account for the fact that extrinsic evidence may be used by the court in reviewing a contract for
ambiguities. This confusion is understandable as the Wyoming Supreme Court has often repeated
the rule that extrinsic evidence is not admissible when the contract is unambiguous without
addressing the role of such evidence in the determination of the existence of an ambiguity.
Doctor’s Co. v. Insurance Corp. of America, 864 P.2d 1018, 1024 (Wyo. 1993); Hatch v. State
Farm Fire and Cas. Co., 930 P.2d 382, 389 (Wyo. 1997); Wolter v. Equitable Resources Energy
Co., 979 P.2d 948, 951 (Wyo. 1999); and Martin v. Farmer Ins. Exchange, 894 P.2d 618, 620
(Wyo. 1995). In other cases, the Wyoming Supreme Court has endorsed and even required a
consideration of extrinsic evidence in circumstances where the contract appeared to be
unambiguous on its face. In Mullinnix LLC v. HKB Royalty Trust, 126 P.3d 909 (Wyo. 2006) the
court was reviewing a deed which used the term “oil rights”. The court found that it was proper
to consider extrinsic evidence in the process of interpreting a contract, even in the absence of an
ambiguity.
Thus, we continue to recognize the importance of allowing the use of

extrinsic evidence to interpret a contract, including custom and usage in a particular

place or trade at the time of execution of the contract, in order to arrive at the plain

meaning of the agreement, with the goal of more closely effectuating the parties’

true intent.
Mullinnix at 921.

In Mathisen v. Thunder Basin Coal Co. LLC, 169 P.3d 61, 65 (Wyo. 2007) the Wyoming

Court stated the rule as:

Whether a ambiguity exist, as a matter of law, is for the court to determine.
In making this determination, the court may consider extrinsic evidence bearing
upon the meaning of the written terms, such as evidence of local usage and of the
circumstances surrounding the making of the contract. However, the court may not
consider the parties own extrinsic expressions of intent.

Case 1:15-cv-00031-ABJ Document 137 Filed 04/05/19 Page 8 of 11

This rule is not limited to Wyoming. For example see National Union Fire Insurance Co. of
Pittsburgh, PA v. Federal Insurance Co., 213 F.Supp.3d 1333, 1340 (D. Colo. 2016), “[cJourts
‘may consider extrinsic evidence regarding the meaning of the written terms, including evidence
of local usage and of the circumstances surrounding the making of the contract” in order to
determine whether a contract term is ambiguous. Pub. Serv. Co. of Colo. v. Meadow Island Ditch
Co. No. 2, 132 P.3d 333, 339 (Colo. 2006).

This discussion is not to determine if this is a proper case for the application of the rule,
but rather to point out that the circumstances and events surrounding the formation of the
Homeland insurance policy is relevant to the issues presented in this Court. Powell is entitled to
conduct discovery of those events so that it may prepare and present its position to the Court as to
what if any extrinsic evidence should be considered by the Court. Its ultimate admissibility or
consideration by the Court is unknown and cannot be known until the facts are discovered. The
underwriting files are relevant to the issues presented in this case and as such are discoverable
under Rule 26.

In addition, Powell seeks to conduct discovery as to a potential estoppel and reformation
claims. Homeland responds that such claims have not been plead, and in doing so attempt to create
a Catch 22? situation for Powell. Under the rules a party is subject to sanctions if it pleads claims
based upon factual contentions without existing or likely evidentiary support. Fed. R. Civ. P.
11(b)(3). It is not uncommon, and in fact is anticipated, that as more information is obtained during
discovery claims and defenses will be redefined. For that reasons liberal amendments of pleadings
are allowed. Fed. R. Civ. P. 15(a)(2).

2 This saying arises from Joseph Heller's classic WWII novel of the same name. “A problematic situation

for which the only solution is denied by a circumstance inherent in the problem or by a rule.” Merriam-Webster on-
line dictionary 2019.

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Case 1:15-cv-00031-ABJ Document 137 Filed 04/05/19 Page 9 of 11

Homeland’s own pleadings in this matter further demonstrate the relevance of the
underwriting information. In its complaint Homeland asserts that the claims which arose during
its policy period are “Related Claims” to claims arising prior to the Homeland policy and as such
are excluded from coverage [Doc. 1 39]. Homeland did not assert this defense initially and
accepted a claim made by Susan Stambaugh [Doc. 1 { 30]. Homeland asserts that only upon
learning of prior claims did it deny coverage in September 2014 [Doc 1. { 31]. This factual
assertion addresses the knowledge of Homeland and potentially implicates the underwriting
process and the very information Powell seeks in discovery.

Homeland does not assert that the information sought is privileged or that the scope of the
request is not proportional to the needs of the case, but rather relies upon irrelevancy. The
information Powell seeks has a sufficient probability of relevance as to fall with the proper scope
of discovery pursuant to Rule 26. The sought materials encompass a relatively limited universe
of documents and Homeland has made no argument that the act of producing it would be
burdensome. Considering its Complaint, Homeland has no doubt already gathered and reviewed
the documents. Given these factors and the courts predisposition to err on the side of more
discovery, the Court orders Homeland to supplement their responses to RFPs 3 and 9 and
Interrogatories 4 and 11. In addition, in so far as Homeland’s objections are addressed by this
order, Homeland should respond to RFPs 14, 16 and 22. If any disputes still remain unresolved in
regard to RFDs 14, 16 and 22 the parties shall schedule a conference with Judge Carman as soon
as practicable.

D. Privilege Log

Powell seeks from Homeland a privilege log listing the specific documents withheld in
response to RFPs 3 and 9 [Doc. 122 pp. 6-8]. RFP 3 seeks “complete correspondence, including

Case 1:15-cv-00031-ABJ Document 137 Filed 04/05/19 Page 10 of 11

electronic documents, regarding any of the ‘Underlying Claims’ between officers or employees of
Homeland which relate to any of the Underlying Claims or underwriting or coverage issues in this
case” [Doc. 123-1]. RFP 9 seeks “all documents reviewed about the underwriting or issuance of
the Primary Policy or Excess Policy by the persons” who participated in underwriting the Powell
policy. Id.

Homeland “identified a limited number of withheld documents,” but has declined to
provide a full privilege log because it considers the requested documents to be irrelevant [Doc.
122 p. 6-8]. Homeland claims it will provide a full privilege log only if the Court deems the
requested information relevant. Jd. Because the Court has now found the requested information
to be relevant and discoverable, Homeland is ordered to produce a full privilege log as to any
documents which it contends are still not discoverable in light of this order.

Powell requests that the Court find that Homeland, by not producing a privilege log earlier,
has waived their ability to object to any future production on privilege grounds [Doc. 122 pp 6-7].
From their briefing, Homeland genuinely seemed to believe a privilege log was not required if the
withheld documents were irrelevant [Doc. 122 pp. 6-8]. With limited caselaw and briefing on the
question of whether a privilege log is required under these circumstances, the Court will decline
to take the extreme step of denying Homeland the right to claim further privilege.

E. Conclusion
IT IS HEREBY ORDERED THAT:

1. Powell’s Motion to compel is GRANTED

A. Homeland is ordered to supplement their responses to RFPs 3 and 9 and Interrogatories
4 and 11 by April 19, 2019.

B. Homeland is ordered to provide a privilege log by April 19, 2019.

C. Should Homeland determine that this order does not resolve its objections to RFPs 14,
16 and 22, the parties are ordered to meet and confer, and if not resolved to contact
Judge Carman to schedule a telephonic discovery conference.

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Case 1:15-cv-00031-ABJ Document 137 Filed 04/05/19 Page 11 of 11

t
Dated this 4th day of April 2019

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