KAREN E. SCHREIER, District Judge.
Plaintiffs, Carl and Janice Hill, brought this action against defendant, Auto Owners Insurance Co., for breach of contract, bad faith, and unfair trade practices stemming from Auto Owners' denial of plaintiffs' claim for benefits due to alleged hail damage to their roof. Auto Owners moves for summary judgment on plaintiffs' bad faith and punitive damages claims and moves for judgment on the pleadings on plaintiffs' unfair trade practices claim. Auto Owners has also requested an early trial on the contract claim and a stay on discovery. Plaintiffs moved to compel certain discovery, which motion was referred to the United State Magistrate Judge for resolution and subsequently granted. For the following reasons, the court denies the motion for summary judgment, grants the motion for judgment on the pleadings, denies as moot the motion to bifurcate and stay discovery, and overrules Auto Owners' objections to the magistrate judge's order on the motion to compel.
The facts, viewed in the light most favorable to the nonmoving party, are as follows:
Plaintiffs live in Rapid City, South Dakota. In 1992, they bought their current house, and over the years have worked on repairing and improving their home. The roof was redone in 1998 as part of a remodeling project on the second story. Beginning in 2006, plaintiffs purchased an insurance policy for their home from Auto Owners, and have at all relevant times maintained that coverage. In May 2013, plaintiffs received a notice from Auto Owners that they would have to pay an extra premium to keep the replacement-cost coverage on their roof due to its age; they could also elect to forgo the extra premium and switch to actual-cash-value coverage.
On July 8, 2013, plaintiffs submitted a claim for hail damage resulting from a storm on June 24, 2011. Auto Owners previously had paid to replace the roof of a neighboring house due to damage from the same storm. Because Auto Owners does not have a claim office in Rapid City, it contacted Dakota Claims Service of Rapid City to investigate plaintiffs' claim.
Dakota Claims sent Steve Wolff to inspect plaintiffs' roof on July 10, 2013. Neither Carl nor Janice was present at the inspection. Wolff found evidence of hail damage to the front door trim and metal materials on the roof. Nonetheless, Wolff concluded that the shingles did not show any hail damage and the damage to the roof was due to weathering and maintenance issues. Wolff prepared a damage estimate, and because the damage to the metal materials on the roof was less than plaintiffs' deductible, Wolff recommended closing the file without payment. Based on Wolff's findings, Dan Highstreet, a claims representative for Auto Owners, sent plaintiffs a letter denying their claim.
Plaintiffs requested a re-inspection. On July 19, 2013, Mike Kirkeby from Dakota Claims inspected plaintiffs' roof. Plaintiffs were not present and indicate that Dakota Claims never called to set up this second inspection. Docket 23-6 at 3. Kirkeby noted that plaintiffs claimed their neighbors all had new roofs and observed that about half of the homes in the area had new roofs. Kirkeby reiterated that the roof had exposure damage. He also stated: "It is my opinion that there is no evidence of hail damage to the shingles as we have not had damaging hail in this part of Rapid City for over 14 years." Docket 29-8 at 3. Kirkeby concluded his report by warning that "I do believe the agent and insured will press the matter until a roof is purchased." Id.
On July 20, 2013,
Auto Owners also retained Hermanson Egge Engineering, Inc., to inspect plaintiffs' roof for hail damage. Larry Hermanson performed an inspection on September 6, 2013. Hermanson concluded that half to three quarters of the shingles on plaintiffs' roof were in poor condition due to a poorly vented attic space, which had caused blistering, holes, and grain loss. Unlike Wolff, Kirkeby, or Bieber, Hermanson did not mention weathering as a cause for the deterioration of the shingles, and he stated that some of the shingles on the west surface were in good condition. Hermanson observed hail damage to the metal surfaces on the roof but concluded that the shingles had not suffered any hail damage.
Plaintiffs also obtained inspections independent of their insurance company. Sometime between July 19 and July 31, 2013, Kevin Kisner of Exceptional Exteriors inspected plaintiffs' roof, saw hail damage, and advised plaintiffs to file an insurance claim. On August 28, 2013, Jack Brockman of Allied Construction inspected the roof and observed random indentations and areas missing granules indicative of hail damage. On September 29 and 30, 2014, counsel for plaintiffs retained Paul Brenkman to perform an inspection on the roof. Brenkman observed hail damage to roof-top shingles, vents, flue caps, gutters, and wood exterior siding and moldings. Brenkman termed the hail damage "definitive" and opined that it was unreasonable for Auto Owners to ignore the signs of hail damage on plaintiffs' roof. Docket 29-3 at 4, 6.
Plaintiffs filed this suit claiming damages for breach of contract,
While these motions were pending, Auto Owners retained Haag Engineering to inspect plaintiffs' roof. Richard Herzog performed the inspection on October 23, 2014, to "determine the extent of hail-related damage from specific storms on June 24, 2011, and July 20, 2013." Docket 40-1 at 2. Over a year after the second storm, Herzog found "[h]ail-impact spatter marks ranging from 120448- to 120442-inch across . . . on various surfaces, particularly on horizontal surfaces or vertical surfaces facing south." Id. at 4. The south elevation of the garage and the south side of a flue pipe showed marks up to 320448-inch across. Id. Significantly, Herzog stated, "[o]ther indications of hail impact were visible to vertical surfaces on all four elevations of the dwelling." Id. Consistent with the other inspections, Herzog noted hail damage to metal parts of the roof and damage to a large number of shingles from weathering and age.
Subsequently, plaintiffs filed a motion to compel certain discovery, Docket 43, which this court referred to United States Magistrate Judge Veronica Duffy. The magistrate judge issued an order granting the motion to compel. Docket 50. Auto Owners filed an objection requesting that this court set aside the order granting the motion to compel. Docket 53.
Summary judgment is appropriate if the movant "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The moving party can meet this burden by presenting evidence that there is no dispute of material fact or that the nonmoving party has not presented evidence to support an element of her case on which she bears the ultimate burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). To avoid summary judgment, "[t]he nonmoving party may not `rest on mere allegations or denials, but must demonstrate on the record the existence of specific facts which create a genuine issue for trial.'" Mosley v. City of Northwoods, Mo., 415 F.3d 908, 910 (8th Cir. 2005) (quoting Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995)).
Summary judgment is precluded if there is a dispute in facts that could affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). For purposes of a summary judgment motion, the court views the facts and the inferences drawn from such facts "in the light most favorable to the party opposing the motion." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986).
Auto Owners argues summary judgment
The South Dakota Supreme Court
Id. at 629 (quoting Walz v. Fireman's Fund Ins. Co., 556 N.W.2d 68, 70 (S.D. 1996)). First-party bad faith is an intentional tort and occurs when an insurance company consciously engages in wrongdoing during its processing or paying of policy benefits. Hein v. Acuity, 731 N.W.2d 231, 235 (S.D. 2007). But if an insured's claim is fairly debatable either in fact or law, an insurer cannot be said to have denied the claim in bad faith. Dakota, Minn. & E. R.R. Corp., 771 N.W.2d at 630. "The questions of whether the insurer's actions were unreasonable or whether the claim was fairly debatable must be viewed at the time the insurer made the decision to deny or litigate the claim, rather than pay it." Id. "The question of whether an insurer has acted in bad faith is generally a question of fact." Bertelsen v. Allstate Ins. Co., 833 N.W.2d 545, 554 (S.D. 2013).
Auto Owners argues it had an objectively reasonable basis for its claim decisions because four inspections found no hail damage to plaintiffs' roof. Docket 21 at 5-9. For support, Auto Owners points to Stene v. State Farm Mutual Automobile Insurance Co., 583 N.W.2d 399 (S.D. 1998).
It would be possible for a jury to find that it was unreasonable for Auto Owners to rely on the reports provided by Wolff, Kirkeby, Bieber, and Hermanson, and that Auto Owners knew its reliance on those reports was unreasonable. For example, Kirkeby stated in his report that there had been no damaging hail in Rapid City in fourteen years, despite the fact that he—and every other person who inspected plaintiffs' roof—observed hail damage to the metal materials on plaintiffs' roof. Furthermore, Auto Owners paid to replace a neighbor's roof due to hail damage from the same 2011 storm. Based on the reports noting hail damage to the metal materials on plaintiffs' roof and the fact that Auto Owners paid a neighbor's hail damage claim, a jury could find that Auto Owners should have known that Kirkeby's statement was false.
Also, all the inspectors agreed that the shingles on plaintiffs' roof showed damage from weathering and exposure. Such damage would make the shingles more vulnerable to hail damage. Yet the photos taken by the adjusters hired by Auto Owners only showed long-distance photos claiming to depict no hail damage and only contained close-up photos of damage from weathering or deterioration. The absence of detailed photographic evidence showing no hail damage could be interpreted as evidence either that the investigation was unreasonably incomplete or that the adjusters hired by Auto Owners selectively photographed only parts of the roof to minimize the evidence of hail damage and emphasize other damage. Based on those facts, a jury could conclude that Auto Owners should have known that it was unreasonable to rely on the reports finding no damage.
Both sides took photos of the roof, and both sides have experts interpreting those photos. Auto Owners claims the photos show only weathering and deterioration, but plaintiffs and their expert claim that the photos show evidence of definitive hail damage. If the photos actually do show hail damage—a genuine question of material fact—the reasonability of Auto Owners' investigation would be further called into question. If Auto Owners had photos showing definitive hail damage, it would be unreasonable to rely on reports concluding the opposite. See Kirchoff v. Am. Cas. Co. of Reading, Pa., 997 F.2d 401, 405 (8th Cir. 1993) (internal quotations omitted) (interpreting South Dakota law and stating "the requisite knowledge (or reckless disregard) on the part of the insurer may be inferred when the insurer has exhibited a reckless indifference to facts or to proofs submitted by the insured").
Plaintiffs have also introduced other evidence that a jury could conclude implies an incomplete or unreasonable investigation. Auto Owners had four inspections that revealed no hail damage to the roof, but after litigation commenced Auto Owners hired Haag Engineering, "the pre-eminent forensic engineering firm in the country, [which] has established a broadly-accepted roof inspection and certification program, teaching inspectors among other things how to recognize hail damage to asphalt shingles." Docket 39 at 1. The final inspection found sufficient hail damage to warrant replacing the entire roof. The dramatic difference between the first four conclusions and the final inspection by Haag Engineering could support an inference that the first four inspectors were not properly trained or qualified,
Plaintiffs and Auto Owners both have experts in this matter. Weighing the credibility of those experts is a jury function. If this case, like Stene, is an instance where people reasonably disagree on the valuation of a claim or the presence of certain damage, then Auto Owners should not be liable for bad faith. But that conclusion is not compelled simply because Wolff, Kirkeby, Bieber, and Hermanson were hired by Auto Owners to write reports that found no hail damage. If the jury determined that Auto Owners knew the reports were unsupported or that Auto Owners knew the investigation performed was not reasonable, Auto Owners would not have fulfilled its obligation to its insureds when it denied plaintiffs' claim, despite the presence of the inspection reports.
Moreover, plaintiffs' bad faith claim is broader than simply challenging whether Auto Owners had evidence to support its denial. Bad faith is not limited to claim denials only. Dakota, Minn. & E. R.R. Corp., 771 N.W.2d at 629 (internal citations and quotations omitted) ("In the first-party context, there exists a contractual relationship, whereby the insurer has accepted a premium from its insured to provide coverage. Because of the nature of this relationship, . . . bad faith can extend to situations beyond mere denial of policy benefits."). The core of plaintiffs' bad faith claim is that Auto Owners designed its claims handling process to produce evidence that Auto Owners could use to unfairly deny valid claims, thereby forcing its insureds to take extra steps to obtain payment while hoping that enough people would be discouraged from pursuing benefits to enable Auto Owners to realize a profit at the expense of its insureds.
The South Dakota Supreme Court has recognized that insurance companies have a responsibility to give equal consideration to the interests of insureds and may not force insureds to resort to litigation to vindicate contractual rights:
Helmbolt v. LeMars Mut. Ins. Co., 404 N.W.2d 55, 58 (S.D. 1987). An insurer must not ignore the interests of its insured because "[t]he relationship of the insurer to the insured is akin to that of a fiduciary since it must give at least as much consideration to the insured's interests as it does to its own." Trouten v. Heritage Mut. Ins. Co., 632 N.W.2d 856, 864 (S.D. 2001).
Helmbolt dealt with underinsured motorist coverage, which implicates different public policy concerns than hail damage coverage, and a refusal to settle for policy limits, which is not at issue here. Nonetheless, both Helmbolt and Trouten make clear that the insurance company must give equal consideration to the interests of its insured, even when those interests are adverse to its own. Also, an insurance company may not "game" or manipulate its investigation or claims handling process to obtain a more favorable result at the expense of its insured by virtue of the insurance company's superior bargaining power and resources. If discovery revealed that Auto Owners hired adjusters with the understanding that the adjusters were expected to minimize or ignore evidence supporting a claim, or if Auto Owners instructed its adjusters to build a case against the insured rather than reasonably and fairly investigate the claim, or if Auto Owners intentionally adopted a policy of denying valid claims to discourage its insureds from further pursuing benefits, Auto Owners could be liable for the tort of bad faith for actions apart from its denial of benefits. Auto Owners has failed to address this aspect of plaintiffs' bad faith claim.
Genuine questions of material fact as to plaintiffs' claim that Auto Owners acted in bad faith when it denied their claim for hail damage remain, such as whether there actually was hail damage, how obvious that hail damage should have been, and whether Auto Owners knew or should have known that the investigation into the damage was unreasonable. Questions of fact also remain on whether Auto Owners acted in bad faith when it allegedly designed its claims handling process to allow its adjusters to build a case for denying valid claims. Ultimately, these questions are for a jury to determine, see Bertelsen, 833 N.W.2d at 554, and summary judgment is inappropriate.
Under South Dakota law, punitive damages may not be recovered unless expressly authorized by statute. SDCL 21-1-4. Relevant South Dakota law states that:
SDCL 21-3-2. To survive a summary judgment motion, a plaintiff must prove to the court by clear and convincing evidence that a reasonable basis exists upon which a jury could award punitive damages. Dahl v. Sittner, 474 N.W.2d 897, 902 (S.D. 1991); see also Selle v. Tozser, 786 N.W.2d 748, 757 (S.D. 2010) (reiterating that the clear and convincing evidence of a reasonable basis standard is a preliminary threshold lower than the standard required at trial).
"Actual malice is a positive state of mind, evidenced by the positive desire and intention to injure another, actuated by hatred or ill-will towards that person. . . . Presumed, legal malice, on the other hand, is malice which the law infers from or imputes to certain acts." Dahl, 474 N.W.2d at 900 (internal citations omitted). A showing of either type of malice is sufficient to support punitive damages. Bertelsen, 833 N.W.2d at 555.
"`A claim for presumed malice can be shown by demonstrating a disregard for the rights of others.'" Selle, 786 N.W.2d at 757-58 (citing Isaac v. State Farm Mut. Auto. Ins. Co., 522 N.W.2d 752, 761 (S.D. 1994)). Presumed malice may be inferred when a party acts willfully or wantonly and injures another. Bertelsen, 833 N.W.2d at 555 (quoting Selle, 786 N.W.2d at 757). With respect to willful and wanton misconduct, the South Dakota Supreme Court has stated that:
Berry v. Risdall, 576 N.W.2d 1, 9 (S.D. 1998) (quoting Tranby v. Brodock, 348 N.W.2d 458, 461 (S.D. 1984)). Whether a defendant's conduct is willful and wanton is determined by an objective standard, rather than the defendant's subjective state of mind. Id.
Auto Owners makes only one argument—that because it had a reasonable basis for denying plaintiffs' claim, plaintiffs cannot show oppression, fraud, or malice. As discussed above, a jury could find that Auto Owners did not act reasonably in denying plaintiffs' claim. "An insurer's clear breach of contract or denial of a claim that is not fairly debatable may indicate malice." Bertelsen v. Allstate Ins. Co., 796 N.W.2d 685, 699 (S.D. 2011). Plaintiffs have met their burden to show that a reasonable basis exists upon which a jury could award punitive damages. Auto Owners is not entitled to summary judgment on plaintiffs' punitive damages claim.
When reviewing a motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c), the court applies the same standard as on a motion to dismiss under Rule 12(b)(6). See Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990) (noting that courts review a Rule 12(c) motion under the same standard that governs a Rule 12(b)(6) motion). "Judgment on the pleadings is appropriate when there are no material facts to resolve and the moving party is entitled to judgment as a matter of law." Mills v. City of Grand Forks, 614 F.3d 495, 497-98 (8th Cir. 2010) (citing Faibisch v. Univ. of Minn., 304 F.3d 797, 803 (8th Cir. 2002)). "The facts pleaded by the non-moving party must be accepted as true and all reasonable inferences from the pleadings should be taken in favor of the non-moving party." Id. The court may consider the pleadings themselves, materials embraced by the pleadings, exhibits attached to the pleadings, and matters of public record. Id. (citing Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999)). In ruling on this motion, the court is not considering materials, submitted in conjunction with the summary judgment motion, that are not appropriate for consideration under Rule 12(c). See 5C Charles Alan Wright, et al., Federal Practice & Procedure Civil § 1371 (3d ed.) [hereinafter Wright and Miller] (when confronted with materials outside the pleadings, a court may convert the Rule 12(c) motion to a summary judgment motion or "refuse to accept materials outside the pleadings in order to keep the motion under Rule 12(c)").
Count three of the amended complaint alleges that Auto Owners "misrepresented the benefits available under a policy of insurance, in violation of SDCL 58-33-5." Docket 19 at 6. South Dakota law provides:
SDCL 58-33-5. Chapter 58-33 provides a private right of action and recovery of attorney's fees for claims based on unfair trade practices.
Auto Owners contends that a claim under SDCL 58-33-5 is subject to Rule 9(b)'s heightened pleading requirements.
To satisfy the heightened pleading requirements, the complaint must specify the time, place, and contents of the false representations, the identity of the person making the misrepresentation, and what was obtained or given up. See Freitas v. Wells Fargo Home Mortg., Inc., 703 F.3d 436, 439 (8th Cir. 2013). The amended complaint does not set forth any specific misrepresentation. The only allegation that could be interpreted as a misrepresentation alleges "[b]ased on the reports from Dakota Claims, Auto Owners denied that any damage to the shingles had occurred, and refused to pay anything at all for damage to the shingles." Docket 19 at 3. That sentence contains no information on who made the alleged misrepresentation, what specifically was contained in the statement, when it was made, or what was obtained or given up based on the misrepresentation.
Plaintiffs argue that the allegation contained in the amended complaint is sufficient to allow Auto Owners to respond to and prepare a defense to the complaint. Docket 28 at 42-43 & n.104 (citing Comm. Prop. Invs., Inc. v. Quality Inns Int'l, Inc., 61 F.3d 639, 646 (8th Cir. 1995)). "The level of particularity required depends on . . . the nature of the case and the relationship between the parties." BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908, 917 (8th Cir. 2007) (citing Payne v. United States, 247 F.2d 481, 486 (8th Cir. 1957)). "Rule 9(b) should be read `in harmony with the principles of notice pleading.'" Id. (quoting Schaller Telephone Co. v. Golden Sky Sys., Inc., 298 F.3d 736, 746 (8th Cir. 2002)). Nonetheless, conclusory allegations are not sufficient to satisfy the requirements of Rule 9(b). Id.
In Freitas, the Eighth Circuit refused to relax the heightened pleading standards under Rule 9(b) in a case involving a fraudulent misrepresentation claim. Although Freitas acknowledged that in some circumstances courts had allowed plaintiffs to plead fraud allegations with less specificity, the Eighth Circuit noted that those cases were situations in which the essential information was possessed by the defendant and not accessible to the plaintiff without the benefit of discovery. Freitas, 703 F.3d 439-40. This is not a case in which plaintiffs do not have access to the facts necessary to meet the heightened pleading standard. Furthermore, unlike the complaint in this case, the complaint in Commercial Property Investments included thirteen specific statements as the basis for the common-law fraud claim. See Comm. Prop. Invs., 61 F.3d at 645-46.
By not identifying a particular misrepresentation in the complaint, plaintiffs put Auto Owners in a position from which it was unable to respond quickly and accurately to the allegation against it. From the briefs on the motion for judgment on the pleadings, it appears Auto Owners was not able to identify precisely what misrepresentation plaintiffs alleged, which in turn forced Auto Owners to wait until its reply brief to argue that the particular misrepresentation at issue was not actionable under SDCL 58-33-5.
Auto Owners contends that the court should not allow plaintiffs to amend the complaint because amendment would be futile. But plaintiffs have not moved to amend the amended complaint
Auto Owners moved for a separate, early trial on plaintiffs' contract claim and to stay discovery related to the other claims until resolution of the contract claim and these dispositive motions. Docket 26. Because Auto Owners decided to pay to replace plaintiffs' roof while these motions were pending, it now acknowledges that "a separate trial on the contract claim in this case would not provide any benefit in the present circumstances, and Auto-Owners withdraws its motion to the extent it requests that relief." Docket 42 at 2. Auto Owners also clarified that it "still requests a stay of discovery until the resolution of its two other pending dispositive motions." Id. Because the court has now resolved those dispositive motions, Auto Owners' motion to stay discovery is denied as moot. To the extent any discovery remains, it should be completed in accordance with the court's current scheduling order.
Auto Owners objected to the magistrate judge's disposition of plaintiffs' motion to compel. This court's review of a magistrate judge's order is governed by 28 U.S.C. § 636 and Rule 72 of the Federal Rules of Civil Procedure. A district court may set aside the magistrate judge's order on any pretrial matter if it is shown to be clearly erroneous or contrary to law. 28 U.S.C. § 636(b)(1)(A); Fed. R. Civ. P. 72(a); see also Ferguson v. United States, 484 F.3d 1068, 1076 (8th Cir. 2007). This standard affords deference to the magistrate judge, and the order will not be set aside unless the court is "left with the definite and firm conviction that a mistake has been committed." Reko v. Creative Promotions, Inc., 70 F.Supp.2d 1005, 1007 (D. Minn. 1999) (citing Chakales v. Comm'r of Internal Revenue, 79 F.3d 726, 728 (8th Cir. 1996)).
The scope of discovery in a civil case is governed by Federal Rule of Civil Procedure 26, which provides:
Fed. R. Civ. P. 26(b)(1). The court will limit the extent of discovery if it determines the discovery is unreasonably duplicative, cumulative, can be obtained from a more convenient source, or if the expense or burden of discovery outweighs its benefit. Fed. R. Civ. P. 26(b)(2)(C).
The scope of discovery under Rule 26(b) is extremely broad. See 8 Wright & Miller § 2007. The reason for the broad scope of discovery is that "[m]utual knowledge of all the relevant facts gathered by both parties is essential to proper litigation. To that end, either party may compel the other to disgorge whatever facts he has in his possession." Id. (quoting Hickman v. Taylor, 329 U.S. 495, 507-08 (1947)).
"Relevancy is to be broadly construed for discovery issues and is not limited to the precise issues set out in the pleadings. Relevancy . . . encompass[es] `any matter that could bear on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case.'" E.E.O.C. v. Woodmen of the World Life Ins. Soc'y, Civ. No. 03-165, 2007 WL 1217919, at *1 (D. Neb. Mar. 15, 2007) (quoting Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978)). The party seeking discovery must make a "threshold showing of relevance before production of information, which does not reasonably bear on the issues in the case, is required." Id. (citing Hofer v. Mack Trucks, Inc., 981 F.2d 377, 380 (8th Cir. 1992)). "Mere speculation that information might be useful will not suffice; litigants seeking to compel discovery must describe with a reasonable degree of specificity, the information they hope to obtain and its importance to their case." Id. (citing Cervantes v. Time, Inc., 464 F.2d 986, 994 (8th Cir. 1972)).
Once the requesting party has made a threshold showing of relevance, the burden shifts to the party resisting discovery to show specific facts demonstrating that the discovery is not relevant, or how it is overly broad, burdensome, or oppressive. Penford Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 265 F.R.D. 430, 433 (N.D. Iowa 2009); St. Paul Reinsurance Co. v. Commercial Fin. Corp., 198 F.R.D. 508, 511 (N.D. Iowa 2000). The articulation of mere conclusory objections that something is "overly broad, burdensome, or oppressive," is insufficient to carry the resisting party's burden—that party must make a specific showing of reasons why the relevant discovery should not be had. Cincinnati Ins. Co. v. Fine Home Managers, Inc., Civ. No. 09-234, 2010 WL 2990118, at *1 (E.D. Mo. July 27, 2010); see also Burns v. Imagine Films Entm't, Inc., 164 F.R.D. 589, 593 (W.D.N.Y. 1996). Also, the fact that producing discovery is burdensome is not sufficient to preclude discovery of that information because all discovery entails some inherent cost and burden to the producing party. See Continental Ill. Nat'l Bank & Trust Co. of Chicago v. Caton, 136 F.R.D. 682, 684-85 (D. Kan. 1991) ("All discovery requests are a burden on the party who must respond thereto. Unless the task of producing or answering is unusual, undue or extraordinary, the general rule requires the entity answering or producing the documents to bear that burden."); Rogers v. Tri-State Materials Corp., 51 F.R.D. 234, 245 (N.D. W. Va. 1970) (stating that "[i]nterrogatories, otherwise relevant, are not objectionable and oppressive simply on grounds [that] they may cause the answering party work, research and expense").
In Request for Production (RFP) 2, plaintiffs requested certain personnel files, meaning "any and all documents related to the individual's employment relationship with, and job performance for, [Auto Owners]." Docket 43-3 at 7. RFP 2 included "all personnel involved with Plaintiffs' claim for hail damage to the roof of their home, and all supervisors in the chain of command above those personnel, up to the head of the claims department." Id. Plaintiffs included a general provision allowing Auto Owners to redact or withhold social security numbers, health and life insurance, condition, or treatment information, and bank, credit card, or other financial account numbers for former and current employees. Id. at 3.
In response to the motion to compel, Auto Owners argued that there was no basis except speculation to warrant production of employment and compensation documents for employees uninvolved in handling plaintiffs' claim. Docket 47 at 8. Auto Owners also argues that it has turned over other documents that would "necessarily" include the information plaintiffs seek if that information exists. Id. at 9. Auto Owners concludes that the privacy interests of its employees outweighs plaintiffs' need for the documents requested.
The magistrate judge found that plaintiffs met their burden to initially show the evidence sought in RFP 2 was relevant and was not overbroad. Docket 50 at 15-17. Next, the magistrate judge concluded that the ability to redact sensitive information was sufficient to narrow the scope of documents produced to only relevant documents. Id. at 18. Finally, the magistrate judge deemed Auto Owners' time frame objection to be waived because it was not argued in Auto Owners' response brief. Id.
Auto Owners now argues that the magistrate judge's conclusion regarding possible relevance of personnel files is contrary to law. Docket 53 at 11-17. In support of this argument, Auto Owners cites numerous cases prohibiting unsupported or speculative discovery. Id. Although speculation is insufficient to compel discovery, a party need not conclusively demonstrate that information sought in discovery is relevant or admissible. Instead, a party must make a threshold showing that requested discovery might contain, or might lead to, relevant evidence. See Hofer, 981 F.2d at 380 (discussing discovery standards). "[C]ourts in the District of South Dakota have routinely found personnel files in insurance bad faith cases to be relevant and discoverable." Lillibridge v. Nautilus, No. CIV. 10-4105-KES, 2013 WL 1896825, at *9 (D.S.D. May 3, 2013). Personnel files can contain information on applications and resumes demonstrating company hiring preferences, performance reviews, instructions, incentives, and strategies.
Part of Auto Owners' dispute with the magistrate judge's decision is attributable to Auto Owners' refusal to recognize that plaintiffs' bad faith claim accuses Auto Owners of implementing a systemic and institutionalized policy of minimizing claims. See Docket 19 at 3-4 (alleging that Auto Owners took certain actions to predictably weigh the claims handling process in its favor). As the magistrate judge found, discovery into the claims handling process and employee incentives is relevant to those factual disputes. Additionally, the fact that Auto Owners has provided some discovery regarding Dakota Claims and Hermanson Egge does not relieve it of its burden to provide all responsive documents. Also, the magistrate judge correctly declined to use discovery practice as a tool for effectively deciding the pending dispositive motions.
Auto Owners also contends that the magistrate judge acted contrary to law by failing to consider proportionality principles under Rule 26(b)(2)(C). Docket 53 at 17-19. But Auto Owners' argument here is a restatement of its beliefs that the discovery requested is speculative and that it is entitled to judgment in its favor based on its pending dispositive motions. As discussed with respect to Auto Owners' first objection, plaintiffs have met their threshold burden to show with a reasonable degree of specificity the information sought and why the discovery requested may contain that information. Auto Owners argues that sensitive information weighs against discovery, but the court has entered a protective order in this case to alleviate privacy concerns. See Docket 52 (protective order).
Auto Owners presents no other specific concerns that would alter the presumptive broad discovery allowed under the Federal Rules. See Fed. R. Civ. P. 26(b)(2)(C) (enumerating proportionality factors). This discovery request places a burden on Auto Owners, but that burden is not unreasonable. Even if this discovery ultimately does not contain information supporting plaintiffs' positions, as Auto Owners claims, the discovery request is not unreasonably cumulative or duplicative or available in a more convenient source. Plaintiffs are not required to accept Auto Owners' representation that no useful information is contained in the documents requested. The value of the roof replacement cost is small, but plaintiffs' bad faith and punitive damages claims are important issues and place a much larger amount in controversy. Auto Owners makes no showing that its resources are limited. Overall, RFP 2 appears to be a proper use of a discovery mechanism. See 8 Wright and Miller § 2008.1 ("In general, it seems that the proportionality provisions should not be treated as separate and discrete grounds to limit discovery so much as indicia of proper use of discovery mechanisms[.]").
Auto Owners objects to the magistrate judge's finding that RFP 2 did not include irrelevant documents. See Docket 50 at 18 (ruling); Docket 53 at 19 (objection). Auto Owners is correct that RFP 2 itself does not supply the limiting language on which the magistrate judge relied. Instead, the general provisions relating to the requests for production contain the following statement:
Docket 43-3 at 3. Although that language is not included in RFP 2 itself, it still limits the production of information and supplies an adequate basis for the magistrate judge's decision to overrule Auto Owners' objection. Although the magistrate judge's order indicated the language was part of RFP 2 and not part of the general conditions, there is no practical difference in this case. Thus, the court is not left with a definite and firm conviction that the magistrate judge made a substantive mistake that requires reversal.
Finally, Auto Owners objects to the magistrate judge's determination that Auto Owners waived its time frame objection. Docket 53 at 20. Auto Owners claims that its time frame objection "was implicit in Auto-Owners' relevance arguments and was explicitly raised in Auto-Owners' objections [to the initial discovery requests]." Id. Implicit arguments, particularly boilerplate arguments, are insufficient to preserve an issue unless they are specifically argued and developed. The magistrate judge did not err by deeming that argument waived.
Furthermore, because plaintiffs' claim alleges a practice or policy of minimizing claims, evidence supporting that claim may well be found in documents outside the period when plaintiffs' specific claim for benefits was being handled. See 8 Wright and Miller § 2008.5 (citing Oppenheimer Fund, 437 U.S. at 352) ("[O]lder information may often be relevant to the issues presented in a case."). Disputes over the burden imposed by discovery requests covering extended time periods "must be determined by reference to the general principles of Rule 26(b)(2)(C)." Id. Auto Owners presents no additional arguments to this court showing why the compelled discovery is unreasonably cumulative, duplicative, or inconvenient, why the burden of that discovery is out of proportion to the importance of plaintiffs' claims or the amount in controversy, or why Auto Owners' resources would be unnecessarily strained. Even if the court did not deem the time frame argument waived, it is not persuasive.
The magistrate judge's conclusions with respect to RFP 2 are not clearly erroneous or contrary to law. Thus, the court will not set aside the magistrate judge's order compelling production of documents responsive to RFP 2.
RFP 5 requests all document related to compensation for all employees involved in roof-hail claims and their supervisors, up to the head of the claims department. Docket 43-3 at 9. The magistrate judge granted the motion to compel with respect to RFP 5. Auto Owners levels the same objections to the magistrate judge's ruling as it made to the order on RFP 2.
As discussed above, evidence of compensation is relevant to plaintiffs' bad faith claim. See Torres v. Travelers Ins. Co., Civ. 01-5056-KES, 2004 U.S. Dist. LEXIS 31888, at *42-46 (D.S.D. Sept. 30, 2004) (reasoning that financial incentive programs were relevant to a bad faith claim and the issue of punitive damages). Plaintiffs have met their threshold burden, and Auto Owners' argument regarding speculation is not persuasive. For the same reasons as RFP 2, RFP 5 is not overbroad as to the employees included or the time frame covered in the request. Auto Owners has not shown that RFP 5 is unfairly burdensome, that it is unnecessarily cumulative or duplicative, that the information sought is available in a more convenient form, or that the cost is out of proportion to the value of the discovery. Thus, Auto Owners' objections to the magistrate judge's order on RFP 5 are overruled for the same reasons as stated with respect to RFP 2, and the court will not set aside the magistrate judge's order.
Genuine questions of material fact exist on plaintiffs' bad faith and punitive damages claims, and summary judgment is inappropriate on those issues. Because plaintiffs failed to plead their unfair trade practices claim with specificity, judgment on the pleadings is granted on that claim. Auto Owners' motion for a separate trial on the contract claim and to stay discovery pending resolution of the dispositive motions is denied as moot. Plaintiffs have made a threshold showing of relevance for discovery of the information requested in RFP 2 and RFP 5, and Auto Owners has not shown that the magistrate judge's order was clearly erroneous or contrary to law. Accordingly, it is
ORDERED that defendant Auto Owners Insurance Company's motion for summary judgment on the issues of bad faith and punitive damages (Docket 21) is denied.
IT IS FURTHER ORDERED that defendant Auto Owners Insurance Company's motion for judgment on the pleadings on the issue of unfair trade practices (Docket 24) is granted.
IT IS FURTHER ORDERED that defendant Auto Owners Insurance Company's motion to bifurcate and stay discovery (Docket 26) is denied as moot.
IT IS FURTHER ORDERED that defendant Auto Owners Insurance Company's objections to the magistrate judge's order (Docket 53) are overruled.
