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Mark Lillibridge v. Nautilus Insurance Company

May 3, 2013


The opinion of the court was delivered by: Karen E. Schreier United States District Judge


Plaintiff, Mark Lillibridge, filed a complaint against defendant and third-party plaintiff, Nautilus Insurance Company, related to property insurance coverage for damage to his home following a hail storm. Lillibridge moves to compel Nautilus to produce specific discovery requested in his interrogatories and requests for production. Docket 85. Nautilus resists the motion to compel and alleges that the majority of the requests for production or interrogatories are not relevant, are overly broad and burdensome, or call for the disclosure of confidential or privileged information. Docket 105. For the following reasons, Lillibridge's motion to compel is granted.


Lillibridge owns a house in Burke, South Dakota. Since 2003 or earlier, Lillibridge has been in the process of remodeling or adding on to his home, including replacing the roof of the entire structure. Prior to beginning construction on the house, Lillibridge purchased a builder's risk policy from Nautilus that provided commercial property coverage. Nautilus is an insurance company organized under the laws of the state of Arizona and authorized to do business in South Dakota.

On April 21, 2007, a severe hail storm struck the city of Burke. At the time of the storm, Lillibridge's roof was only partially completed with some of the roofing panels installed on the roof and others laying adjacent to the property. Both installed and loose roofing panels sustained damage from the storm. On May 23, 2007, Lillibridge notified Nautilus that he had sustained a loss and wanted to invoke coverage under his policy. That same day, Nautilus claims examiner Cara Daugherty sent the claim assignment form to independent claims adjuster Clinton Herman of Dakota Claims Service of Chamberlain. Herman acknowledged that he received the assignment on May 24, 2007, and met with Lillibridge to inspect the property on June 1, 2007. As per standard Nautilus procedure, Herman asked Lillibridge to contact roofing contractors to get a bid to replace the roof.

Meanwhile, Herman had no contact with a representative at Nautilus from late May until September 19, 2007, nearly four months after receiving his assignment. Once Herman completed and submitted his report, he recommended that Lillibridge's claim be settled in the amount of $35,000. Herman's recommendation was not based on independent research of the costs of the roofing panels or a bid from a roofing contractor. Instead, to reach that figure Herman used an estimating software called MSB, a tool that insurance adjusters often use in projecting costs. Nautilus sent Lillibridge a check for $35,000 and closed its file. Daugherty noted a quote from Herman's report in Lillibridge's case file that Nautilus would "go ahead and pay this and put it in insured's hands. If he does not agree, then that will get him to the contractor." Docket 70-5 at 11.

After receiving the $35,000 check, Lillibridge contacted Herman to discuss the check and told Herman that the amount was not enough to fix his roof. Herman told Lillibridge to continue attempting to contact a roofing contractor to get an estimate, and then they would submit it to Nautilus for review. Lillibridge then received a bid from H&R Roofing to put a tile roof over the damaged and incomplete roof for $128,000. Lillibridge sent the bid to Herman, but they agreed it was not a good solution. Herman did not send the bid to Nautilus. In December of 2007, H&R Roofing sent Lillibridge a new bid of $342,000 to completely replace the damaged roof. Lillibridge claims he gave the bid to Herman. Herman denies receiving the bid. Nautilus did not receive this bid. Lillibridge's policy limit for repair and replacement of the damaged roof is $300,000.

After receiving the second H&R Roofing bid, Lillibridge attempted to call or contact Herman about it from January of 2008 until July of that same year. Because he was frustrated that he could not reach Herman, Lillibridge contacted his insurance agent, Jody Young, in July of 2008 to ask if she had heard anything back from Nautilus on his claim. Young emailed Daugherty on July 10, 2008, to ask about Lillibridge's claim. Daugherty said she did not know anything about Herman's attempts to contact Nautilus since issuing the $35,000 check, and she did not know about the $342,000 bid that Lillibridge received from H&R Roofing. Daugherty reopened the file, contacted Herman, and asked him to begin investigating Lillibridge's new bid. Another Nautilus claims adjuster, Gary Grabauskas, was assigned to the case soon after Daugherty reopened it because Daugherty was not allowed to approve claims in an amount higher than $50,000.

H&R Roofing's second bid from December of 2007 expired within 30 days of its issuance, so Lillibridge asked H&R Roofing for an updated bid to provide to Nautilus and Herman. The updated bid was for $460,000. H&R Roofing attributed the rise in the bid to the higher cost of materials and expenses they failed to consider in the prior bid. This bid also was for complete removal and replacement of all panels on the entire roof structure, even though not all panels were on the roof or damaged at the time of the loss. Herman contacted H&R Roofing for a breakdown of the particulars within the updated bid. Nautilus was not satisfied with the details of the breakdown.

Because Nautilus thought the estimate from H&R Roofing was incomplete, Herman contacted and received a bid from another roofing contractor, Architectural Roofing & Sheetmetal (ARS). Herman received an oral bid from ARS to work on the Lillibridge roof for $45 per square foot. Based on this bid, Herman prepared a supplemental report and submitted it to Nautilus on November 6, 2008. Herman recommended that Nautilus pay Lillibridge $270,000 to cover his loss. Grabauskas submitted an internal request for authorization to pay an additional $234,898.01 to Lillibridge, and that payment was approved on December 19, 2008. Lillibridge cashed the check when he received it. Lillibridge did not contact Nautilus about his claim again. Lillibridge filed a lawsuit in state court in July of 2009, which was eventually dismissed without prejudice.

On August 13, 2010, Lillibridge filed this cause of action in federal court and alleged that Nautilus engaged in a breach of contract and bad faith. Lillibridge also seeks compensatory and punitive damages and attorney's fees due to Nautilus's vexatious refusal to pay. Docket 1. On October 17, 2011, Lillibridge submitted his initial interrogatories and request for production of documents. On November 3, 2011, Lillibridge and Nautilus stipulated to a protection order related to DAC's business documents, and the court approved that protective order soon after. On December 6, 2011, Nautilus responded to Lillibridge's initial discovery requests. Lillibridge claims that the responses were incomplete and included only boilerplate objections. Nautilus did not provide a privilege log substantiating any privilege assertions, even though Nautilus raised privilege in many of its responses or objections.

On December 30, 2011, Lillibridge submitted his second request for production of documents. Nautilus responded on April 24, 2012. Lillibridge again alleged that the responses were incomplete, included boilerplate objections, and did not include a privilege log. Lillibridge submitted his third request for production of documents on January 6, 2012, and Nautilus responded on April 24, 2012. Nautilus later supplemented a number of its responses, but Lillibridge asserts that it has not provided many documents that are responsive to Lillibridge's requests. Lillibridge asserts that he made efforts to meet and confer to resolve these discovery disputes as required by the local and civil rules. The parties could not reach a resolution.

As a result, on October 19, 2012, Lillibridge moved to compel Nautilus to respond to a number of its requests for production or interrogatories relating to discovery. Docket 85. Following Lillibridge's motion to compel, Nautilus produced some of the documents that were requested and objected to the remaining interrogatories and requests for production on other grounds. The court will take up the remaining portions of the motion to compel.


The scope of discovery in a civil case is governed by Federal Rule of Civil Procedure 26, which provides:

Unless otherwise limited by a court order, the scope of discovery is as follows: Parties may obtain discovery regarding any non-privileged matter that is relevant to any party's claim or defense--including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. All discovery is subject to the limitations imposed by Rule 26(b)(2)(C). 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 Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 2007, 36-37 (1970) (hereinafter "Wright & Miller"). 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." 8 Wright & Miller § 2007 at 39 (quoting Hickman v. Taylor, 329 U.S. 495, 507-08 (1947)). The federal rules distinguish between discoverability and admissibility of evidence.

Fed. R. Civ. P. 26(b)(1), 32, and 33(a)(2). Therefore, the rules of evidence assume the task of keeping out incompetent, unreliable, or prejudicial evidence at trial. These considerations are not inherent barriers to discovery, however.

The advisory committee's note to the 2000 amendments to Rule 26(b)(1) offers guidance on how courts should define the scope of discovery in a particular case:

Under the amended provisions, if there is an objection that discovery goes beyond material relevant to the parties' claims or defenses, the court would become involved to determine whether the discovery is relevant to the claims or defenses and, if not, whether good cause exists for authorizing it so long as it is relevant to the subject matter of the action. The good-cause standard warranting broader discovery is meant to be flexible.

The Committee intends that the parties and the court focus on the actual claims and defenses involved in the action. The dividing line between information relevant to the claims and defenses and that relevant only to the subject matter of the action cannot be defined with precision. A variety of types of information not directly pertinent to the incident in suit could be relevant to the claims or defenses raised in a given action. For example, other incidents of the same type, or involving the same product, could be properly discoverable under the revised standard. . . . In each instance, the determination whether such information is discoverable because it is relevant to the claims or defenses depends on the circumstances of the pending action.

The rule change signals to the court that it has the authority to confine discovery to the claims and defenses asserted in the pleadings, and signals to the parties that they have no entitlement to discovery to develop new claims or defenses that are not already identified in the pleadings. . . . When judicial intervention is invoked, the actual scope of discovery should be determined according to the reasonable needs of the action. The court may permit broader discovery in a particular case depending on the circumstances of the case, the nature of the claims and defenses, and the scope of the discovery requested.

Fed. R. Civ. P. 26 advisory committee's note to 2000 Amendments, subdivision b.

The same advisory committee's note further clarifies that information is discoverable only if it is relevant to the claims or defenses of the case or, upon a showing of good cause, to the subject matter of the case. Id. "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., 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).


I. Evidence of Prior Litigation

Lillibridge made a number of requests for production or interrogatories that relate to prior litigation in which Nautilus was a party. Lillibridge alleges that documents pertaining to Nautilus's prior litigation are relevant to this case and could lead to admissible evidence. Nautilus objected to these discovery requests and stated that they were not relevant, were too broad and unduly burdensome, and expensive. Additionally, Nautilus argues that if the court determines that discovery from prior litigation should be produced, it should be limited to first-party, weather-related, property damage, bad faith lawsuits filed against Nautilus in South Dakota. The first request at issue is:

Interrogatory 5 (First Set): Have you ever been a party in a civil lawsuit alleging insurance bad faith or unfair claims processing? If so, identify the case by name, court, and trial docket number, and indicate the substance of the allegations and the outcome of the case.

For discovery of out-of-state claims or documents to be relevant in this case "these cases must share some factual or legal vector with [plaintiff's] claims." Kirschenman v. Auto-Owners Ins., 280 F.R.D. 474, 489 (D.S.D. 2012).

This is a case where Lillibridge alleges that Nautilus engaged in breach of contract, bad faith, vexatious refusal to pay, and also made a request for punitive damages. For a bad faith claim in South Dakota, the question "is whether the insurer's investigation or decision to deny a claim was unreasonable and was made in knowing or reckless disregard of the facts at the time the insurer made its decision to litigate rather than to settle." Dakota, Minnesota & Eastern R.R. Corp. v. Acuity, 771 N.W.2d 623, 632 (S.D. 2009). To receive punitive damages Lillibridge must ...

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