NOVEMBER BAD FAITH CASES COURT’S RULING ON INSURED’S MOTION TO COMPEL DISCOVERY, DEPOSITIONS AND PRODUCTION OF DOCUMENTS (Western District)

In Smith v. Life Investors Ins. Co. of Am., the plaintiff in a class action suit filed a motion to compel discovery pursuant to Fed. R. Civ. P. 37 and a motion to compel production of documents.  Plaintiff asserted a bad faith claim, although the case primarily involved the interpretation of the term “actual charges” in a supplemental cancer insurance policy.  In the motion, Plaintiff sought an order compelling the insurer: (1) to provide complete responses to certain interrogatories and document requests; (2) to produce in-house counsel for deposition; and (3) to perform an additional search for documents. 

The plaintiff sought the names and addresses of all insureds covered by particular policies on or after April 2006 and of all persons who had submitted “actual charges” claims to the insurer.  The court held that the insurer was required to provide the names and addresses of persons who filed claims.  However, the court concluded that the plaintiff failed to articulate a sufficient basis for discovery as to the broader category of policyholders who had not submitted claims.  The court stated that the burden of such discovery is greater and the likelihood that such policyholders would have relevant knowledge of the insurer’s treatment of “actual charges” claims is lower.

The plaintiff sought the identity of agents who sold the insurance policies in question within Pennsylvania.  Plaintiff contended that the agents had highly relevant information, particularly as to the bad faith claim.  Plaintiff’s daughter, Mary Pennington, was the insurance agent who sold the policy.  The court found that due to Ms. Pennington’s unique relationship to the case, her testimony may not be representative of that of an “independent” insurance agent.  Additionally, the court found that the knowledge of the insurer’s agents as to the “actual charges” policies and practices may be highly relevant.  In granting the plaintiff’s motion to compel the identity of the agents, the court stated that it would not impose any limitations upon plaintiff’s ability to contact the agents beyond the Federal Rules of Civil Procedure and Rules of Professional Conduct, but suggested that the parties cooperate to facilitate any such discovery.

The plaintiff sought information about the personal financial incentives which might have motivated the insurer’s decision-makers to revise the company’s interpretation of “actual charges.”  The court found that plaintiff had appropriately demonstrated a justifiable need for the sensitive employee compensation information for certain named employees to explore whether the insurer had a motive of financial self-interest.  However, the court found that the plaintiff had not met its heightened burden to undertake similar discovery as to other employees.

The court granted the plaintiff’s request to compel the insurer’s production of financial information and financial statements of the insurer and its corporate parent companies.  The plaintiff contended that such information was relevant in considering punitive damages.  The court found that plaintiff had set forth a prima facie case for punitive damages arising out of bad faith and that the protective order would adequately address the insurer’s concerns regarding the confidential and proprietary nature of the information.  The court further stated that a defendant’s wealth is a fact that may be considered in awarding punitive damages. 

Date of Decision: October 16, 2009

Smith v. Life Investors Ins. Co. of Am., 2:07-cv-681, United States District Court for the Western District of Pennsylvania, 2009 U.S. Dist. LEXIS 96310 (W.D. Pa. October 16, 2009) (McVerry, J.)