S.H. Silver Company Inc v. Sentinel Insurance Company, Limited

• Court: District Court, N.D. California
• Decided: February 18, 2025
• Docket: 3:24-cv-00017
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN FRANCISCO DIVISION 7 8 S.H. SILVER COMPANY INC, Case No. 24-cv-00017-AMO (PHK)

9 Plaintiff, ORDER RESOLVING DISPUTE RE SCOPE OF DISCOVEY RE NON- 10 v. RENEWAL OF INSURANCE POLICY

11 SENTINEL INSURANCE COMPANY, Re: Dkts. 42, 46 LIMITED, 12 Defendant. 13 14 Plaintiff S.H. Silver Company Inc. (“Plaintiff”), a family run jewelry business, filed this 15 lawsuit against its comprehensive insurance policy provider, Defendant Sentinel Insurance 16 Company, Ltd. (“Defendant”), alleging bad faith claims handling tactics and breach of contract in 17 connection with a property damage claim arising from a retail burglary. See Dkt. 1. The case has 18 been referred to the undersigned for discovery. See Dkts. 43, 45. 19 Now before the Court is a joint letter brief and subsequently filed status report regarding a 20 dispute as to the scope of discovery relating to the Defendant’s non-renewal of Plaintiff’s 21 insurance policy. [Dkt. 42; Dkt. 46]. The Court finds the dispute suitable for resolution without 22 oral argument. See Civil L.R. 7-1(b). 23 LEGAL STANDARD 24 With regard to the scope of discovery in federal civil actions, Federal Rule of Civil 25 Procedure 26(b)(1) provides that “[p]arties may obtain discovery regarding any nonprivileged 26 matter that is relevant to any party's claim or defense and proportional to the needs of the case.” 27 Information need not be admissible to be discoverable. Id. Relevancy for purposes of discovery 1 matter that could bear on, any issue that is or may be in the case.” In re Williams-Sonoma, Inc., 2 947 F.3d 535, 539 (9th Cir. 2020) (quoting Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 3 350-51 (1978)); see also In re Facebook, Inc. Consumer Privacy User Profile Litig., No. 18-MD- 4 2843 VC (JSC), 2021 WL 10282215, at *4 (N.D. Cal. Sept. 29, 2021) (“Courts generally 5 recognize that relevancy for purposes of discovery is broader than relevancy for purposes of 6 trial.”) (alteration omitted). 7 While the scope of relevance is broad, discovery is not unlimited. ATS Prods., Inc. v. 8 Champion Fiberglass, Inc., 309 F.R.D. 527, 531 (N.D. Cal. 2015) (“Relevancy, for the purposes 9 of discovery, is defined broadly, although it is not without ultimate and necessary boundaries.”). 10 Information, even if relevant, must be “proportional to the needs of the case” to fall within the 11 scope of permissible discovery. Fed. R. Civ. P. 26(b)(1). The 2015 amendments to Rule 26(b)(1) 12 emphasize the need to impose reasonable limits on discovery through increased reliance on the 13 common-sense concept of proportionality: “The objective is to guard against redundant or 14 disproportionate discovery by giving the court authority to reduce the amount of discovery that 15 may be directed to matters that are otherwise proper subjects of inquiry. The [proportionality 16 requirement] is intended to encourage judges to be more aggressive in identifying and 17 discouraging discovery overuse.” Fed. R. Civ. P. 26 advisory committee’s note to 2015 18 amendment. In evaluating the proportionality of a discovery request, a court should consider “the 19 importance of the issues at stake in the action, the amount in controversy, the parties’ relative 20 access to the information, the parties’ resources, the importance of the discovery in resolving the 21 issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” 22 Fed. R. Civ. P. 26(b)(1). 23 The party seeking discovery bears the burden of establishing that its request satisfies the 24 relevancy requirements under Rule 26(b)(1). La. Pac. Corp. v. Money Mkt. 1 Inst. Inv. Dealer, 25 285 F.R.D. 481, 485 (N.D. Cal. 2012). The resisting party, in turn, has the burden to show that the 26 discovery should not be allowed. Id. The resisting party must specifically explain the reasons 27 why the request at issue is objectionable and may not rely on boilerplate, conclusory, or 1 1975) (“Under the liberal discovery principles of the Federal Rules defendants were required to 2 carry a heavy burden of showing why discovery was denied.”). 3 The Court has broad discretion and authority to manage discovery. U.S. Fidelity & Guar. 4 Co. v. Lee Inv. LLC, 641 F.3d 1126, 1136 n.10 (9th Cir. 2011) (“District courts have wide latitude 5 in controlling discovery, and their rulings will not be overturned in the absence of a clear abuse of 6 discretion.”); Laub v. U.S. Dep’t of Int., 342 F.3d 1080, 1093 (9th Cir. 2003). As part of its 7 inherent discretion and authority, the Court has broad discretion in determining relevancy for 8 discovery purposes. Surfvivor Media, Inc. v. Survivor Prods., 406 F.3d 625, 635 (9th Cir. 2005) 9 (citing Hallett v. Morgan, 296 F.3d 732, 751 (9th Cir. 2002)). The Court’s discretion extends to 10 crafting discovery orders that may expand, limit, or differ from the relief requested. See 11 Crawford-El v. Britton, 523 U.S. 574, 598 (1998) (holding trial courts have “broad discretion to 12 tailor discovery narrowly and to dictate the sequence of discovery”). For example, the Court may 13 limit the scope of any discovery method if it determines that “the discovery sought is unreasonably 14 cumulative or duplicative, or can be obtained from some other source that is more convenient, less 15 burdensome, or less expensive.” Fed. R. Civ. P. 26(b)(2)(C)(i). 16 ANALYSIS 17 The instant dispute centers on Defendant’s relevance objections to discovery requests 18 seeking documents, information, and testimony concerning Defendant’s decision and attendant 19 procedures to non-renew Plaintiff’s insurance policy. Specifically, the Parties disagree as to the 20 propriety of Defendant’s relevance objections to all of the following (the Parties did not provide 21 copies of the discovery requests themselves, and the below summaries are assumed to be accurate 22 since neither Party objected to these summaries, taken from the Parties’ joint letter brief):

23 • Plaintiff’s Requests for Production (“RFP”) Nos. 8-10: These seek documents 24 concerning Defendant’s non-renewal of Plaintiff’s insurance policy and Defendant’s practices and procedures for issuing such non-renewal notices. 25 • Plaintiff’s Interrogatories (“ROG”) Nos. 3-4: ROG No. 3 seeks all facts 26 supporting Defendant’s decision to non- renew Plaintiff’s policy. ROG No. 4 seeks an explanation as to why Defendant concluded Plaintiff’s “loss experience on this 27 policy has exceeded a level that [Defendant] considers to be acceptable” as set forth 1 • Plaintiff’s 30(b)(6) Deposition Topics Nos. 3, 8, and 9: These deposition topics 2 mirror the foregoing written discovery and seek testimony regarding (1) Defendant’s procedures or other considerations for determining whether to non-renew an 3 insurance policy; (2) Defendant’s reasoning and bases for issuing a Notice of Non- Renewal to Plaintiff; and (3) Defendant’s conclusion that Plaintiff’s “loss experience 4 on this policy has exceeded a level that [Defendant] considers to be acceptable,” as set forth in Defendant’s July 9, 2021 Notice of Non-Renewal. 5

6 [Dkt. 42 at 1]. 7 Defendant objects to providing any responsive documents, substantive interrogatory 8 responses, or testimony sought by each of these requests, arguing that “[t]here is no possible 9 relevance to evidence regarding the non-renewal” of Plaintiff’s policy. Id. at 4. Defendant argues 10 that this case is fundamentally a “contractual dispute” relating to the amount of Plaintiff’s covered 11 losses under the policy at issue, which has “nothing to do with” non-renewal. Id. at 4-5. Citing 12 California law, Defendant argues entitlement to “an absolute right” to non-renew Plaintiff’s 13 policy. Id. at 4 (citing CAL. INS. CODE § 678.1 and California caselaw thereunder). Defendant 14 thus contends that its decision to exercise the non-renewal right was “legally permissible conduct” 15 and “not evidence of bad faith.” Id. Defendant argues that evidence relating to non-renewal is 16 therefore “irrelevant to prove that other conduct was impermissible.” Id. (emphasis in original). 17 Plaintiff argues that discovery regarding non-renewal of the insurance policy is highly 18 relevant to this case, because the Complaint explicitly alleges that Defendant engaged in bad faith 19 claims handling by, among other things, “[p]lacing its own interests above the Insured’s, as 20 evidenced by its unjustified decision to issue a nonrenewal of the Policy during the claims 21 process.” Id. at 2 (citing Dkt. 1 at ¶ 37(a)). Plaintiff points to other allegations in the Complaint 22 suggesting that Defendant issued a non-renewal of the policy to “dissuade Plaintiff from pursuing 23 its claims and to deter Plaintiff from securing the full benefits of its insurance.” Id. (citing Dkt. 1 24 at ¶¶ 14-25, 33-43). Plaintiff argues that “the few documents” regarding non-renewal that have 25 been produced in this litigation thus far support the relevance of these discovery requests. Id. at 3. 26 According to Plaintiff, the limited discovery received supports the contention that Defendant took 27 measures to “ensure” that Plaintiff’s policy was “set up for non-renewal” before any investigation 1 renewal decision by “summarily concluding” that Plaintiff’s claimed loss exceeded a level that the 2 insurer “considers” to be “acceptable.” Id. Plaintiff argues that it should be “allowed to 3 investigate Defendant’s contentions regarding what it ‘considers’ to be an ‘acceptable’ loss” to 4 determine whether such considerations were unreasonable under applicable law. Id. Plaintiff asks 5 that the Court “overrule Defendant’s relevancy objections and require Defendant to (1) produce 6 responsive non-privileged documents to RFP Nos. 8-10; (2) provide substantive and complete 7 responses to ROG Nos. 3-4; and (3) provide relevant non-privileged testimony in response to 8 30(b)(6) Deposition Topics Nos. 3, 8, and 9.” Id. 9 Defendant’s relevance objections are not well-founded for several reasons. First, as noted 10 by Plaintiff, the Complaint specifically alleges that one basis for asserting a breach of the covenant 11 of good faith and fair dealing (the second cause of action) was the allegedly unjustified non- 12 renewal of the insurance policy. See Dkt. 1 at ¶ 37(a). In general, “courts look to the allegations 13 in the complaint to determine the permissible scope of discovery and apply the standards 14 embodied in Rule 26, ‘balancing the nature of the claims, the relevance and nature of the 15 information sought, and the burden of producing the information, among other things.’” Gutierrez 16 v. Converse Inc., No. 2:23-cv-06547-KK-MAR, 2024 WL 2106952, at *10 (C.D. Cal. May 2, 17 2024) (quoting Chow v. SentosaCare, LLC, No. 19-CV-3541-FB-SJB, 2020 WL 5623976, at *4 18 (E.D.N.Y. July 21, 2020)). Defendant assumes that it will ultimately prevail on the second cause 19 of action on the asserted grounds that there is an absolute right under California law not to renew 20 an insurance policy so long as certain requirements are met. The flaw in Defendant’s position is 21 that that issue has not yet been resolved in this case. The second cause of action remains operative 22 in this case, and therefore the scope of the Complaint’s express pleading undermines Defendant’s 23 across-the-board relevance objections. 24 Further, discovery of non-privileged information and documents, such as from an 25 insurance claims file, is allowed in relation to a bad faith failure to pay on an insurance claim, 26 even where there is a related breach of contract cause of action. See MOL (Am.), Inc. v. Carolina 27 Cas. Inc. Co., No. 05 C 5562, 2006 WL 8461734, at *5 (N.D. Ill. Nov. 1, 2006) (“‘[W]here 1 know the substance of the investigation, the information available and used to make a decision, 2 and the evaluations and advice relied upon for the decision. All of this relevant information is in 3 the possession of the insurer, and the insurance claims file is likely to be the sole or primary 4 source.’”) (internal citation omitted); Crum & Forster Specialty Ins. Co. v. Great W. Cas. Co., No. 5 EP-15-cv-00325-DCG, 2016 WL 10459397, at *6 (W.D. Tex. Dec. 28, 2016) (overruling 6 relevance objections and ordering production of insurance evaluations because “the claims file is a 7 unique, contemporaneously prepared history of the company's handling of the claim . . . [that] is 8 also likely to be the sole or primary source of coverage evaluations”). 9 Objections to discovery related to insurance coverage issues have been overruled where, as 10 here, there exist bad faith claims which justify the relevance of the discovery sought. See, e.g., N. 11 Am. Specialty Ins. Co. v. Iberville Coatings, Inc., No. 99-859-A-M2, 2002 WL 34423316, at *2 12 (M.D. La. Mar. 22, 2002) (“The duty to defend is not the only issue in this case. Iberville 13 Coatings and Georgia Gulf also have made a specific claim for coverage and for an award of 14 penalties and attorney's fees for bad-faith settlement practices.”). 15 The J&M Associates case cited by Plaintiff is further instructive here. See Dkt. 42 at 2 16 (citing J&M Assocs., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Penn., No. 06-CV-0903-W 17 (JMA), 2008 WL 638137, at *7 (S.D. Cal. Mar. 4, 2008)). In that case, the plaintiff, J&M, sought 18 discovery via interrogatories and document requests directed to the defendant insurer’s allocation 19 of defense costs, asserting that the insurer, National Union, had been allocating the costs of 20 defense in a manner which was improper and evidence of bad faith. 2008 WL 638137, at *7. The 21 insurer there, as here, argued that this was “an ‘untenable’ theory” which was “not viable under 22 California law” and objected to the discovery on essentially the same relevance grounds as 23 asserted here. Id. Rejecting the insurer’s objection to discovery, the district court held:

24 As National Union should be aware, . . . it is not within this Court's purview to determine whether the above allegation should be stricken-the district judge must 25 do so. Until and unless the allegation is stricken, it remains a component of J&M’s bad faith claim and, as such, J&M is entitled to obtain discovery regarding any 26 nonprivileged matter relevant to the allegation. Moreover, National Union's characterization of this allegation as simply a “wrongful non-renewal theory” is too 27 narrow. It is clear that J & M's allegation, and the discovery it seeks in relation 1 Id. 2 Defendant’s attempts to distinguish J&M Associates from the case at hand are 3 unpersuasive. [Dkt. 42 at 5]. The fact that J&M Associates was decided prior to the 2015 4 amendment of Rule 26’s provisions regarding proportionality does not diminish that opinion’s 5 holding as to the scope of relevance. And Defendant’s argument that J&M Associates “did not 6 allege an actual nonrenewal” is belied by the quoted language from that opinion above, which 7 plainly shows that the insurer there took the position that the asserted claim was “simply a 8 ‘wrongful non-renewal theory.’” Thus, Defendant’s argument to distinguish the persuasive force 9 of J&M Associates fails. 10 The cases cited by Defendant to support its objections to the discovery sought here are all, 11 as Defendant admits, cases discussing the ultimate issue of whether a non-renewal constituted bad 12 faith claims handling and discussing admissibility of evidence at trial. See Dkt. 42 at 5. And, as 13 Defendant admits again, none of these cases discuss the proper scope of discovery and none 14 address (much less approve) an objection as to relevance such as the objection asserted here. Id. 15 Defendant’s attempt to brush away the fact that these cases do not address the scope of discovery 16 is unavailing. 17 Further, Defendant’s hyperbolic attempt to liken discovery to “punishment” or “punitive 18 damages” demonstrates a fundamental misunderstanding of the federal civil discovery system. Id. 19 As the Ninth Circuit has recognized “the purpose of discovery is to aid a party in the preparation 20 of its case, not to punish its opponents for past sins.” Pac. Fisheries Inc. v. United States, 484 21 F.3d 1103, 1111 (9th Cir. 2007) (citing Fed. R. Civ. P. 26(b) advisory committee’s note to 1946 22 amendment). A court should not “permit a trial by ambush, which the federal discovery rules are 23 designed to avoid.” AngioScore, Inc. v. TriReme Med., Inc., No. 12-cv-03393-YGR, 2015 WL 24 4040388, at *25 (N.D. Cal. July 1, 2015), rev’d on other grounds, 666 F. App’x 884 (Fed. Cir. 25 2016). The Court trusts all Parties will, going forward, tone down unproductive and legally 26 unsupportable verbiage and fully comply with this Court’s Discovery Standing Order and the 27 Northern District of California’s Guidelines for Professional Conduct, particularly regarding 1 As discussed above, relevance alone does not end the inquiry; relevant discovery must also 2 be proportional to the needs of the case. Fed. R. Civ. P. 26(b)(1). Defendant argues that the 3 discovery requests are all improper because the non-renewal allegedly “has nothing to do with the 4 resolution of this case; [Plaintiff] cannot recover damages for it.” [Dkt. 42 at 5]. Defendant 5 argues that evidence that it “had exercised its statutory right not to contract [] is completely 6 disproportional to the issues in this matter.” Id. (emphasis in original). As this recitation 7 demonstrates, Defendant’s non-proportionality objection is, in large part, a mere reformulation of 8 the lack of relevance objection, and to that extent is OVERRULED. 9 However, the Court notes that the document requests appear to seek documents on 10 Defendant’s practices and procedures for issuing non-renewal notices generally and, to some 11 extent, are not limited to Plaintiff’s policy or policies like it. Similarly, Plaintiff’s 30(b)(6) 12 deposition notice seeks testimony on Defendant’s procedures or other considerations for 13 determining whether to non-renew any insurance policy, again apparently not limited to Plaintiff’s 14 policy or policies like it. Id. at 1. These discovery requests are also unlimited as to time period 15 and unlimited as to the type of insurance policy at issue. On the current record, the Court finds 16 that such scope is not proportional to the needs of the case. To the extent the document requests 17 and 30(b)(6) notice seek documents or testimony as to Defendant’s practices and/or policies 18 relating to non-renewal in general, Defendant’s lack of proportionality objections are 19 SUSTAINED-IN-PART at this time. These discovery requests SHALL be limited temporally to 20 the time period of January 1, 2019 to December 31, 2022, i.e., from the start of the full calendar 21 year prior to the period of the Business Owner’s Policy at issue until the end of the full calendar 22 year after that policy’s term. Further, these discovery requests SHALL be limited to Defendant’s 23 non-renewal practices, procedures, and other considerations for Defendant’s other Business Owner 24 Policies (and other policies, however titled or denominated, providing the same types of coverages 25 to business entities as Plaintiff’s policy at issue). 26 Finally, while Defendant raises no privilege objections, the Court is cognizant that 27 discovery into an insurer’s files may implicate documents and information which are alleged to be 1 Crum & Forster, 2016 WL 10459397, at *7-9. The Court cautions counsel for the Parties to 2 || reasonably carry out their respective duties and obligations regarding proper assertions of privilege 3 and appropriate and timely privilege logs, as well as their obligation to reasonably confer on any 4 || such issues. 5 CONCLUSION 6 As discussed herein, the Court OVERRULES Defendant’s relevance objections to the 7 || discovery requests at issue. Defendant is ORDERED to serve supplemental responses to ROG 8 || Nos. 3-4 consistent with this Order by no later than March 11, 2025. Defendant is further 9 || ORDERED to search for, collect, process, and then produce non-privileged documents responsive 10 || to RFP Nos. 8-10 consistent with this Order, where such production SHALL be substantially 11 completed by no later than March 20, 2025. The Parties are ORDERED to promptly meet and 12 || confer (and no later than March 4, 2025) to schedule the 30(b)(6) deposition at issue (on the 13 || topics consistent with this Order) at a time, date, and location mutually agreed upon by the Parties. 14 || To the extent consistent with the specific deadlines in this Order, the Parties SHALL comply with 3 15 || the Court’s Standing Order for Discovery. The Parties are free to reach agreement to reasonably a 16 || adjust any of the deadlines in this Order to dates which are mutually agreeable to both Parties. 2 17 This RESOLVES Dkts. 42 and 46. 18 19 || ITIS SO ORDERED. 20 || Dated: February 18, 2025 21 22 United States Magistrate Judge 23 24 25 26 27 28