Case Number: BC676824    Hearing Date: July 30, 2018    Dept: 78

Superior Court of California

County of Los Angeles

Department 78

CORE HEALTH & FITNESS, LLC;

 

Plaintiff,

 

vs.

 

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, ET AL.;

 

Defendants.

Case No.: BC 676824
Hearing Date: July 30, 2018
   
[TENTATIVE] RULING

 RE:

PLAINTIFFS CORE HEALTH & FITNESS, LLC, CORE FITNESS, LLC, AND CORE INDUSTRIES, LLC’S MOTION TO COMPEL ATTENDANCE AT DEPOSITION AND PRODUCE DOCUMENTS

 

DEFENDANT NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA’S MOTION TO STAY DEPOSITION, QUASH DEPOSITION NOTICE, AND/OR FOR PROTECTIVE ORDER.

 

Plaintiffs Core Health & Fitness, LLC, Core Fitness, LLC, and Core Industries, LLC’s Motion to Compel Attendance at Deposition is GRANTED subject to the conditions set forth in Section III hereof.

Defendant National Union Fire Insurance Company of Pittsburgh, PA’s Request for Judicial Notice is GRANTED

Defendant National Union Fire Insurance Company of Pittsburgh, PA’s Motion to Stay Deposition, Quash Deposition Notice, and/or for Protective Order, is DENIED.

FACTUAL BACKGROUND

This is an action for bad faith breach of contract and legal malpractice.  The Complaint alleges as follows. Plaintiffs Core Health & Fitness, LL, Core Fitness, LLC, and Core Industries, LLC (collectively “Core”) entered into a liability policy with Defendant National Union Fire Insurance Company of Pittsburgh, PA (“Union”) on or before August 1, 2013. (Complaint ¶ 8.)

On January 10, 2014, Manuel Rodriguez filed a complaint against LA Fitness International, LLC (“LA Fitness”) for a traumatic brain injury he sustained using a Core exercise machine at an LA Fitness facility. (Complaint ¶ 11.) LA Fitness, an Additional Insured per the terms of Core’s policy, was a large customer of Core. (Complaint ¶ 12.)

On May 20, 2014, LA Fitness tendered the Rodriguez lawsuit to Core, who tendered it to Union per the policy. (Complaint ¶ 13.) on January 26, 2015, Rodriguez added Core as a defendant in the lawsuit. (Complaint ¶ 14.) On March 30, 2016, LA Fitness filed a cross-complaint against Core seeking defense and indemnity. (Complaint ¶ 15.) Core once more tendered the cross-complaint to Union, who declined to extend coverage to LA Fitness based on an erroneous interpretation of its Core policy. (Complaint ¶ 16.)

On November 30, 2015, Defendant Bassi Edlin Huie & Blum, LLP (“BEHB”) substituted into the Rodriguez case to defend Core against the Rodriguez complaint and the LA Fitness cross-complaint. (Complaint ¶ 17.)

Throughout the Rodriguez litigation, Core advised Union and BEHB of the importance of extricating both itself and LA Fitness from the suit before trial, both to preserve Core’s reputation in the fitness community and to maintain its business relationship with LA Fitness. (Complaint ¶ 18.)

On September 6, 2016, the court imposed evidentiary and issue sanctions against Core and its counsel which crippled its ability to defend itself. (Complaint ¶ 19.) However, BEHB falsely reported to Union that issues effectively resolved by the sanctions order remained unresolved. (Complaint ¶ 19.) In the same report, BEHB did not mention the sanctions order. (Complaint ¶ 20.) That day, when a partner in BEHB provided Union with a report and valuation of the case, he misrepresented the character of the sanctions order. (Complaint ¶ 21.) Neither Union nor BEHB timely advised Core of the sanctions order. (Complaint ¶ 22.)

BEHB and Union conspired to undervalue the case and prevent a global settlement of the Rodriguez matter. (Complaint ¶ 25.) BEHB provided Union with a report valuating the case at between $50,000 and $250,000, but then advised Core that the case value was between ten and $30 million. (Complaint ¶ 25.) When Core submitted this higher valuation to Union, BEHB then insisted that its previous lower valuation was accurate. (Complaint ¶ 25.) BEHB later admitted that it had adopted lower estimations of value at Union’s request, owing to a false assumption that Rodriguez would be unable to prove traumatic brain injury or that Core had acted with recklessness. (Complaint ¶ 25.)

On October 12, 2016, when Core requested $900,000 in settlement authority from Union to resolve the Rodriguez case, BEHB undercut the request by arguing once more that the case value was lower. (Complaint ¶ 26.)

On November 7, 2016, the parties obtained a mediator’s proposal for a $2,275 million global settlement of the case which would dismiss both Core and LA Fitness. (Complaint ¶ 27.) Core demanded that Union pay the sum, and Union denied the request based on BEHB’s false representations. (Complaint ¶ 27.)

Core settled directly with Rodriguez for $750,000, during trial, on November 29, 2016. (Complaint ¶ 29.) Union refused to settle the case as to LA Fitness. (Complaint ¶ 29.) A jury found in favor of Rodriguez against LA Fitness, awarding $5.8 million in compensatory damages and $17 million in punitive damages. (Complaint ¶ 30.) After trial concluded, LA Fitness demanded that Core remove all of its machines from all LA Fitness locations, and indicated that it would no longer do business with Core. (Complaint ¶ 31.)

PROCEDURAL HISTORY

Core filed the Complaint on September 22, 2017, alleging two causes of action:

  1. Insurance Bad Faith
  2. Legal Malpractice

On March 21, 2018, this court granted BEHB’s motion to strike as to Core’s request for attorney’s fees, but denied BEHB’s special motion to strike.

PRE-FILING HISTORY

On March 2, 2018, Core served Union with a Notice of Deposition for Persons Most Qualified to testify regarding a Self-Insured Retention Endorsement. (McCurdy Decl. Exh. 2.)

On April 6, 2018, Union served objections to the notice. (McCurdy Decl. ¶ 4.)

Core sent a response to Union’s objections on April 9, 2018. (McCurdy Decl. ¶ 8.)

Union responded with a letter on April 11, 2018. (McCurdy Decl. ¶ 9.)

Core served an amended PMQ Deposition Notice on April 11, 2018. (McCurdy Decl. Exh. 8.)

Union and Core agreed to continue the deposition to May 17, 2018. (McCurdy Decl. ¶ 11.)

Union served objections to the deposition on May 9, 2018. (McCurdy Decl. ¶ 13.)

Core sent a response on May 15, 2018. (McCurdy Decl. ¶ 14.)

Union filed the present Motion to Stay or Quash Deposition Notice, and/or for a Protective Order, on May 16, 2018.

Core filed the present Motion to Compel Further on May 21, 2018.

Union filed an Opposition to Core’s Motion on July 17, 2018.

Core filed an Opposition to Union’s Motion on July 17, 2018.

DISCUSSION

 

  • REQUEST FOR JUDICIAL NOTICE

The court may take judicial notice of “official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States,” “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States,” and “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code § 452, subds. (c), (d), and (h).)

Union asks this court to take judicial notice of the following matters:

  • The Third Amended Complaint in the underlying lawsuit of Rodriguez v. Fitness International, Case No. 532963
  • Core’s Complaint in this action, filed on September 22, 2017.

The court grants this request for judicial notice.

 

  • MOTION TO STAY DEPOSITION, QUASH DEPOSITION NOTICE AND/OR FOR PROTECTIVE ORDER AND MOTION TO COMPEL ATTENDANCE AT DEPOSITION AND PRODUCE DOCUMENTS

 

A party who objects to a deposition notice may move for an order staying the deposition and quashing the deposition notice. (Code Civ. Proc. § 2025.410, subd. (c).) Such a motion must be accompanied by a meet and confer declaration. (Code Civ. Proc. § 2025.410, subd. (c).)

Likewise, the court may, “for good cause shown” make any order that justice requires to protect any party, deponent, or other natural person or organization from unwarranted annoyance, embarrassment, or oppression, or undue burden and expense.” (Code Civ. Proc. § 2025.420, subd. (b).)

Union seeks to quash a notice of deposition for Union’s PMQ, which included various topics of discussion and categories of requested documents relating to a Self-Insured Retention Endorsement attached to the subject policy. That endorsement’s relevant language provides as follows:

We will pay on behalf of the Insured those sums in excess of the “Retained Limit” that the Insured becomes legally obligated to pay as damages because of”bodily injury” or “property damage” to which this insurance applies. We will have the right but not the duty to defend any “suit” seeking those damages. We may at our discretion and expense, participate with you in the investigation of any “occurrence” and the defense or settlement of any claim or any “suit” that may result.

(McCurdy Decl. Exh. 1 at p. 62.)

Union argues that this language, which it expects Core to argue vests final settlement authority with Core rather than Union, is irrelevant to the present dispute on whether Union unreasonably delayed settling or settled for an unreasonable amount. (Motion at pp. 6–8.) Union next argues that, assuming the SIR endorsement is relevant to the issue of settlement authority, the court may decline to enforce the notice because the endorsement does not grant Core settlement authority as a matter of law. (Motion at pp. 8–10.) National Union argues that an order requiring it to produce claim files of policy holders other than Core also argues that the deposition notice is overbroad, requesting information from entitiesother than National Union in violation of California Insurance Code Section 791.13, and that it will pose an undue burden upon it, causing it to expend up to 1.1 million hours searching more than 2 million underwriting files. (Motion at pp. 10–13.) Finally, Union argues that the deposition notice requests information protected by the attorney-client privilege and the work-product doctrine, all to obtaining irrelevant evidentiary testimony on what is fundamentally a legal issue. (Motion at pp. 13–15.)

Core responds that the SIR Endorsement is relevant because it goes toward whether Union declined to settle the case, in defiance of Core’s wishes, in excess of its contractual authority under the policy. (Opposition at p. 7.) Core points to one case in which identical language in an endorsement was interpreted to confer ultimate settlement authority upon an insured. (Opposition at p. 7, citing Powell Elec. Sys. V. Nat’l Union Fire Ins. Co. of Pittsburgh, PA (S.D. Tex., Aug. 29, 2011) 2011 WL 3813278.) Core argues that the discovery of information regarding Union’s interpretation of the endorsement, both in its case and in others, will shed light on Union’s good or bad faith in applying its interpretation of the endorsement. (Motion at pp. 10–12.) Finally, Core argues that Union may refrain from producing privileged materials, so long as it produces materials not privileged. (Opposition at p.13.)[1]

The fundamental problem with National Union’s legal position on these motions is that what National Union is in essence asking the Court to do at this point is to decide the core issues in this case and, based on an assumption that National Union is right on those issues, deny Core any discovery.  The issues, as the Court understands them, are: 1.) Was National Union required to provide indemnity coverage to LA Fitness as an “additional insured” in the underlying action? 2.) Did the SIR endorsement at issue give Core the right to settle the underlying action on behalf of LA Fitness within policy limits?  And 3.)  Did National Union injure Core by denying its obligation under the insurance policy and refusing to provide coverage for LA Fitness?  Given these central issues, it is difficult to understand National Union’s claim statement that “none of [the allegations in the complaint] remotely relate to the SIR endorsement.[2]

National Union also states “]I]t is well settled law that the interpretation of an insurance policy is a legal rather than a factual determination.” While this is correct, it does not end the inquiry. The question is: what standards does the Court apply in making this determination?  It is well settled that the Court starts in its interpretation by considering the language contained in the policy.  But it has long been the law in California that “Contractual language is ambiguous if it is susceptible to more than one reasonable interpretation in the context of the policy as a whole. American Alternative Ins. Corp. v. Superior Court (2006) 135 Cal. App. 4th 1239, at 1245.  It is equally well settled that “In determining whether an ambiguity exists, a court should consider not only the face of the contract but also any extrinsic evidence that supports a reasonable interpretation.” Id., at 1246.  Discovery is governed by the test of whether the requested information is “relevant to the subject matter of the action” and “likely to lead to the discovery of relevant information.”   The Court finds that all of the listed topics for examination and all of the categories of requested document meet that test.

In addition, the Court finds that all of the topics listed for the deposition and all the document categories are related to the subject matter of Core’s bad faith claim and reasonably calculated to lead to the discovery of relevant information with respect to that claim.

In addition to the question of relevance, the court must also consider whether responding to the discovery requests as drafted will impose an undue burden on the responding party and whether there are reasonable limitations available the reduce this burden.  As the Court stated inWilliams v. Superior Court (2017) 3 Cal.5th 531, 549 “A trial court shall limit the scope of discovery if it determines that the burden, expense, or intrusiveness of that discovery clearly outweighs the likelihood that the information sought will lead to the discovery of admissible evidence. However, as with other objections in response to interrogatories, the party opposing discovery has an obligation to supply the basis for this determination. An objection based upon burden must be sustained by evidence showing the quantum of work required.” (internal quotation marks and citations omitted).

The Court finds that National Union has made a showing of burden. The required responses will therefore be limited as set forth in Section III.

Core also requests that the Court order sanctions against National Union for opposing Core’s discovery requests.  In light of the breadth of those requests and the need for both parties to have a set of guidelines governing discovery in the future the Court will not order such sanctions.  The Court will note, however, that the parties are expected to follow these guidelines and unreasonable failure to do so can only result in unreasonable delay which the Court wants very much to avoid.  Rifkind v. Superior Court (1994) 22 Cal 4th 1255, for example, has been cited for the proposition that it improper to ask a witness his or her opinions or conclusions at a deposition.  Counsel are reminded that the deposition questions at issue in Rifkind were “state all facts” “identify all witnesses” and “identify all documents” that supported claims in the case.  This is a far cry from asking a witness what he or sshe believes or believed a particular policy provision means or similar questions asking for the witnesses’ personal belief, observation or recollection.  Relevancy objections are preserved to all such questions and answers in the deposition and will be resolved at trial.  Not at the deposition.

 

  • ORDERS

 

National Union’s Motion to Quash, Motion to Stay and Motion for a Protective Order are denied.  National Union’s objections to the PMQ Deposition Notice and Request for Document Production on the grounds that the topics identified in the deposition notice and the documents called for by the document requests are not relevant to the subject matter of the action and not reasonably calculated to lead to the discovery of relevant information are overruled.  National Union’s objection that the deposition notice and document request calls for production of proprietary underwriting files is overruled as are its objections that the requests call for communications protected by the attorney client privilege or work product doctrine. Objections may be made to deposition questions that call for attorney client communications or attorney work product and counsel for National Union is ordered to prepare a privilege log describing as required by the applicable rules any documents the production of which National Union objects to on these grounds withthe details supporting the objections.

Core’s Motion to Compel the Attendance at Deposition and Production of Documents at the deposition of National Union’s Person Most Qualified is granted with the following limitations:[3]

  1. The Court agrees with National Union that requiring National Union to produce documents relating to policy holders of or policies issued by affiliated companies other than National Union would be unduly burdensome.  National Union need only to produce document relating to policies it issued, including documents relating to adjustment or claims handling by companies affiliated with National Union.  The term “YOUR” in both the deposition notice and the document request are revised to read “National Union[‘s].”
  2. The claims files for individual policy holders other than California policy holders subject to production are for policy holders with insurance policies containing the Self Insured Retention provision contained in Core’s policy in which an issue arose as to or there was a discussion of the meaning, interpretation, application or effect of that Self Insured Retention provision.  In the event that National Union has no central electronic repository containing this information, National Union is required to make a good faith claims office by claims office inquiry to identify such policy holders.
  3. With respect to claims files for California policy holders, the same limitations and requirements apply but National Union may withhold the files of these policy holders pursuant to Insurance Code 791.13.  National Union must provide the names and addresses of those policy holders to Core and Core may send these policy holders letters requesting that they authorize National Union to provide these files to Core.  National Union is ordered to produce to Core the claims files of any policy holder giving National Union authorization to do so within one year of the date of the letter. See Meade Reinsurance Company v. Superior Court (1986) 188 Cal App 3rd 313.

DATED:  July 30, 2018                                  ________________________________

Hon. Robert S. Draper

Judge of the Superior Court

[1] Identical arguments underlay Core’s Motion to Compel as to the same deposition notice, as well as Union’s Opposition thereto. The motions will therefore be considered together.

[2] National Union Motion, page 7 line 11.

[3] To the extent the limitations set forth below are responsive to objections in National Union’s Motion to Quash, those objections are sustained.

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