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CX Reinsurance Company Ltd. v. B&R Management, Inc.

United States District Court, D. Maryland

September 22, 2017

CX Reinsurance Company Limited, f/k/a CNA Reinsurance Company Limited
v.
B&R Management, Inc., et al.;

          Stephanie A. Gallagher, United States Magistrate Judge.

         Dear Counsel:

         Pursuant to Judge Hollander's July 21, 2017 Order, [ECF No. 204], as well as a prior order referring this case to me for discovery, [ECF No. 78], I have reviewed Defendant Jessica-Carl, Inc.'s ("Jessica-Carl's") letter brief in support of its Third Request for Production of Documents (hereinafter "Motion to Compel"), [ECF No. 214], and Plaintiff CX Reinsurance Company Limited's ("CX Re's") letter brief in opposition thereto. [ECF No. 220]. A hearing was held on September 13, 2017. For the reasons set forth below, Jessica-Carl's Motion to Compel is DENIED, contingent upon Cx Re's intended use of certain information relating to the Motion.

         I. Background

         In this action, CX Re seeks to rescind two commercial general liability insurance policies ("Policies") issued to Jessica-Carl, B&R Management. Inc. ("B&R Management"), and other named insureds (collectively "Defendants") in 1997 and 1998. Pl's First Am. Compl., [ECF No. 25 at ¶¶ 1 & 11]. The Policies provide insurance coverage for certain risks, including lead exposure, relating to specified residential rental properties in Baltimore, Maryland ("Properties"). See Policies, [ECF Nos. 1-2 & 1-3]. CX Re also seeks damages for sums fraudulently "incurred and paid ... in connection with the adjustment, defense, settlement and satisfaction of judgments in these and other claims and lawsuits under the Policies." Pl's First Am. Compl., [ECF No. 25 at ¶¶ 1-2 & 34-37].

         In particular, CX Re alleges that Defendants made misrepresentations of material fact in the Application upon which the Policies were issued. Id. at ¶¶ 1 & 24. In its First Amended Complaint, CX Re avers that Defendants falsely answered "No" to Question 16 of the Application, which asks whether "the insured ever had any lead paint violations in the building(s)[.]" Id. at ¶¶ 25-26. Application, [ECF No. 1-4]. CX Re argues that if Defendants had answered this question truthfully, CX Re would not have issued the Policies or would have issued the Policies subject to substantially higher premiums or substantially different terms. Id. at ¶ 41. CX Re asserts that it first learned of the misrepresentation regarding Question 16 of the Application while conducting "a broad underwriting review of many insureds[]" in August 2015, and filed this action shortly thereafter in November, 2015. Id. at ¶¶ 27-28.

         Precipitating the instant discovery dispute are new allegations of material misrepresentations raised in CX Re's Proposed Second Amended Complaint. See Pl's Second Am. Compl., [ECF No. 189-1]. CX Re contends that, in addition to Question 16, Defendants also provided false and misleading answers to Questions 12 and 14, denying that there was "any lead paint on any interior or exterior surface of the building[, ]" or "any paint chipping or flaking, or otherwise coming off any interior or exterior surface of the building[, ]" respectively. Id. at ¶ 44. Application, [ECF No. 1-4]. CX Re alleges that it first learned of these additional misrepresentations in May, 2017 while conducting discovery for the instant case. Pl's Second Am. Compl., [ECF No. 189-1 at ¶ 67]. Jessica-Carl's Third Request for Production of Documents seeks information relating to the above new issues, and CX Re objects to these Requests. See [ECF Nos. 214, 220].

         II. Legal Standard

         Federal Rule of Civil Procedure 26(b)(1) permits discovery of "any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case." In determining proportionality, the Court must consider "the importance of the issues at stake in the action, the amount in controversy, the parties" relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit." Fed.R.Civ.P. 26(b)(1).

         III. Discussion

         Jessica-Carl requests that CX Re provide all documents regarding a lead paint lawsuit filed by Tyrell Stokes a/k/a Tyshell Stokes ("Stokes Claim") against Arbor, Inc., a named insured under the Policies, in the possession, custody, and/or control of Pro Insurance Solutions Limited ("Pro UK") ("Request No. 1") and CX Re ("Request No. 2"). See [ECF No. 214-1, 3]. In the Stokes Claim, Ms. Stokes alleged injury from exposure to chipping, flaking, and peeling paint at 2308 E. North Avenue, an insured property under the Policy where she resided from 1998 to 2000. See Def.'s Mot., [ECF No. 214, 1 & 3]. The Stokes Claim settled for $710, 000 in 2012. See Id. at 1. Jessica-Carl argues that documents concerning the Stokes Claim will demonstrate that B&R Management's answers to Questions 12 and 14 on the Application were false and, as such, that CX Re was "on inquiry notice of claims for rescission or for fraud more than three years before it filed its Complaint." Id. at 2. As such, "the documents sought will demonstrate, conclusively, that CX Re's claims in this case are barred by limitations and laches." Id. at 1. CX Re objects to both of Jessica-Carl's Requests on the basis of relevance "and to Request No. 1 because Pro UK's documents are outside of CX Re's possession, custody, and control." Pl's Opp., [ECF No. 220, 2].

         For the reasons set forth below, documents regarding the Stokes Claim are not relevant to Jessica-Carl's affirmative defenses of limitations and laches, and thus need not be produced by CX Re on these grounds. At the hearing, however, CX Re confirmed that it may be seeking damages for the $710, 000 it expended to settle the Stokes Claim. This parallels CX Re's Complaint, stating that it is seeking damages for sums fraudulently "incurred and paid ... in connection with . . . settlement[s] under the Policies." Pl's First Am. Compl., [ECF No. 25 at ¶¶ 1-2 & 34-37]. I find that, to the extent CX Re intends to use the Stokes Claim to prove either liability or damages, the requested documents are relevant and must be produced.

         A. Relevance of the Stokes Claim Documents to Jessica-Carl's Affirmative Defenses

         The parties disagree over whether post-Application evidence of lead paint at 2308 E. North Avenue triggered accrual of CX Re's rescission and fraud claims. Jessica-Carl argues that CX Re had actual knowledge in 2012 of sufficient suspicious information that B&R Management's answers to Questions 12 and 14 could potentially support a claim for rescission or fraud based on the following: allegations that there was chipping, flaking, and peeling paint on all of the windowsills and frames of the property at the inception of Ms. Stokes's tenancy in 1998; evidence that Ms. Stokes's blood lead levels increased during her period of tenancy; and the fact that the property was built decades before lead paint was banned in Baltimore in 1951. Dcf.'s Mot., [ECF No. 214, 3-4]. See Def.'s Opp. to Pl's Second Am. Compl., [ECF No. 189, 14]. CX Re, on the other hand, argues that the Stokes Claim did not present an extraordinary situation triggering a duty to investigate. Pl's Opp., [ECF No. 220, 4]. Specifically, CX Re avers that the Stokes Claim is ...


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