United States District Court, D. Maryland
CX Reinsurance Company Limited, f/k/a CNA Reinsurance Company Limited
B&R Management, Inc., et al.;
Stephanie A. Gallagher, United States Magistrate Judge.
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.
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].
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.
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].
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.
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].
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.
Relevance of the Stokes Claim Documents to Jessica-Carl's
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 ...