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CX Reinsurance Co. Ltd. v. Johnson

United States District Court, D. Maryland

January 19, 2018

CX Reinsurance Company Limited, f/k/a CNA Reinsurance Company Limited
Devon S. Johnson

         Dear Counsel:

         Pursuant to Judge Titus's January 19, 2017 Order, this matter has been referred to me for discovery disputes and related scheduling matters. [ECF No. 40]. Presently pending is Intervenor-Defendant Devon Johnson's (“Johnson”) Motion to Compel documents [ECF No. 89], CX Reinsurance Company Limited's (“CX Re”) Opposition [ECF No. 95], Johnson's Reply [ECF No. 99], and CX Re's Surreply [ECF No. 101-1].[1] I find that no hearing is necessary. See Loc. R. 105.6 (D. Md. 2016). For the following reasons, Johnson's Motion to Compel is GRANTED in part and DENIED in part.

         I. Background

         In this action, CX Re seeks to rescind commercial general liability insurance policies (“Policies”) issued to Benjamin L. Kirson (“Kirson”), and other named insureds in 1997, 1998, and 1999. Pl.'s First Am. Compl., [ECF No. 17 ¶¶ 1, 7, 8]. The Policies provide insurance coverage for certain risks, including lead exposure, relating to specified residential rental properties in Baltimore, Maryland. See Policies, [ECF Nos. 1-2, 1-3].

         In particular, CX Re alleges that Kirson made a misrepresentation of material fact by falsely answering “No” to Question 16 of the Application upon which the Policies were issued, which asks whether “the [i]nsured ever had any lead paint violations in the building(s)[.]” [ECF No. 17 ¶¶ 1, 13, 19-24]. CX Re argues that, if Kirson 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. ¶ 32. CX Re asserts that, “after learning of and investigating Kirson's misrepresentation . . ., [it] filed this rescission action.” Id. ¶ 34.

         On August 8, 2016, Johnson won a $1, 628, 000.00 judgment against Kirson in State court, representing damages for injuries sustained from lead paint exposure at a property covered by CX Re's policy. Devon Johnson, A Minor By His Next Friend v. Benjamin L. Kirson, 24-C-14005926; [ECF No. 19 ¶ 2]. Thus, to protect his interests, demonstrate that CX Re's policy remains in effect, and ensure that “rescission is inoperative and invalid as to his claims[, ]” Johnson intervened in this action on January 18, 2017. [ECF Nos. 19 ¶ 3, 38, 39]. Upon intervening, Johnson was “forbidden from taking discovery except to the extent” it was nonduplicative of discovery sought by Kirson. [ECF No. 38 at 2]. On October 5, 2017, Kirson was dismissed with prejudice from this case, rendering Johnson and CX Re the only remaining parties. [ECF No. 81]. Prior to being dismissed, however, Kirson issued to CX Re a request for production of documents, and CX Re served its responses and objections. See [ECF Nos. 89-3, 89-5]. Upon Kirson's dismissal, this Court permitted Johnson to “file a motion to compel responses to discovery requests that [Kirson] originally propounded.” [ECF No. 83 at 1].

         The instant discovery dispute revolves around Kirson Document Request Nos. 1, 2, 3, 11, and 18, which, Johnson contends, seek information “relating to its affirmative defenses of laches and waiver.” [ECF Nos. 89 at 5, 89-3]. Specifically, CX Re objects to producing three categories of documents responsive to these requests: (1) documents in its or Pro UK's possession regarding the existence of chipping or flaking paint, or lead paint on the surfaces at Kirson properties, unless the documents contain “‘evidence' of those conditions (such as deposition testimony or health department inspection records)” as opposed to mere “‘allegations' of deleterious lead paint conditions (such as complaints alleging damages due to exposure to flaking or chipping lead paint);” (2) documents that include either “allegations” or “evidence” of lead paint at Kirson properties that are in the possession of Pro IS, Inc. (“Pro IS”); and (3) documents relating to its underwriting review involving insureds other than Kirson. [ECF No. 89 at 5-6]. CX Re argues that Johnson's Motion to Compel is untimely and, alternatively, that the documents sought are irrelevant. [ECF No. 95 at 3-13]. These arguments are addressed below.

         II. Johnson's Motion to Compel is Timely.

         CX Re first contends that, because “Johnson now stands in Kirson's shoes” in filing his Motion to Compel, Johnson “is subject to all defenses and arguments to which Kirson would have been subject had he remained in the case.” [ECF No. 95 at 3]. This Court's Local Rules require that a party, if unable to informally resolve disputes regarding a party's document production, must “serve a motion to compel within thirty (30) days of” receiving the response. Loc. R. 104.8(a) (D. Md. 2016). CX Re served its responses to Kirson's first request for production of documents on October 3, 2016 [ECF No. 89-5 at 20], and Kirson never filed a motion to compel. Thus, because the window to file a motion to compel would be closed as to Kirson, CX Re argues it is necessarily closed for Johnson as well. [ECF No. 95 at 3].

         CX Re's argument is without merit. The Local Rules also expressly provide that the “Court may, in a particular case, suspend the provisions of any . . . Rule[] . . . and may order proceedings in accordance with its direction.” Loc. R. 604 (D. Md. 2016). On October 6, 2017, well after the thirty day window would have closed for Kirson, this Court, nonetheless, expressly permitted Johnson to “file a motion to compel responses to discovery requests that [Kirson] originally propounded.” [ECF No. 83 at 1]. Had the Court intended for Johnson to be bound by the same time requirements as Kirson, it would not have permitted him to file the motion. Local Rule 104.8 thus does not provide grounds to deny Johnson's Motion to Compel.

         III. Documents in CX Re's or Pro UK's Possession Regarding Lead Paint Conditions at Kirson Properties

         CX Re next objects to producing documents in its or Pro UK's possession that only “allege” but do not consist of “evidence” of deleterious lead paint conditions at Kirson properties. [ECF Nos. 89 at 7-16, 95 at 4-8]. CX Re contends that this Court held in CX Re v. B&R Management, Incorporated, No. ELH-15-3364, ECF No. 229 (“B&R Management”) that documents consisting of only “allegations” of deleterious lead paint conditions are irrelevant. [ECF No. 95 at 4]. Johnson, meanwhile, argues that, regardless of whether they consist of only “allegations, ” the documents are relevant to: (1) his laches defense; and (2) his waiver defense. [ECF No. 89 at 7-16].

         As background, in B&R Management, a defendant, Jessica-Carl, Inc. (“Jessica-Carl”), sought documents from CX Re and Pro UK regarding a lead paint lawsuit filed by Tyrell Stokes (“Stokes Claim”) against Arbor, Inc., a named insured under the Policies. No. ELH-15-3364, ECF No. 229 at 2. In the Stokes Claim, which settled for $710, 000.00 in 2012, Ms. Stokes alleged injury from exposure to lead paint at an insured property, where she resided from 1998 to 2000. Id. Jessica-Carl argued that documents concerning the Stokes Claim would demonstrate that B&R Management's answers to Questions 12 and 14 on the Application were false and, as such, that CX Re's claims were barred by limitations and laches because it was “on inquiry notice of claims for rescission or for fraud more than three years before it filed its Complaint.”[2]Id. In reaching its holding that the requested documents were not relevant, this Court relied, in part, on the “extraordinary situation” standard, which provides that insurers in Maryland, like CX Re, generally “do not have a duty to investigate insurance applicants and are entitled to believe what an applicant claims to be true.” Id. at 3 (quoting N. Am. Specialty Ins. Co. v. Savage, 977 F.Supp. 725, 731 (D. Md. 1997)). A duty to investigate, however, can arise in “extraordinary circumstances.” Encompass Home and Auto Ins. Co. v. Harris, No. CIV.A. GLR-12-2588, 2013 WL 6095496, at *6 (D. Md. Nov. 19, 2013) (citing N. Am. Specialty Ins. Co., 977 F.Supp. at 731). Extraordinary circumstances exist when the insurer is “‘on notice that some type of investigation is necessary' because ‘a considerable amount of suspicious information' is presented to the insured.” N. Am. Specialty Ins. Co., 977 F.Supp. at 731 (quoting Clemons v. Am. Cas. Co., 841 F.Supp. 160, 167 (D. Md. 1993)). Thus, this Court held that, because Ms. Stokes did not allege injuries prior to 1998, information relating to the Stokes Claim did not establish that B&R Management's answers to Question 12 and Question 14 were false at the time of the Application in 1997. Id. at 3-4. As such, CX Re was “entitled to believe what [B&R Management] claim[ed] to be true” in the Application, and the documents were not relevant to Jessica-Carl's defenses of limitations and laches. Id.

         Johnson alleges that the “extraordinary situation” standard was incorrectly applied in B&R Management, and that it is inapplicable to his laches defense. [ECF No. 89 at 7-11, 7 n.3]. To avoid the affirmative defense of laches, CX Re must have filed its claim “within three years from the date it accrue[d].” Md. Code Ann., Cts. & Jud. Proc. § 5-101 (West). Further, “[t]he discovery rule applies generally in all civil actions brought pursuant to Maryland state law, and it provides that ‘the cause of action accrues when the claimant in fact knew or reasonably should have known of the wrong.'” CX Reinsurance Co. Ltd. v. Leader Realty Co., 219 F.Supp.3d 542, 546 (D. Md. 2016), adhered to on reconsideration, 252 F.Supp.3d 439 (D. Md. 2017) (quoting Poffenberger v. Risser, 290 Md. 631, 431 A.2d 677, 680 (1981)) (hereafter “Leader”). Thus, inquiry notice - “‘having knowledge of circumstances which would cause a reasonable person in the position of the plaintiffs to undertake an investigation which, if pursued with reasonable diligence, would have led to knowledge of the alleged [cause of action]'” - is sufficient to cause an action to accrue. Poole v. Coakley & Williams Const., Inc., 423 Md. 91, 132 (2011) (quoting Anne Arundel Cnty. v. Halle Dev., Inc., 408 Md. 539, 562 (2009)). At issue then is whether CX Re, as an insurer, is subject only to Maryland's discovery rule, or whether, as CX Re contends, the “extraordinary situation” standard informs the ...

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