United States District Court, D. Maryland
CX Reinsurance Company Limited, f/k/a CNA Reinsurance Company Limited
Devon S. Johnson
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]. 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.
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,
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.
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].
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
Johnson's Motion to Compel is Timely.
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].
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.
Documents in CX Re's or Pro UK's Possession Regarding
Lead Paint Conditions at Kirson
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].
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.”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.
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 ...