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RLI Insurance Co. v. Fifth Third Bankcorp

United States District Court, S.D. Ohio, Western Division

March 1, 2017


          Beckwith, J.



         The above two cases initially were consolidated solely for purposes of discovery and pretrial proceedings. On January 9, 2017, the case was reassigned to U.S. District Judge Timothy S. Black for all further proceedings. Although the cases were previously set for trial on different dates, (see Docs. 27, 70 in Case No. 14-802, Docs. 33, 77 in Case No. 14-869), Judge Black's most recent order sets the both cases for trial on October 23, 2017.[1]

         Currently before the undersigned are three extensively briefed motions.[2] Two of the motions have been filed by Fifth Third to amend its pleadings in both Case No. 1:14-cv-869, and in Case No. 1:14-cv-802. For the convenience of this Court, those two motions will be addressed by separate Order. This Order will discuss the third pending motion - a Motion for a Protective Order filed by a group of insurers in Case No. 1:14-cv-869.

         I. Background

         The background of the two related cases has been summarized in prior orders, but is repeated herein for the convenience of this Court.

         Case No. 1:14-cv-802 was first filed by RLI Insurance Company (“RLI”), one of several insurers participating in a financial bond policy issued to Fifth Third Bancorp (“Fifth Third”). RLI's complaint seeks a declaratory judgment that it owes nothing under its bond due to the fact that Fifth Third was aware of the loss prior to the purchase of the bond, and failed to timely present its claim. Fifth Third filed a counterclaim for breach of contract, seeking coverage under the bond. A month after RLI initiated its declaratory judgment action, Fifth Third filed Case No. 14-cv-869 against a number of other insurers that also issued and/or participated in additional financial bonds purchased by Fifth Third, and under which Fifth Third also seeks to recover.

         Both cases arise from the actions of a Fifth Third loan officer, Matthew Ross, who was formerly employed in the bank's structured finance group. Fifth Third alleges that it has suffered losses in excess of $100 million due to Mr. Ross's misconduct, exceeding the policy limits of all of the financial bonds issued by the various entities. As Senior District Judge Beckwith previously noted in consolidating the two cases for pretrial proceedings, the Defendants in Case No. 14-cv-869 “raise many defenses similar to those raised by RLI, such as lack of timely notice of loss, and Fifth Third's discovery of the fraudulent conduct prior to the inception of the policy period.” (Case No. 1:14-cv-802, Doc. 27 at 3). In both suits, Fifth Third seeks no damages other than those recoverable under the alleged breach of contract claims, the “insured losses” up to the policy limits. However, Fifth Third has suggested that it is likely to seek an award of attorney's fees under Ohio law, assuming that it can demonstrate that the Insurers acted in bad faith in denying coverage.

         On March 12, 2015, the Court entered an initial joint Calendar Order for both cases, providing a September 30, 2015 deadline for motions to amend the pleadings. While that deadline was not amended, other pretrial deadlines, including deadlines relating to discovery and the filing of dispositive motions, have been repeatedly extended since entry of that initial order. In the Court's most recent Calendar Order of February 10, 2017, the last day on which either party may serve written discovery is April 14, 2017, with any discovery-related motions to be filed by May 15, 2017, which also marks the close of discovery. The dispositive motion deadline, for motions that pertain to the underlying breach of contract claim, is June 3, 2017.

         On July 27, 2016, the undersigned granted the motion of a group of insurers (hereinafter “Insurers”) that sought bifurcation of discovery on Fifth Third's bad faith allegations.[3] Judge Beckwith overruled Fifth Third's objections to that Order, and the stay of discovery related to “bad faith” allegations remains in effect through at least June 3, 2017.

         The Insurers who sought and obtained the earlier bifurcation order have now filed a motion seeking a protective order to prevent Fifth Third from obtaining discovery that they believe exceeds the scope of the bifurcation order. Fifth Third insists that the contested discovery is relevant to the underlying breach of contract claim, independent of any relevance to its derivative bad faith allegations. For the reasons discussed below, I conclude that the Insurers are entitled to most, but not all, of the protection that they seek.[4]

         II. Analysis of the Motion for Protective Order

         On January 23, 2017, Defendants Certain Underwriters at Lloyd's subscribing to Policy Numbers B0509QA048710 and B0509QA051310 (Lloyd's Syndicates 2488 (“ACE”), 2007 (“Novae”), 1182 (“Talbot”), and 1084 (“Chaucer”), collectively “Lloyds”); AXIS Insurance Company (“AXIS”); and Federal Insurance Company (“Federal”) (Lloyd's, AXIS and Federal are collectively referred to as “Underwriters”), filed a motion seeking a protective order concerning identical Rule 30(b)(6) Deposition Notices served by Fifth Third Bancorp and Fifth Third Bank (collectively “Fifth Third”) on each of the Lloyd's Syndicates, AXIS and Federal. In part, the Underwriters seek an order striking Topic Nos. 1-6, 11-12, and 14-17 from the 30(b)(6) Notices. (Doc 98). On January 26, 2017, Continental Insurance Company, Fidelity and Deposit Insurance Company of Maryland, and St. Paul Mercury Insurance Company (collectively, the “Second Excess Insurance Carriers”) joined the Underwriters' motion as to the Rule 30(b)(6) Notices, based upon the fact that Fifth Third served the Second Excess Insurance Carriers with virtually identical Notices, including topics on which the Second Excess Insurance Carriers believe to be improper expansions of discovery into bad faith. (Doc. 99).

         For the convenience of this Court, the Underwriters and the Second Excess Insurance Carriers are collectively referred to as “the Insurers” where their positions align in favor of the requested protective order. Because the Second Excess Insurance Carriers have joined the motion only in part, however, the Court will separately address the portion of the Underwriters' motion that the Second Excess Insurance Carriers have not joined.

         A. The Scope of the Existing Bifurcation Order and Stay

         To place the current dispute in context, it is necessary to review this Court's prior Memorandum Order bifurcating discovery. In that Order, the undersigned wrote:

Based upon the referenced allegation of bad faith, Fifth Third seeks very broad discovery of many documents that otherwise would be subject to privilege and/or potentially irrelevant to the underlying breach of contract claim. The Insurers' motions seek either a protective order or a stay and bifurcation of discovery that would include the production of claims files, including otherwise privileged material, RLI's attorney-client communications, privileged communications with other insurers, and fee bills for services rendered by outside counsel. In addition, the Insurers seek protection from disclosure to Fifth Third of their internal reserves related to the Fifth Third Claim, and object to disclosure of claims submitted by other insureds over a four-year period.

(Case No. 1:14-cv-802, Doc. 62 at 5-6, emphasis added). Ultimately, the undersigned agreed with the Insurers that

[A] stay of discovery and bifurcation on any bad faith issues… is advisable in the above-captioned cases. In addition to the privilege issue, the undersigned is persuaded that a bifurcation of discovery on any “bad faith” issues furthers the interests of judicial economy. Thus, the undersigned will grant the Insurers' motions to stay and/or bifurcate discovery on the bad faith issues until at least following the filing of any dispositive motions on the underlying breach of contract claims. Accord Warren v. Federal Ins. Co., 358 Fed.Appx. 670 at *6 (6th Cir. 2009) (affirming bifurcation with stay of discovery on bad faith claim); Smith v. Allstate Insur. Co., 403 F.3d 401 (6th Cir. 2005) (affirming stay of discovery on bad faith claim while contract claim was pending); Ferro Corp. v. Continental Cas. Co., 2008 WL 5705575 (N.D. Ohio Jan. 7, 2008) (finding bifurcation of discovery and trial to be appropriate in case involving numerous lawsuits and coverage claims against multiple insurers; Scotts Co. LLC v. Liberty Mut. Ins. Co., 2007 WL 4365695 (S.D. Ohio, Dec. 12, 2007) (affirming order of ...

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