Bryce Corp. v. XL Ins. Am.

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BRYCE CORPORATION, Plaintiff, v. XL INSURANCE AMERICA, INC., Defendant.

No. 23 Civ. 1814 (KPF)

United States District Court, S.D. New York

December 28, 2023

OPINION AND ORDER

KATHERINE POLK FAILLA UNITED STATES DISTRICT JUDGE

Plaintiff Bryce Corporation is the holder of an all-risk commercial property policy issued by Defendant XL Insurance America for the period spanning June 15, 2021, to June 15, 2022 (the “XL Policy”). Plaintiff filed the instant lawsuit challenging Defendant's performance of its obligations under the XL Policy, and Defendant filed two motions seeking to limit that lawsuit. The first motion is Defendant's partial motion to dismiss Count Three of the First Amended Complaint (the “FAC”) for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). At a high level, Defendant maintains that the XL Policy's choice-of-law provision precludes Plaintiff's extra-contractual claim of bad faith, requiring its dismissal. The second motion is Defendant's motion to strike a loss run document (the “Loss Run”) incorporated as an exhibit to the FAC, as well as the FAC's allegations relying on the Loss Run. On this point Defendant argues that the Loss Run is protected by the work product doctrine, and therefore cannot be relied upon by Plaintiff in the FAC.

Plaintiff opposes both motions, first asserting that Defendant's motion to dismiss is predicated on an erroneous interpretation of the Policy's choice-of-law provision and then asserting that the Loss Run is not protected by the work product doctrine and was therefore properly incorporated into the FAC. For the reasons set forth herein, the Court agrees with Plaintiff on both fronts, and therefore denies Defendant's motions to dismiss and to strike.

BACKGROUND^[1]

A. Factual Background

1. The Parties and Plaintiff's Claims Under the XL Policy

Plaintiff Bryce Corporation is a Tennessee corporation maintaining its principal place of business in Memphis, Tennessee. (FAC ¶¶ 3, 7). Plaintiff is engaged in the production of flexible packaging for applications in the food, snack, pet care, household, and health and beauty industries. (Id. ¶ 7). Defendant XL Insurance America, a national insurance carrier located in Dallas, Texas, sold Plaintiff the XL Policy, covering the period from June 15, 2021, to June 15, 2022. (FAC ¶ 1; see also XL Policy (Dkt. #18-1) at 17). The XL Policy was issued to Plaintiff at its business address in Memphis, Tennessee, and provided all-risk commercial property coverage for, among other things, all “real property in which [Plaintiff] has an insurable interest, and personal property owned by the [Plaintiff].” (XL Policy 19, 30-33).

In November 2021, Plaintiff's locations in Searcy, Arkansas and Memphis, Tennessee suffered fires; these fires, in turn, damaged the large, specialized printing presses within Plaintiff's facilities that are required for its production lines. (FAC ¶¶ 9-11). Plaintiff timely submitted to Defendant claims for its losses arising from these fires. (Id. ¶¶ 9-13, 38-39). After receiving Plaintiff's notices of claim, on December 29, 2021, Defendant authorized a $5,000,000 advance to Plaintiff in connection with the Searcy Fire, and a $4,000,000 advance in connection with the Memphis Fire. (Id. ¶ 51). On October 26, 2022, XL issued an additional payment to Plaintiff in the amount of $7,427,477. (Id. ¶ 86).

Notwithstanding these payments, negotiations between the parties broke down after Plaintiff demanded additional coverage under the XL Policy, which demands Defendant is alleged to have either improperly denied outright, or approved only after an unreasonable delay. In particular, Plaintiff alleges that Defendant breached the terms of the XL Policy by refusing to cover the full cost of obtaining replacement presses for those damaged by the Searcy and Memphis Fires. (FAC ¶¶ 41-49). Plaintiff also claims that Defendant breached the Policy by belatedly granting certain approvals for expenditures made by Plaintiff for purposes of recovering from the effects of the fires and mitigating business interruption losses suffered in connection with the fires. (Id.). Finally, Plaintiff alleges that Defendant acted in bad faith by delaying the negotiation process with respect to Plaintiff's claims under the XL Policy, and by representing to Plaintiff that the indemnity reserves maintained by Defendant in connection with Plaintiff's claims were far smaller than the amount actually accounted for by Defendant. (Id. ¶¶ 101-107).

2. Disclosure of the XL Loss Run to the Stephens Brokerage^[2]

After the events of the Searcy and Memphis fires, but before the filing of this litigation, Plaintiff's third-party insurance broker, Stephens Insurance, LLC (“Stephens”), sought to renew Plaintiff's property insurance coverage with Defendant. In connection with the renewal, Sarah Goolsby, a Senior Account Manager at Stephens, requested a “loss run” for the XL Policy. (Declaration of Raymond F. Walton (“Walton Decl.” (Dkt. #38-1)) at ¶ 3; Affidavit of Sarah K. Goolsby (“Goolsby Decl.” (Dkt. #41-2)) at ¶¶ 3-4). Broadly speaking, a loss run is a report that shows the history of claims made against an insurance policy. (FAC ¶ 102). See generally XL Specialty Ins. Co. v. Prestige Fragrances, Inc., 420 F.Supp.3d 172, 178 n.6 (S.D.N.Y. 2019) (“A loss run is a report generated by an insurance company that gives the loss history; it will show claims made, [and] claims actually paid.” (internal quotation marks and citations omitted)). In the renewal context, the information contained in a loss run may inform an insurer's decision with respect to the premium it will charge for the renewed policy. See id. (“Insurers typically seek loss history information because this data helps carriers in rating risk.”).

On January 17, 2023, an XL underwriting assistant sent the Loss Run to Goolsby, which document is the subject of Defendant's motion to strike. (See FAC, Ex. B (Loss Run); Walton Decl. ¶¶ 4-5). The Loss Run contained a history of Plaintiff's claims dating back to 2011, with columns providing information on the amount of each claim as well as the total amount paid out by Defendant. (See generally Loss Run). Additionally, the Loss Run contained five columns of information reflecting Defendant's reserves pertaining to indemnities and expenses (the “Reserve Information”), as well as other information reflecting costs incurred by Defendant and its corresponding loss ratio. (See id. at 2). As a general matter, such reserve information represents an estimate by the insurer of amounts that might be incurred in connection with open claims. (FAC ¶ 102).

Later that day, after discovering that the Loss Run had been disclosed to Goolsby, Alan Jeffcoats, an underwriter employed by Defendant, contacted Goolsby and another Stephens employee to advise them that “the loss run sent earlier was ‘incorrect because [it] reflected IBNR and Reinsurance, which are Internal numbers.'” (Walton Decl. ¶¶ 4, 6). To remedy the problem, Jeffcoats provided a replacement loss run, which version omitted the columns containing the Reserve Information. (Id. ¶ 6).

No further communications were had with respect to the Loss Run until June 5, 2023, when counsel for Plaintiff, citing the Reserve Information contained in the Loss Run, demanded that Defendant “resolve this case ‘at the indemnity reserve [Defendant] is currently carrying.'” (Walton Decl. ¶ 7). That same day, Defendant responded to Plaintiff's request, asserting for the first time that the Reserve Information contained in the Loss Run was “confidential, irrelevant, and privileged,” and demanding that “versions of the Loss Run including the indemnity and expense reserve columns be destroyed or returned, and ... precluded from use in the litigation.” (Declaration of Mark L. Deckman (“Deckman Decl.” (Dkt. #38-5)), Ex. E)). Undeterred, Plaintiff filed the FAC on June 22, 2023, into which pleading Plaintiff incorporated the Loss Run (and Reserve Information) in support of Plaintiff's claim of bad faith. (See generally FAC ¶¶ 118-130; id., Ex. B). Plaintiff maintains that the Reserve Information is evidence of Defendant's true assessment of the value of Plaintiff's claims, and therefore probative of Defendant's bad faith in asserting certain defenses to coverage in the negotiations between the parties. (Id. ¶ 127).

B. Procedural Background

On March 2, 2023, Plaintiff filed a three-count complaint seeking declaratory relief, damages for breach of contract, and damages in connection with violations of Section 56-7-105 of the Tennessee Insurance Code. (See Dkt. #1 (“Compl.”) ¶¶ 100-120). On June 5, 2023, Defendant filed a pre-motion letter seeking leave to file a partial motion to dismiss Count Three of the complaint under Rule 12(b)(6), and Plaintiff submitted its response in opposition on June 14, 2023. (Dkt. #11, 15). Additionally, on June 22, 2023, Plaintiff filed its FAC, the operative pleading in this matter, reflecting the addition of the Loss Run as discussed above. (Dkt. #18 (FAC), 18-2 (Loss Run)).

Thereafter, the Court held a conference on June 23, 2023, addressing the parties' proposed case management plan with respect to Counts One and Two of the FAC; the parties' pre-motion letters with respect to Defendant's anticipated motion to dismiss Count Three of the FAC; and Defendant's objections to inclusion of the Loss Run in support of allegations in the FAC. (See June 23, 2023 Minute Entry). At that conference, the parties agreed to proceed with briefing on the motion to dismiss, and Defendant expressed its intent to move to strike the allegations in the FAC that relied on the Loss Run.

Following the June 23, 2023 conference, briefing on the motion to dismiss and the motion to strike...