Aspen Specialty Ins. Co. v. Nucor Corp.

• Decision Date: 22 April 2022
• Docket Number: 19 CVS 19887
• Citation: 2022 NCBC 19
• Parties: ASPEN SPECIALTY INSURANCE COMPANY; ENDURANCE AMERICAN SPECIALTY INSURANCE COMPANY; PARTNERRE IRELAND INSURANCE LTD.; HELVETIA SWISS INSURANCE COMPANY; LEXINGTON INSURANCE COMPANY; LIBERTY MUTUAL FIRE INSURANCE COMPANY; LIBERTY SURPLUS LINES INSURANCE COMPANY; XL INSURANCE AMERICA, INC.; ZURICH AMERICAN INSURANCE COMPANY; and ACE AMERICAN INSURANCE COMPANY, Plaintiffs, v. NUCOR CORPORATION; and NUCOR STEEL LOUISIANA, LLC, Defendants, and XL INSURANCE AMERICA, INC.; and LIBERTY MUTUAL FIRE INSURANCE COMPANY, Intervening Complaint-Plaintiffs, v. NUCOR CORPORATION; and NUCOR STEEL LOUISIANA, LLC, Intervening Complaint-Defendants.
• Court: Superior Court of North Carolina

2022 NCBC 19

ASPEN SPECIALTY INSURANCE COMPANY; ENDURANCE AMERICAN SPECIALTY INSURANCE COMPANY; PARTNERRE IRELAND INSURANCE LTD.; HELVETIA SWISS INSURANCE COMPANY; LEXINGTON INSURANCE COMPANY; LIBERTY MUTUAL FIRE INSURANCE COMPANY; LIBERTY SURPLUS LINES INSURANCE COMPANY; XL INSURANCE AMERICA, INC.; ZURICH AMERICAN INSURANCE COMPANY; and ACE AMERICAN INSURANCE COMPANY, Plaintiffs, v. NUCOR CORPORATION; and NUCOR STEEL LOUISIANA, LLC, Defendants, and XL INSURANCE AMERICA, INC.; and LIBERTY MUTUAL FIRE INSURANCE COMPANY, Intervening Complaint-Plaintiffs, v. NUCOR CORPORATION; and NUCOR STEEL LOUISIANA, LLC, Intervening Complaint-Defendants.

No. 19 CVS 19887

Superior Court of North Carolina, Mecklenburg

April 22, 2022

Hedrick Gardner Kincheloe & Garofalo LLP, by David L Levy and C. Rob Wilson, and Hinshaw & Culbertson LLP, by David E. Heiss and Peter E. Kanaris, for Plaintiffs Aspen Specialty Insurance Company, Endurance American Specialty Insurance Company, Partnerre Ireland Insurance Ltd., Helvetia Swiss Insurance Company, Lexington Insurance Company, Liberty Mutual Fire Insurance Company, Liberty Surplus Lines Insurance Company, XL Insurance America, Inc., Zurich American Insurance Company, and Ace American Insurance Company.

Moore & Van Allen PLLC, by Jonathan D. Gilmartin and Scott M Tyler, and Flanagan Partners LLP, by Harold J. Flanagan Meghan F. Grant, Alixe L. Duplechain, Thomas M. Flanagan, and Camille E. Gauthier, for Defendants/Intervening Complaint-Defendants Nucor Corporation and Nucor Steel Louisiana, LLC.

Johnston, Allison & Hord, P.A., by Kimberly J. Kirk, and DLA Piper LLP (US), by Robert C. Santoro and Aidan M. McCormack, for Intervening Complaint-Plaintiffs XL Insurance America, Inc. and Liberty Mutual Fire Insurance Company.

ORDER AND OPINION ON DEFENDANTS' MOTION TO COMPEL

Julianna Theall Earp, Special Superior Court Judge

1. THIS MATTER is before the Court upon Defendants/Intervening Complaint-Defendants Nucor Corporation and Nucor Steel Louisiana, LLC's (collectively, "Nucor") Motion to Compel Responses Related to Claim Reserves ("the Motion") in the above-captioned case. (ECF No. 109.) For the reasons stated below, the Court DENIES the Motion.

I. FACTUAL AND PROCEDURAL BACKGROUND^[1]

2. This case arises from an industrial incident that occurred at Nucor's Convent, Louisiana facility in November 2017. (Compl. ¶ 1, ECF No. 3.) The facility processes iron ore into direct reduced iron ("DRI" or "sponge iron") that is then used in the production of steel. (Compl. ¶¶ 17, 22.)

3. In order to produce sponge iron, marble-sized pieces of iron ore are transported by conveyors equipped with weight belt feeder encoders. (Compl. ¶ 18.) The ore must first be coated with cement before entering a reactor and heated to convert it to DRI. Iron ore that enters the reactor without the cement coating coagulates. (Compl. ¶ 20.)

4. According to the Complaint, on 7 November 2017, Nucor personnel became aware that iron ore entering the reactor had not been coated with cement. As a result, approximately two thousand four hundred (2, 400) metric tons of uncoated ore solidified, forming clusters in the reactor. (Compl. ¶¶ 26-27.) Nucor incurred a loss with respect to the ruined ore, as well as for business interruption and other costs incurred to remove the reactor from service and repair it.

5. Plaintiffs in this case are ten property insurers (the "Property Insurers") that contracted with Nucor to insure its property under the terms of their policies. Intervening Complaint-Plaintiffs are two insurers (the "EB Insurers"; together with the Property Insurers, the "Insurers") that contracted to insure Nucor for risks related to equipment breakdown under the terms of their policies. Both the Property Insurers and the EB Insurers assert claims for declaratory judgment asking the Court to determine whether there is coverage under their respective policies for the losses incurred by Nucor. (See ECF Nos. 3, 6.) Nucor, in turn, counterclaims for declaratory relief and breach of contract. (See ECF Nos. 25-26.)

6. Pursuant to the Fifth Amended Case Management Order entered 1 December 2021, (ECF No. 108), the parties have exchanged documents and other written discovery. However, each of the Insurers objects to Nucor's interrogatories and requests for production that would require them to disclose information relating to their reserves. Therefore, after appropriately exhausting the Business Court Rule 10.9 process, on 7 February 2021, Nucor filed its Motion to Compel seeking an order requiring the Insurers to provide their reserve information. The Insurers filed responses opposing production of this information. (ECF Nos. 123, 125.) The Court heard from the parties at a hearing on 12 April 2022. The Motion is now ripe for disposition.

II. LEGAL STANDARD

7. The scope and limits of discovery are defined in Rule 26(b) of the North Carolina Rules of Civil Procedure (the "Rules(s)"):

(b) Discovery scope and limits. - Unless otherwise limited by order of the court in accordance with these rules, the scope of discovery is as follows:

(1) In General. - Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party . . . . It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence[.]

N.C. R. Civ. P. 26(b)(1).

8. The standard for determining relevance is less demanding with respect to discovery than it is for admissibility, but it is not nonexistent. See Addison Whitney, LLC v. Cashion, 2020 NCBC LEXIS 72, at *7 (N.C. Super. Ct. June 10, 2020) ("Rule 26, though generous, should not be construed as an invitation for parties to roam at will in the closets of others." (citation and internal quotation marks omitted)); Howard v. IOMAXIS, LLC, 2022 NCBC LEXIS 6, at *6 (N.C. Super Ct. Jan. 27, 2022) ("[A] party seeking discovery in not entitled to a fishing expedition to locate it." (internal quotation marks and citation omitted)); see also Willis v. Duke Power Co., 291 N.C. 19, 34 (1976) ("One party's need for information must be balanced against the likelihood of an undue burden imposed upon the other.").

9. "[I]t is . . . clear under the Rules that North Carolina judges have the power to limit or condition discovery under certain circumstances." DSM Dyneema, LLC v. Thagard, 2015 NCBC LEXIS 50, at *23 (N.C. Super. Ct. May 12, 2015) (citation omitted). Generally, "orders regarding discovery matters are within the discretion of the trial court and will not be upset on appeal absent a showing of abuse of that discretion." Nationwide Mut. Fire Ins. Co. v. Bourlon, 172 N.C.App. 595, 601 (2005), aff'd, 360 N.C. 356 (2006) (citation omitted).

III. ANALYSIS

10. Although there is limited caselaw in North Carolina, whether reserves are discoverable is an important issue that has divided both courts and commentators for decades. See, e.g., Douglas R. Richmond, Recurring Discovery Issues In Insurance Bad Faith Litigation, 52 Tort & Ins. L.J. 749, 780 (2017) ("[T]his is a complex and confused area of the law."); Ann F. Ketchen, Reserve and Reinsurance Information: Is It Discoverable?, 38 The Brief 40, 40 (2009) ("In almost every large insurance litigation, inevitably a dispute over whether insurance reserves . . . are discoverable will occur. Not surprisingly, insurers and insureds have diametrically opposite views."). However, there is no real disagreement among the state and federal courts that have considered the issue that for reserve information to be discoverable, it must be both: (a) relevant to the litigation; and (b) not protected from discovery by either the attorney-client privilege or the work product doctrine.

11. At the hearing, Nucor's counsel represented that Nucor is not seeking to compel the production of any reserve information that post-dates the filing of this action on 4 November 2019. Consequently, the Insurers did not argue application of the attorney client privilege or the work product doctrine as bases for protection from discovery of the information in question.

12. Thus, the central issue here is whether reserve information is relevant given the claims presently asserted in this case. To determine relevance in this context, a court must "thoroughly consider[ ] the specific way the particular insurance company in a particular case determines reserves for . . . particular claim[s]," as well as "the nature of the underlying litigation and the purpose for which the information is sought." State ex rel. Erie Ins. Prop. & Cas. Co. v. Mazzone, 625 S.E.2d 355, 359-60 (W.Va. 2005).

13. Several factors influence those considerations in this case. First, reserves are not merely a business tool that an insurer may or may not choose to employ. North Carolina law requires insurers to set reserves. See N.C. G.S. § 58-3-75 (addressing loss and loss expense reserves of fire and marine insurance companies); N.C. G.S. § 58-3-81 (addressing loss and loss expense reserves of casualty insurance and surety companies).^[2]

14. In general, an insurer may calculate its reserves "in accordance with any method adopted or approved by the NAIC[, ]"^[3] but the statutes afford the North Carolina Commissioner of Insurance authority to impose a different method if, in the Commissioner's determination, the reserves are not adequate or reasonable. See N.C. G.S. §§ 58-3-75, 58-3-81(e).

15. When it is required by law, courts have held that the existence and amount of a reserve is not an admission by a carrier that either...