Hobbss v. USAA Gen. Indem. Co.

• Decision Date: 07 July 2022
• Docket Number: 3:20-CV-00262-MAB
• Parties: STEPHANIE HOBBS, Plaintiff, v. USAA GENERAL INDEMNITY COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Illinois

STEPHANIE HOBBS, Plaintiff,
v.
USAA GENERAL INDEMNITY COMPANY, Defendant.

No. 3:20-CV-00262-MAB

United States District Court, S.D. Illinois

July 7, 2022

MEMORANDUM AND ORDER

BEATTY, MAGISTRATE JUDGE:

This matter is before the Court on a discovery dispute between Plaintiff Stephanie Hobbs (“Hobbs”) and Defendant USAA General Indemnity Company (“USAA”). USAA produced a redacted version of a document to Hobbs under objections of relevancy and privilege, but Hobbs believes she is entitled to the complete, unredacted document, to the extent that relate to her claims. Further, the parties dispute the appropriateness of deposition Topic 3 set out in Hobbs' Rule 30(b)(6) notice.

The parties met and conferred pursuant to the Court's case management procedures but were unable to resolve their conflict without Court intervention. On May 17, 2022, the Court heard oral arguments from the parties and ordered supplemental briefing (Doc. 63). Hobbs and USAA have each filed briefs in support of their respective positions and the Court has conducted an in camera review of the relevant document (See Docs. 65 & 68). For the reasons explained below, USAA's objections as to relevancy are OVERRULED, USAA's objections based on attorney-client privilege are OVERULLED,

1

and USAA's objections based on work product are OVERRULED as to documents dated before the filing of the instant litigation and SUSTAINED as to documents dated on or after the filing of the instant litigation. USAA's objection to Topic 3 in Hobbs' Rule 30(b)(6) notice is OVERRULED.

Background

In December 2013, Hobbs filed a personal injury lawsuit against one of USAA's insured, James Cates, who caused a car accident that injured Hobbs. Cates tendered the suit to USAA and USAA defended Cates through its insurance-defense counsel. Hobbs made a time sensitive settlement demand to USAA to tender its policy limits of $50,000 by March 30, 2014. However, USAA did not tender the policy limits until September 2014. Hobbs rejected USAA's tender because it was past the deadline she imposed on the demand. The case proceeded to a jury trial, and in May 2019, a jury awarded Hobbs $866,000. Judgment was entered in favor of Hobbs for the same amount. However, neither Cates nor USAA has paid the judgment.

Cates subsequently assigned his rights to any potential claim against USAA to Hobbs. In February 2020, Hobbs filed this lawsuit against USAA (Doc. 1). Hobbs' Amended Complaint alleges USAA failed to pay the judgment (Count I) and USAA violated its duty of good faith (Count II) and duty of ordinary care (Count III) to protect Cates' interests by: failing to promptly and completely evaluate Hobbs' claims; failing to promptly contact an attorney to represent Cates, when an attorney would have known it was in Cates' best interest to settle with Hobbs for the policy limits; failing to tender the policy limits when it was clear that Hobbs' claim exceeded the limits; failing to tender the

2

policy limits within the time Hobbs demanded; and failing to tender the policy limit to Hobbs following the verdict (Doc. 24).

During discovery in this case, USAA produced heavily redacted notes maintained by USAA's legal department (“Litigation Notes”). The Litigation Notes contain summaries of events and correspondence related to Hobbs' personal injury lawsuit. USAA states that the Litigation Notes were “created and maintained by USAA GIC's legal department” shortly after Hobbs' March 2014 deadline expired for USAA to tender its policy limit (Do. 65, p. 1-2). Around this time, USAA transferred Hobbs' claim from its claims handling department to its litigation department because it became apparent that Hobbs would proceed with her lawsuit against Cates. The litigation department marked the Litigation Notes as “CONFIDENTIAL” and “ATTORNEY WORK PRODUCT.”

USAA redacted over 100 dated entries in the Notes, including all entries that postdate September 2014, when USAA tendered the policy limits. USAA argues that any of its actions after September 2014 are irrelevant to Hobbs' claims. Also, USAA argues the redacted entries are privileged attorney-client communications and work product that are protected from disclosure. USAA does not specify which entries are irrelevant, which entries are privileged work product, or which entries are privileged attorney-client communications.

Further, Hobbs issued a Rule 30(b)(6) deposition notice to USAA to take the deposition of USAA's representative. The notice lists proposed topics, including: “The duties USAA owed to James Riley Cates in handling the automobile claim brought

3

against him and the policy-limit demand that was made on him by Stephanie Hobbs.” USAA objects to this topic on the basis that it elicits a legal opinion.

Legal Standards

Under Illinois law, an insurer has a duty to settle claims against its insured in good faith. Iowa Physicians' Clinic Med. Found. Physicians Ins. Co. of Wisconsin, 547 F.3d 810, 812 (7th Cir. 2008). The Seventh Circuit has explained:

The paradigmatic duty-to-settle case involves three parties the injured third party; the insured, who is being sued; and the insurer, who controls the insured's defense. If the third party sues the insured for an amount above the policy limit and seeks a settlement at the upper limit of the policy, a conflict of interests arises. In this situation, the insurer may be tempted to decline the settlement offer, no matter how good the deal is for the insured, and go to trial. It makes no difference to the insurer's bottom line whether the case is settled or the jury awards astronomical damages; in either event it will pay out only the maximum on the policy. And if the case goes to trial, at least there's a shot that they will win and pay nothing. The insured, on the other hand, calculates the risks of trial differently because he will be stuck paying anything above the policy limit. To combat the temptation to ignore an insured's interest and to make sure that the intent behind the insurance contract is upheld, Illinois courts have recognized that an insurer has a duty to act in good faith in responding to settlement offers, and if that duty is breached the insurer is on the hook for the entire judgment, regardless of the policy limit.

Id. (internal quotations and citations omitted).

In a bad faith refusal to settle case, “the plaintiff insured is entitled to know the substance of the investigation, the information available and used to make a decision, and the evaluations and advice relied upon for the decision.” Prisco Serena Sturm Architects, Ltd. v. Liberty Mut. Ins. Co., 1996 WL 89225, at *1 (N.D. Ill. Feb. 27, 1996). However, discovery is not without limitations. Federal Rule of Civil Procedure 26(b) sets out the scope of the matters upon which a party can seek discovery. “Parties may obtain

4

discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case...Relevant information need not be admissible at trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence.” Fed.R.Civ.P. 26(b)(3).

Federal Rule of Civil Procedure 30(b)(6) addresses depositions directed to an organization and provides that the deposition notice must “describe with reasonable particularity the matters for examination,” after which the organization “must then designate other persons who consent to testify on its behalf; and it may set out the matters on which each person designated will testify.” Rule 30(b)(6) depositions are limited by the scope of discovery set out in Rule 26(b). Schyvincht v. Menard, Inc., 2019 WL 3002961, at *2 (N.D. Ill. July 10, 2019).

Analysis

I. Litigation Notes

A. Relevancy Objections

USAA contends that any of the Litigation Notes that post-date September 2014 are irrelevant. USAA tendered the policy limits in September 2014 and thus, according to USAA, any events after September 2014 are not indicative of whether USAA acted in bad faith in not tendering the policy limits.

Under Federal Rule of Evidence 401, evidence is relevant if “it has any tendency” to make a fact of consequence “more or less probable than it would be without the evidence.” To establish a claim for bad faith refusal to settle, the plaintiff must establish “the insurer knew claims would exceed the policy limits, that such knowledge

5

overlapped in time with an opportunity to settle the case, that a settlement would have addressed all claims against the insured, and that the insurer nevertheless failed to equally value its own interest and the insured's interests in failing to settle.” W. Side Salvage, Inc. v. RSUI Indem. Co., 215 F.Supp.3d 728, 741 (S.D. Ill. 2016), aff'd, 878 F.3d 219 (7th Cir. 2017).

Here, USAA claims the Litigation Notes that post-date September 2014 are irrelevant, privileged as work-product, and constitute attorney-client privileged communications concerning Cates' assignment of rights to Hobbs. As an initial matter, these positions are inherently inconsistent. If requested documents were created in anticipation of Hobbs' lawsuit or this litigation, or relate to Cates' assignment of rights, then they are certainly relevant to how USAA handled the settlement of Hobbs' personal injury suit. Further, USAA does not state on a “document-by-document basis” why each entry is irrelevant. Woodruff v. Am. Family Mut. Ins. Co., 291 F.R.D. 239, 242 (S.D. Ind. Apr. 22, 2013) (citing Hess v. Kanoski & Assocs., 668 F.3d 446, 455 (7th Cir. 2012) (“perfunctory and underdeveloped arguments that are unsupported by pertinent authority, are waived.”).

Nonetheless, the documents shed light on USAA's conduct in handling and investigating Hobbs' personal injury suit and USAA's decision-making process in negotiating a settlement with Hobbs. The post September 2014 notes are likely to lead to the...