Shirley v. Allstate Ins. Co.

• Decision Date: 16 July 2019
• Docket Number: Case No.: 18CV994 AJB (BGS)
• Court: U.S. District Court — Southern District of California
• Parties: JENSEN SHIRLEY and KAREN SHIRLEY, Plaintiffs, v. ALLSTATE INSURANCE COMPANY, Defendant.

JENSEN SHIRLEY and KAREN SHIRLEY, Plaintiffs, v. ALLSTATE INSURANCE COMPANY, Defendant.

Case No.: 18CV994 AJB (BGS)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

July 16, 2019

ORDER DENYING PLAINTIFFS' MOTION TO COMPEL RESPONSES TO COLONIAL LIFE DISCOVERY

[ECF 14]

Plaintiffs have filed a Motion to Compel Responses to Colonial Life¹ Discovery. (Mot. to Compel. ("Mot.") [ECF 14].) Plaintiffs seeks to compel Defendant Allstate Insurance Company to provide them with the names and addresses of every Allstate insured that presented a claim to Allstate arising out of the Lilac Fire to allow them to obtain the insureds claim files. (Id. at 5-6,² Special Interrogatories Nos. 1-2.) Allstate has filed an Opposition and Plaintiffs a Reply. (ECF 15, 16.) For the reasons set forth below, the Motion to Compel is DENIED.

I. BACKGROUND

Plaintiffs allege that their home suffered smoke damage as a result of the Lilac Fire in December 2017. (ECF 1-3 ("Complaint") ¶ 7.) Plaintiffs were covered by a homeowner's policy issued by Allstate, but their claim for coverage under the policy was denied by Allstate on December 29, 2017. (Id. ¶ 9.) Plaintiffs assert that the "denial was based upon an unreasonable and wrongful interpretation of the Policy, the unreasonable failure to find damage at the Property, as well as an insufficient, incomplete, and biased investigation conducted by Allstate."³ (Id.) Plaintiffs' Complaint asserts claims for breach of contract and breach of the implied covenant of good faith and fair dealing and seeks general, special, and punitive damages. (Id. at 5 and ¶¶ 10-21.)

There are two special interrogatories at issue in this dispute, included here:

SPECIAL INTERROGATORY NO. 1

Please set forth the name(s) and address(es) of each and every Allstate insured who presented a claim to YOU arising out of the Lilac Fire of December, 2017, and whose claim was denied, either in whole or in part. . . .

SPECIAL INTERROGATORY NO. 2

Please set forth the name(s) and address(es) of each and every Allstate insured who presented a claim to YOU arising out of the Lilac Fire of December, 2017, and whose claim was paid, either in whole or in part. . .

(Mot. at 5-6.) In short, Plaintiffs seeks the names and addresses of every Allstate insured that submitted a claim arising out of the Lilac Fire whether paid, denied, or something in between. Based on information provided by Allstate to Plaintiffs, there are72⁴ Allstate claim files from the Lilac fire. Plaintiffs seek to issue a Court approved letter to all the insureds using the names and addresses provided in response to the above interrogatories, a Colonial Life notice. The letter will seek the insureds' consent for Allstate to disclose their respective claim files to Plaintiffs.

Allstate did not provide the requested information, instead objecting on numerous bases, including that disclosure of this information would violate the privacy rights of the insureds whose information Plaintiffs seek, the information sought is not relevant, not proportional to the needs of the case, overbroad, and that any probative value is outweighed by the burden and expense of searching and reviewing claim files. (Opp'n at 1, 10-20.)

II. APPLICATION OF FEDERAL AND STATE AUTHORITY

Plaintiffs' Motion implicates both state and federal authority. "In diversity actions, [like this one], where state law controls the substance of the lawsuit, procedural law is provided by federal authority, including for discovery purposes." Collins v. JC Penney Life Ins., Case No. 02CV674 L (LAB), 2003 WL 25945842, at *1 (S.D. Cal. 2003) (citing Aceves v. Allstate Ins. Co., 68 F.3d 1160, 1167 (9th Cir. 1995)); Oakes v. Halvorsen Marine Ltd., 179 F.R.D. 281, 285 (C.D. Cal. 1998) ("Discovery is a procedural matter governed in the federal courts by the Federal Rules of Civil Procedure. Thus, state discovery practices are usually irrelevant"); see also Rutter Group Prac. Guide: Fed. Civ. Proc. Before Trial , California and 9th Cir. Editions ("Federal Practice Guide") § 1:284 (2019) ("Generally, federal courts apply federal discovery rules in diversity actions and conflicting state rules are disregarded.")

However, "[i]n a federal action based on diversity of citizenship jurisdiction, state law governs privilege claims" and "[t]o the extent privacy is a matter of privilege understate law, federal courts will honor the privilege and protect the responding party from discovery." Oakes, 179 F.R.D. at 284 (quoting California Practice Guide: Federal Civil Procedure before Trial, § 11:77 (1996 revised)). "A federal court sitting under diversity jurisdiction in California will apply California law as to the right of privacy." Crews v. V. Domino's Pizza Corp., Case No. CV 08-3703-GAF (SSx), 2009 WL 10672352, at *5 (C.D. Cal. Aug. 20, 2009). The California Constitution "expressly grants Californians a right of privacy" in Article I, § 1. Williams v. Superior Court, 3 Cal. 5th 531, 552 (2017).

The Court will apply California law as to the right of privacy and federal procedural law as to the appropriate scope of discovery.⁵

III. DISCUSSION

The Court must consider two primary issues. If the extent of the invasion of these insureds' privacy interest in having their names and addresses disclosed precludes disclosure. And, whether the discovery sought is relevant and proportional to the needs of the case.

A. Privacy Grounds

As discussed in more detail below, Plaintiffs argue the use of the Colonial Life notice procedure sufficiently protects whatever minimal privacy interest the insureds have in their contact information and the insureds should be given the opportunity to disclose their files to Plaintiffs. Allstate opposes, arguing Plaintiffs' requests for names and addresses⁶ of insureds for every Allstate claim associated with the Lilac fire violatesthe insureds' privacy rights because Plaintiffs have failed to show a compelling need for the discovery that outweighs the insureds' privacy rights in their contact information.

1. Colonial Life Notice

The Colonial Life case affirmed a process set out in a trial court's decision to compel Colonial Life, an insurer, to produce the names and addresses of all persons whose claims for benefits had been assigned to a particular adjuster who engaged in a particular settlement practice (35 in all) to allow plaintiff's counsel to send them a letter requesting they consent to release their records. 31 Cal. 3d at 789-93. The Colonial Life court found the information was relevant to the plaintiff's claim, brought under California Insurance Code § 790.03.

This case is distinguishable from the Colonial Life case in a number of important respects, as discussed more fully below, however, one general rule from the case is important here. Under certain circumstances, a defendant insurance company can be compelled to provide the names and addresses of insureds whose claim files are likely to provide information relevant to a plaintiff's claim despite California Insurance Code § 791.01 et seq's limitations on an insurer's disclosure of information about its insureds. Id. at 792 n.10 (finding the privacy protections of § 791.01 et seq. met if the trial court's procedures - only providing names and addresses for a court approved letter to insureds to obtain consent to access their files - were followed). California Insurance Code § 791.13 prohibits an insurance company from disclosing any "personal or privileged information about an individual collected or received in connection with an insurance transaction" unless authorized by the individual or an exception applies. "'Personal information' includes an individual's name and address." Cal. Ins. Code § 791.02.

2. Invasion of Privacy

The parties agree that the California Constitution provides a right of privacy. Williams, 3 Cal. 5th at 552. And, California Insurance Code § 791.13 requires consent from an insured before an insurance company, like Allstate, can disclose information about its insureds. That is where the agreement ends.

In evaluating potential invasions of privacy, California courts follow a framework set out in Hill v. National Collegiate Athletic Association. Williams, 3 Cal. 5th at 552 (citing Hill, 7 Cal. 4th 1, 35 (1994)). "The party asserting a privacy right, [here Allstate,] must establish: [1] a legally protected privacy interest, [2] an objectively reasonable expectation of privacy in the given circumstances, and [3] a threatened intrusion that is serious." Id. Only if the three threshold requirements are met, must courts "move on to a balancing of interests." Id. at 555 (citations omitted). This requires "balancing the legitimate and important countervailing interests disclosure serves" against "feasible alternatives that serve the same interests or protective measures that would diminish the loss of privacy." Williams, 3 Cal. 5th at 552.

Allstate argues the Plaintiffs are required to demonstrate a "compelling need" to obtain the names and addresses from the claim files. (Mot at 14.) (citing Lantz v. Superior Court, 28 Cal. App. 4th 1839, 1853-54 (1994) and Pioneer Elecs., Inc. v. Superior Court, 40 Cal. 4th 360, 371 (2007))). However, in Williams, the California Supreme Court found the "compelling need" and "compelling interest" requirements were not always required. Williams, 3 Cal. 5th at 557 ("To the extent prior cases require a party seeking discovery of private information to always establish a compelling interest or compelling need, without regard to the other considerations articulated in Hill, . . . they are disapproved").⁷ The court explained that always requiring a showing of a compelling need or compelling interest assumes an " egregious invasion is involved" rather thanproperly placing the burden on the party asserting the "privacy interest to establish its extent and the seriousness of the prospective invasion" for the court to weigh against the interests the opposing party identifies. Id.

Here, the Court must first ...