• Atlanta
• Boston
• Dallas
• Ft. Lauderdale
• London
• Minneapolis
• New York
• Oakland
• Philadelphia
• Washington, DC

By Brad E. Brewer and Jennifer L. Gibbs
To view this article in PDF format, please click here.

There will be no more fishing in Texas in unrelated claim files. The Supreme Court of Texas has summarily ended any debate as to whether discovery of an insurer’s claim files for other policyholders is permissible — it is not. The brevity and simplicity of the analysis of this issue in the court’s opinion in In Re National Lloyds Ins. Co., 2014 WL 5785871 (Tex.), indicates that such discovery will almost always be considered impermissibly overbroad.

The Claim

Erving’s Cedar Hill home was allegedly damaged by two hail storms, one occurring in September 2011, and the other in June 2012. The claims were adjusted by different independent adjusters and paid by National Lloyds. Erving then brought a lawsuit against National Lloyds alleging it had undervalued both of her claims. Although the trial court narrowed the discovery at issue, it nevertheless ordered the carrier to produce all claim file materials in its possession for all claims that that the two independent adjusters. Team One Adjusting Services and Ideal Adjusting adjusted on behalf of National Lloyds in Cedar Hill arising from the September 2011 or June 2012 storms. The appropriateness of this discovery order made its way to the Supreme Court of Texas via petition for writ of mandamus.

Erving’s Argument

Erving argued to the Supreme Court that she needed the discovery “to establish a baseline” by compiling the presumably good faith claim handling methods used by the two independent adjusters, including the time spent and the pricing applied, in their adjustment of the claims of the other National Lloyds’ policyholders. By comparing the facts of her claim to that alleged baseline, Erving argued that “significant differences would … evidence bad faith and support other legal claims including fraud.” The court summarized Erving’s position by stating that she “has proposed to compare National Lloyds’ evaluation of the damage at her house with the National Lloyds’ evaluation of the damage to other homes to support her contention that her claims were undervalued.” National Lloyds, at *3.

National Lloyds’ Argument

National Lloyds countered these arguments by declaring that information regarding payments made to other policyholders was irrelevant to any question of whether National Lloyds underpaid Erving’s claim. Specifically, National Lloyds argued that the limitations imposed by the trial court as to geographical area and time frame failed to cure the threshold issue of relevance because Erving failed to demonstrate that the claim files of other policyholders contained any information related to Erving’s particular allegations. National Lloyds further argued that if Erving wanted to discover evidence to show underpayment, she should stick to the discovery of industry standards concerning pricing and proper claims handling, as opposed to “a fishing expedition rifling through thousands of pages of unrelated claims on the hope to exploit any discrepancy between the files.”

Well-Established Discovery Rules

Texas courts generally permit discovery of any unprivileged information that is relevant to the subject of the action, even if it would be inadmissible at trial, as long as the information sought is “reasonably calculated to lead to the discovery of admissible evidence.” TEX.R. CIV.P. 192.3(a); see also Eli Lilly & Co. v. Marshall, 850 S.W.2d 155, 160 (Tex. 1993). However, even these liberal bounds have limits and discovery requests must not be overbroad. See, e.g., In re Allstate Cnty. Mut. Ins. Co., 227 S.W.3d 667, 669-70 (Tex. 2007) (per curiam); In re CSX Corp., 124 S.W.3d 149, 153 (Tex. 2003) (per curiam).

Whether a request for discovery is overbroad is distinct from whether it is burdensome or harassing. Allstate, 227 S.W.3d at 670. In fact, the Texas Supreme Court has held that “[o]verbroad requests for irrelevant information are improper whether they are burdensome or not.” Id. In determining if a request is overbroad, the court will examine whether the request can be more narrowly tailored. The Supreme Court of Texas has long indicated that requests must be “tailored” with regard to time, location and scope. Texaco Inc. v. Sanderson, 898 S.W.2d 813, 815 (Tex. 1995); Allstate, 227 S.W.3d at 669.

Broad discovery seeking documents in hopes of establishing a pattern of a defendant’s alleged wrongful behavior of which the plaintiff is one of many alleged victims has been found improper in several matters. See In Re Graco Children’s Products Inc., 210 S.W.3d 598, 601 (Tex. 2006) (overbroad requests seeking corporate “state of mind”); Dillard Dep’t Stores Inc. v. Hall, 909 S.W.2d 491, 492 (Tex. 1995) (overbroad discovery sought in hopes of discovering racial discrimination in false arrest case); Texaco Inc. v. Sanderson, 898 S.W.2d 813, 815 (overbroad discovery sought to prove “corporate strategy to ignore safety laws”).

These cases are consistent with the Supreme Court of Texas’ view that Rule 404 of the Texas Rules of Evidence must be considered in this analysis. In Re Graco, at 601. Moreover, the court has held that an alleged tortfeasor could not defend itself “by proving it is generally a good corporate citizen, any more than the [alleged injured party] can prosecute it by proving otherwise.” Id.. Furthermore, the Supreme Court of Texas has recognized “American jurisprudence goes to some lengths to avoid the spurious inference that defendants are either guilty or liable if they have been found guilty or liable of anything before.” Allstate, at 669 (discovery seeking information on any prior reneging on settlement agreements).

Application

One can assume the attorneys for Erving felt comfortable that they had met the “tailoring requirements” previously set out by the Supreme Court of Texas in In re American Optical Corp., 988 S.W.2d 711, 713 (Tex. 1998); Dillard Dep’t Stores Inc. v. Hall, 909 S.W.2d 491, 492 (Tex. 1995); and Texaco Inc. v. Sanderson, 898 S.W.2d 813, 815 (Tex. 1995). In fact, Erving specifically argued in her brief that the requests were tailored in time and location by the trial court. Upon review, the Supreme Court of Texas agreed the breadth of the requests had been tailored by the trial court to some degree, but nevertheless determined the order was still overbroad without much explanation other than “such limits in and of themselves do not render the underlying information discoverable.” In Re National Lloyds, at *5.

The court failed to see how National Lloyds’ alleged overpayment, underpayment or proper payment of the claims of unrelated parties was probative of its conduct with respect to Erving’s contention that National Lloyds had undervalued her claim, stating:

This is especially true given the variables associated with a particular claim, such as when the claim was filed, the condition of the property at the time of filing (including the presence of any pre-existing damage) and the type and extent of damage inflicted by the covered event. Scouring claim files in hopes of finding similarly situated claimants whose claims were evaluated differently from Erving’s is at best an ‘impermissible fishing expedition.’ Id. at *4.

In the end, the court simply vacated the lower court’s discovery order by citing Texas Rule of Civil Procedure 192.3(a). That decision is perfectly consistent with the decision in In Re: State Farm Lloyds, No. 04-98-00018-CV, 1998 WL 161260, *5 (Tex.App. — San Antonio April 8. 1998, orig. proceeding)(not designated for publication) in which the court refused to acknowledge that an insurer’s actions with regard to claims of other policyholders might be relevant to its actions in a claim of a particular plaintiff.

Conclusion

In this matter, the policyholder argued it needed files relating to other policyholders’ claims to establish a baseline of presumably good faith claim handling practices used by National Lloyds in the adjustment of other claims, thereby allowing her to establish that the claim handling for her own claim was inferior.

In rejecting this argument, the Supreme Court of Texas provides a clear signal that discovery of other policyholder claim files is overbroad and will not be allowed. While the second footnote in the opinion stating “we do not hold that evidence of third-party insurance claims can never be relevant in coverage litigation” may provide some glimmer of hope for lawyers wanting to discover such information, in light of the court’s broad ruling, it will clearly be difficult to craft an argument that any particular set of facts warrants a contrary result. One will have to tell an extraordinary fish story to be allowed discovery of other policyholders’ claim files.

—By Brad E. Brewer and Jennifer L. Gibbs, Zelle Hofmann Voelbel & Mason LLP

Brad Brewer is a partner and Jennifer Gibbs is a senior associate in Zelle Hofmann Voelbel & Mason's Dallas office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.