Arch Specialty Insurance Company v. University of Southern California No. CV 19-06964-DDP (ASx) United States District Court, C.D. California Filed May 12, 2022 Counsel Jeffrey Ryan Groendal, Paul Henry Burleigh, Klinedinst PC, Los Angeles, CA, Ronald P. Schiller, Pro Hac Vice, Sharon F. McKee, Pro Hac Vice, Hangley Aronchick Segal Pudlin and Schiller, Philadelphia, PA, for Arch Specialty Insurance Company. Adam Kargman, Jeffrey B. Isaacs, Jerome H. Friedberg, Stacey L. Zill, Isaacs Friedberg LLP, Los Angeles, CA, for University of Southern California. Sagar, Alka, United States Magistrate Judge Proceedings (In Chambers): Order GRANTING IN PART and DENYING IN PART Plaintiff's Motion to Compel Supplemental Responses to Discovery Requests (Dkt. No. 108) *1 On April 12, 2022, the parties filed a joint stipulation regarding Plaintiff Arch Specialty Insurance Company (“Arch(‘s)”) Motion to Compel supplemental responses to its discovery requests from Defendant University of Southern California (“USC) and Non-Party Chivaroli and Associates (“Chivaroli”), accompanied by declarations of counsel and exhibits. (“Motion”) (Dkt. No. 108). The Court granted the parties' joint application to file portions of the joint stipulation, declarations and certain exhibits under seal. (Dkt. Nos. 106-07, 115). The sealed documents are filed at Dkt. No. 122-23. On April 20, 2022, the Court granted the parties' applications to file supplemental memoranda in support of their respective positions on the motion under seal. (Dkt. Nos. 109-112, 116-117, 126-28, 130). USC's application included evidentiary objections to the declaration of Sharon McKee, counsel for Arch. (Dkt. No. 110-111). Plaintiff's supplemental memorandum was filed on April 19, 2022. (Dkt. No. 113). The sealed documents are filed at Dkt. Nos. 119, 121. On April 29, 2022, the Court granted Arch's application to file its response to USC's evidentiary objections under seal. (Dkt. Nos. 126-30). On May 2, 2022, Arch filed its response to USC's evidentiary objections. (Dkt. No. 132). The sealed documents are filed at Dkt. No. 131. On May 10, 2022, the Court held a telephonic hearing on the motion and heard argument from counsel. For the reasons stated below, the Motion to Compel is GRANTED IN PART and DENIED IN PART. A. Background Arch issued excess healthcare professional liability insurance policies to USC for two policy periods, July 1, 2016 to July 1, 2017 and July 1, 2017 to July 1, 2018. See Complaint ¶ 9 (Motion, Exh. 2). Each policy provided USC with $10 million in coverage in excess of $100 million in coverage provided by different insurance carriers. Id., ¶ 10. The Arch policies contain several exclusions, including for claims arising out of abuse or molestation (“exclusion”). Id., ¶ 32. On May 16, 2018, the Los Angeles Times published an article that alleged that USC had allowed Dr. Tyndall, a physician who practiced in USC Student Health Center from 1989 to June 2017, to continue practicing in the Student Health Center as a gynecologist despite its knowledge of accusations regarding sexual misconduct against Dr. Tyndal by his former patients. Id., ¶¶ 11-12, 60. Arch claims that when USC and its insurance broker, Chivaroli, became aware that the allegations regarding Tyndall would become public, they realized that USC would be sued by former patients of Dr. Tyndall and knew or believed that coverage would not be available under the Arch policies due to the exclusion and, without disclosing the allegations regarding Tyndall, demanded that Arch reform the policies by deleting the exclusion. Id., ¶ ¶ 64-65, 68. When USC sought coverage for the lawsuits arising from the allegations regarding Tyndall's misconduct involving abuse and molestation, Arch filed this declaratory relief action seeking a declaration that the exclusion bars coverage (count one) and, in the alternative, for recission of the Arch policies based on USC's failure to disclose the allegations involving Tyndall at the time it applied for the policies (count two). Id., ¶¶ 76-94. *2 USC filed counterclaims against Arch for reformation (claim one), breach of contract regarding the duty to defend and the duty to indemnify (claims two and three), breach of the implied covenant of good faith and fair dealing (claim four), and violation of California Insurance Code Section 781 (Claim five). See Dkt. No. 47. USC contends that it sought, through its broker, Chivorali, excess professional liability policies from Arch that were meant to incorporate the provisions of, or “follow form to” the underlying policies. Id., at 20. The Arch policies state that the “provisions of the ‘controlling underlying insurance’ shown on the schedule of underlying insurance [ ] are incorporated as part of this coverage form except for ...any other provision inconsistent with the [the Policies].” Id., at 21. Notwithstanding the exclusion in the Arch policies for claims arising from abuse and molestation, USC claims that Arch is bound by the terms in the underlying policies which include defense and indemnity coverage for claims arising from abuse or molestation and also provide for defense costs outside of insurance limits, because the Arch policies were supposed to follow form to the underlying policies. Id. USC alleges that during the negotiations leading to the issuance of the Arch polices, Arch was aware that USC needed coverage consistent with the underlying polices and made statements leading USC to believe that its policies would be “consistent with the underlying layers.” Id., at 22. Accordingly, USC alleges that neither USC nor Arch intended to include provisions that were inconsistent with the coverage in the underlying policies for claims arising from abuse or molestation or the duty to defend covered claims in addition to policy limits. Id. The parties have agreed to bifurcate discovery in two phases: Phase I discovery is limited to Arch's declaratory judgment claim and USC's reformation counterclaim. (Motion at 6). Phase II will address Arch's claim for recission, USC breach of contract counterclaims and damages. (Motion, Exh. 28). B. Motion to Compel Arch seeks an order compelling USC and Chivaroli to provide responses to discovery requests that it contends are relevant to Phase I. (Motion at 1-2). Arch contends that in order to prevail on its claim for reformation, USC must prove that (1) USC or its insurance broker/agent, Chivaroli, and Arch made a mistake in drafting the policies at issue and did not intend to include the exclusion or discretionary defense provisions; (2) Arch knew that USC believed the policies would not include the exclusion; and (3) Arch knew that USC would not examine the policies or prevented USC from examining the policies. (Motion at 2). Arch seeks responses to its discovery requests pertaining to (A) Chivaroli's settlement with USC; (B) the alleged joint defense agreement between Chivaroli and USC; (C) USC's knowledge of the LA Times investigation; (D) communications between USC and Chivaroli; (E) coverage offered or provided by BETArma to USC for claims arising out of abuse and molestation; and (F) records of meetings with Chivaroli and reports to the USC Board of Directors regarding USC's healthcare professional liability insurance coverage, including documents in the possession of Tamara Capretta and other USC decisionmakers. As an initial matter, the Court agrees with USC that Arch's motion fails to comply with Local Rule 37-2.1 which requires that the joint stipulation “contain, verbatim, both the [discovery request] and the allegedly insufficient answer, followed by each party's contentions as to that particular interrogatory, separately stated.” Here, the joint stipulation addresses the discovery requests that Arch seeks to compel responses to – Interrogatory Nos. 4 and 8 Requests for Production “RFP”) Nos. 4, 8, 9, 19, 23-25, 29-30, and deposition testimony from Stacy Bratcher to USC, and RFP Nos. 2, 7, 12, 14 to Chivaroli and deposition testimony from Chivaroli[1] - only by topic which makes it both difficult and time-consuming to address the parties' contentions and certain objections including that some of the requests do not identify the documents that Arch seeks to compel production of. The Court will not deny the motion on this basis but has warned the parties that absent leave of Court, any further motions to compel must comply with the Local Rules. USC's Evidentiary Objections USC objects to several paragraphs in the declaration submitted by Sharon McKee, counsel for Arch, in support of the motion on various grounds, including that the representations are argumentative, set forth an improper legal opinion, are inadmissible by the Best Evidence rule under Fed. R. Evid. 1002, and are not relevant to Phase I issues. (Dkt. No. 111-3, 119-2). USC submitted its evidentiary objections concurrently with its supplemental brief in opposition to the motion. Id. The Court agrees with Arch that USC's objections are untimely under Rule 37-2 which requires the parties to present all issues in dispute in a single Joint Stipulation and notes that USC had at least one month to file its portion of the Joint Stipulation and there does not appear to be any reason for why the objections weren't included in the joint stipulation. (Dkt No. 131 at 2). Nevertheless, the Court has reviewed the objections and Arch's response and, for the reasons stated in Arch's response, USC's Objection Nos. 1-5 and 7-9 are overruled. The Court sustains USC's Objection No. 6, as not relevant to Phase I issues. Settlement Agreement between USC and Chivaroli *3 Arch seeks documents and information regarding Chivaroli's settlement with USC under Interrogatory No. 4 and RFP Nos. 23-25 to USC, and RFP Nos. 12 and 14 to Chivaroli. (Motion at 29-34). Arch contends that while USC and Chivaroli acknowledge that they have reached a settlement, they object to disclosure of the settlement agreement or its terms. (Motion at 29-30). Arch claims this request is relevant to Phase I because if USC has been compensated by Chivaroli for the full value of the Arch policy, this lawsuit may be moot since USC cannot recover more than the value of the Arch policy. (Motion at 30). Arch also contends that it is entitled to explore whether USC is a real party in interest if USC has assigned its claim. Finally, Arch asserts that the settlement terms bear on the credibility of USC and Chivaroli witnesses, including Colin Wedel, who testified that he had conversations with Arch underwriter Nicholas Williams who agreed that a mistake was made in drafting the Arch policies. (Motion at 31-32). USC objects to production of the settlement agreement and its terms, correctly pointing out that Arch has not identified the settlement agreement in the discovery requests it seeks to compel. RFP No. 23 seeks “documents reflecting correspondence between [USC] and Chivaroli related to whether Chivaroli breached any obligations to [USC]; RFP No. 24 seeks “documents concerning damages sustained by [USC] related to Chivaroli's acts or omissions; and RFP No. 25 seeks “documents relating to correspondence with [counsel for Chivaroli] regarding USC, Chivaroli or Arch. (Motion at 35-36) . These requests do not seek production of the settlement agreement. Interrogatory No. 4 requests that USC disclose the sum of money received under a settlement agreement from Chivaroli. (Motion at 11). USC also contends that information regarding USC's settlement agreement with Chivaroli is not relevant to Phase I issues but to USC's damages which will be explored in Phase II. (Motion at 36). The Court agrees. The settlement agreement and related communications which necessarily occurred after this lawsuit was filed are not relevant to the issue of whether the policies should be reformed to remove the exclusion and include a non-discretionary duty to defend outside policy limits because of the parties' mutual mistake or intention at the time the policies were issued. To the extent Arch claims the settlement agreement is relevant to test the credibility of USC or Chivaroli witnesses, the fact that the parties have reached a settlement is adequate for this purpose. Arch has not demonstrated how the amount or the terms of settlement are needed to question a witness about motive or bias. Finally, given USC's assertion that its settlement with Chivaroli does not render this case moot because “the amount of the settlement is far less than the amount of damages USC seeks from Arch in this action,” and USC's representation that it has not assigned its claims to Chivaroli or anyone else, (motion at 37, 39), the Court finds that Arch is not entitled to settlement information or the settlement agreement in order to establish whether this case is moot or whether USC is a real party in interest. Chivaroli objects to Arch's request for the settlement agreement on the grounds that Arch has failed to show that it cannot obtain the agreement directly from USC and asserts the same objections that USC has raised. (Motion at 48). As explained above, Arch did not request the settlement agreement in its discovery requests to USC, but RFP Nos. 12 and 14 to Chivaroli seek the production of “documents relating to any settlement between [Chivaroi] and USC,” and “any settlement agreement ... related to this action.” (Motion at 28). Arch's motion to compel (1) production of the settlement agreement and related communications between USC and Chivaroli in response to RFP Nos. 23-25 to USC; and (2) responses to Interrogatory No. 4 to USC is DENIED. Arch's motion to compel responses to RFP Nos. 12 and 14 to Chivaroli, which seek, inter alia, the settlement agreement and related communications, is DENIED.[2] Arch's request to question Colin Wedel regarding the settlement at deposition is DENIED. The Alleged Joint Defense Agreement between Chivaroli and USC *4 Arch seeks production of the alleged joint defense agreement (“JDA”) between USC and Chivaroli, executed on or about March 11, 2019, under RFP Nos. 23-25 to USC, and RFP Nos. 12 and 14 to Chivaroli. (Motion at 49-51). Arch maintains that the JDA is relevant to the credibility of Chivaroli's witness and to determine the scope of the common interest between USC and Chivaroli. USC objects to production of the JDA on the grounds that Arch has not identified the JDA in any discovery request, and because the JDA is privileged and its relevance is limited to its existence and not to its contents. (Motion at 51-55). Chivaroli objects to production of the JDA on the grounds that Arch has failed to show that it cannot obtain the JDA directly from USC and joins in USC's objections.[3] (Motion at 55). As set forth above, RFP Nos. 23-25 do not, by their terms, seek the production of any joint defense or common interest agreement between USC and Chivaroli. The Court finds that the JDA is not relevant to the discovery issues in Phase I, and notes that, like the settlement agreement, the JDA and related communications, which occurred after this lawsuit was filed, are not relevant to the issues being addressed in Phase I discovery. Accordingly, USC and Chivaroli may not assert the JDA as a basis for withholding production of documents otherwise responsive to Arch's requests for communications that pre-date the filing of the lawsuit. The Court agrees with USC that the relevance of the JDA is to the fact of its existence rather than its content. (Motion at 53-54). Arch's asserted need for the JDA to test the credibility of witnesses from USC and Chivaroli is satisfied from the fact that there is a JDA. The Court overrules USC's objection to the production of the JDA as privileged, finding that, absent some basis to believe that the agreement contains substantive legal advice, “agreements which formalize the invocation of the joint defense or common interest” are generally not privileged. See United States v. Omidi, 2020 WL 6600172, at *2 (C.D. Cal. Aug. 12, 2020). Arch's motion to compel production of the JDA and related communications under RFP Nos. 23-25 to USC, and RFP Nos. 12 and 14 to Chivaroli is DENIED. Documents and Information Concerning USC's Knowledge of the LA Times Investigation Arch seeks the production of records and information pertaining to USC's awareness of the LA Times investigation of allegations against Tyndall under Interrogatory No. 8 and RFP Nos. 9, and 29 to USC. (Motion at 55-58). Arch claims this topic is relevant to its equitable defenses to USC's counterclaims for reformation based on its belief that USC and its agent, Chivaroli, asked Arch to remove the exclusion after they became aware that the allegations against Tyndall would become public and that the exclusion would bar coverage of any claims arising from the allegations. (Motion at 56). Arch's equitable defenses, including the doctrine of unclean hands, are based on its assertion that USC and Chivaroli failed to disclose USC's knowledge of the LA Times investigation and the potential for such claims. USC objects to the disclosure of how and when USC learned about the LA Times investigation of, and allegations relating to Tyndall's misconduct, on the grounds that it was not involved in the communications between Chivaroli and Arch regarding the request to remove the exclusion. (Motion at 60). USC also maintains that because “USC's purported knowledge of the Los Angeles Times investigation post-dated the inception of the Arch policies, this information is not relevant to the parties' intent at the time the policies were issued. Id. The Court disagrees. As Arch points out, Chivaroli was acting as USC's agent when it asked Arch to remove the exclusion without disclosing that USC was aware of the allegations against Tyndall and potential claims arising from those allegations and therefore USC's knowledge of the investigation and potential claims is relevant to Arch's equitable defenses. Arch's motion to compel documents and information pertaining to USC's knowledge of the LA Time investigation and the allegations against Tyndall in response to Interrogatory No. 8 and RFP Nos. 9 (limited to “all documents reflecting or relating to communications with Chivaroli on or before July 1, 2018 concerning Dr. Tyndall and/or the Los Angeles Times reporting about Dr. Tyndall), and 29 to USC is GRANTED. USC may withhold production of documents that are privileged and identified on a privilege log. Arch's request to compel further deposition testimony, subject to privilege assertions, from Stacy Bratcher on this topic is GRANTED. The parties are ordered to meet and confer regarding the scope of further testimony sought by Arch and whether Ms. Bratcher may provide a sworn declaration in lieu of deposition testimony. Communications Between USC and Chivaroli *5 Arch seeks production, from USC and Chivaroli, of all documents relating to communications between USC and Chivaroli regarding Tyndall and the Los Angeles Times reporting about Tyndall, and all documents that USC is relying on to prove its reformation claim in Phase I under RFP Nos. 9, 18, 23-25, and 29 to USC, and RFP No. 2 to Chivaroli (Motion at 62-70). Arch maintains that the communications it seeks are central to the issue of whether the terms of the Arch policies were included by mistake and are within the scope of Phase I discovery, including communications regarding Chivaroli's failure to provide “follow-form” policies from Arch, and the parties' knowledge of, and consent to, the exclusion and discretionary duty to defend in the Arch policies, particularly communications in May and June 2018. (Id.). Arch also claims that USC has placed its communications with Chivaroli at issue by asserting that Chivaroli failed to obtain “true follow-form” coverage from Arch. (Motion at 68).[4] In addition to records relating to the LA Times investigation, Arch also seeks documentation of monthly and annual meetings that USC conducted with Chivaroli regarding the purchase of insurance, contending that these communications are also relevant to Phase I on the issue of what the parties discussed regarding the coverage USC requested, USC and Chivaroli's knowledge of the coverage requested and obtained, whether there was any change in that knowledge and if there were disagreements regarding any such change. (Motion at 63). Arch asserts that USC and Chivaroli have improperly withheld production of responsive records by asserting that their communications are privileged or subject to work product protection when the communications at issue are business-related records that are not privileged, including that, as of May 8, 2018 (when Chivaroli requested that Arch remove the exclusion), USC's and Chivaroli's interests were adverse or likely to become adverse over the Arch policies and they did not share a common interest with respect to the issues in Phase I. (Motion at 63, 66-68). In particular, Arch objects to USC's privilege assertions regarding communications involving Stacy Bratcher who performed business functions in her supervision of USC's risk management and insurance department and participated in USC's selection of insurance. (Motion at 64). USC maintains that it has produced responsive business-related communications and properly withheld privileged communications that are identified on its privilege log, including communications on which Chivaroli was copied because, as USC's agent, its assistance was determined to be necessary to the legal advice rendered. (Motion at 70-74). USC also avers that it and Chivaroli were not adverse until Arch declined to reform the policy and denied coverage in the fall of 2018 and USC learned the basis for Arch's denial. (Motion at 75). Chivaroli claims that Arch's request for the communications at issue (RFP No. 2 directed to Chivaroli) is identical to RFP No. 9 directed to USC and Arch has failed to pursue these records from USC before seeking them from Chivaroli. (Motion at 8). Like USC, Chivaroli objects to the production of communications that fall within the attorney-client privilege or work product doctrine. (Motion at 80-82). At the hearing, counsel for USC confirmed that USC was not withholding production of documents responsive to Arch's requests on the grounds that USC has produced all documents on which it intends to rely in support of its reformation claim and that, in addition to its production of documents responsive to RFP No. 18, USC has reviewed Arch's request for communications with Chivaroli and produced responsive non-privileged documents. Arch's motion to compel production of communications between USC and Chivaroli is GRANTED IN PART. The Motion is GRANTED as to RFP Nos. 9, 23 (the parties are ordered to meet and confer as to the relevant time frame; the Court finds that, at a minimum, the May-June 2018 time frame is relevant as to Phase I), and RFP No. 29 (the parties are ordered to meet and confer regarding the documents Arch is seeking). USC may withhold production of documents that are privileged and identified on a privilege log. USC may not assert a common interest privilege regarding communications in the May-June 2018 time frame. The Motion is DENIED to RFP No. 18 which is moot,[5] and RFP Nos. 24 and 25 which are not relevant to Phase I. The motion is DENIED as to RFP No. 2 to Chivaroli as this request seeks the same information as RFP No. 9 to USC. *6 USC is directed to submit the sworn declaration of the person most knowledgeable regarding its search of records responsive to RFP Nos. 9, 18, 23 and 29 that involve communications between USC and Chivaroli, the parameters of the search and whether any documents are being withheld on grounds of privilege. USC is also directed to ensure that its privilege log identify, for each document, the RFP for which that document would be responsive. Coverage Offered or Provided by BETArma to USC for Claims Arising out of Abuse or Molestation Arch seeks documents relating to coverage provided by BETArma (the underlying policies) for claims arising out of abuse or molestation in response to RFP No. 8 to USC and RFP No. 7 to Chivaroli. (Moition at 82-84). USC claims that this request is moot as USC has produced non-privileged placement related communications relating to coverage provided by BETArma, and copies of the underlying BETArma policies. (Motion at 84-85). At the hearing, Arch claimed it has no way of confirming whether there are additional responsive documents that USC failed to produce. At the hearing, counsel for Chivaroli clarified that the BETArma policies issued to USC included coverage for abuse and molestation claims under an endorsement to the healthcare liability section but beginning with the July 2014 renewal, the abuse and molestation coverage was added to the general form without the need for an amendment or endorsement to the policy. At that time, Chivaroli had communications with BETArma regarding those changes, and after Arch agreed to limit the scope of its request to documents relating to the change in the July 2014 renewal, Chivaroli produced the communications and forms in response to RFP No. 7. Arch's motion to compel production of documents responsive to RFP No. 8 to USC and RFP No. 7 is DENIED as moot. Records of Meetings with Chivaroli, Reports to the Board of Directors, and Responsive Documents in the Possession of USC including Tamara Capretta and other USC Decisionmakers Arch claims that USC did not produce all documents in its possession regarding records of its regular meetings with Chivaroli and reports to the USC Board of Trustees regarding USC's healthcare professional liability coverage, including records maintained by Tamara Capretta and other USC employees who participated in the decision to purchase the Arch policies in response to RFP Nos. 4, 8-9, 23-25 and 29 to USC. (Motion at 88-89). According to Arch, Capretta and Bracher testified that they could not confirm whether documents they maintained were produced. (Motion at 89). USC points out that none of the RFPs at issue in Arch's motion reference minutes of meetings with Chivaroli or reports to the Board of Directors. (Motion at 90-91). The Court agrees. The Court also finds that Arch's request for records on this topic is overbroad and will limit the request to those records and reports that reference the Arch policies at issue in this case. USC has identified the custodians whose documents were reviewed and confirmed that all responsive records to Phase I have been produced or identified on its privilege log. (Motion at 93). At the hearing, counsel for USC agreed to provide a declaration regarding the search for Capretta's documents and confirm that all non-privileged documents responsive to Phase I were produced or listed on the privilege log. Arch's motion to compel – in response to RFP Nos. 4, 8, 9, 19, 23-25, 29, and 30 to USC - records of meetings with Chivaroli and reports to the USC Board of Trustees is GRANTED IN PART. USC is directed to produce records and reports that reference the Arch policies at issue in this case. *7 The parties are ordered to meet and confer regarding a time frame for USC's production of responsive records consistent with this Order. C. Sanctions Chivaroli's motion for sanctions against Arch for failing to take reasonable steps to avoid imposing undue burden and expense on Chivaroli by seeking to compel production of documents that overlap with requests to USC is DENIED. While the Court has not granted Arch's motion to compel responses to the discovery requests directed to Chivaroli, the Court notes that not all of Arch's discovery requests to Chivaroli overlap with its requests to USC and, to the extent there is overlap, Arch is not preluded from seeking responsive records from Chivaroli if USC is unable to locate or produce them. The parties may avail themselves of the Court's informal discovery dispute resolution process to resolve any remaining discovery issues. (See Judge Sagar's Procedures). IT IS SO ORDERED. Footnotes [1] The Motion sets forth each request and the responses provided by USC and Chivaroli but fails to state each party's contentions with respect to each request. Motion at 11-29. [2] Having made this finding, the Court need not address the argument, by both USC and Chivaroli, that the settlement agreement and related communications are privileged under the mediation privilege. [3] At the hearing, Arch agreed that it does not seek duplicative discovery from USC and Chivaroli. Accordingly, Arch may not seek the production of records which USC has produced from Chivaroli but may seek production of records that USC does not possess or cannot locate. [4] To the extent Arch contends that USC has not produced emails dated August 4 and 5, 2017, and July 13, 2017, (Motion at 63 n.16, 65), counsel for Arch confirmed at the hearing that these records were produced. See Supplemental Declaration of Stacey Zill, ¶ 5; Dkt. No. 123. [5] It appears that references to RFP Nos. 18 and 19 pertain to the same request for documents that support USC's reformation claim. (Motion at 16, 62).