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Travelers Home and Marine Insurance Co. v. HTP, Inc.

United States District Court, D. Kansas

December 1, 2017

HTP, INC., et al., Defendants.



         On November 21, 2017, the Court held an in-person hearing to discuss two pending discovery motions: 1) Defendant HTP's Motion to Compel Discovery Responses from Plaintiff (ECF No. 124); and 2) Plaintiff's Motion to Compel Discovery Responses from Defendant HTP (ECF No. 125). Plaintiff appeared through counsel, Derek Casey. Defendant HTP, Inc. appeared through counsel, David Steed. Defendants Comfort Products Distributing, LLC and Carrier Enterprise, LLC appeared through counsel, Joseph Cassell. Defendant Wonsetler Refrigeration, Inc. appeared through counsel, J. Philip Davidson. Defendant Comfort Sales Agency, Inc. did not appear. After consideration of the parties' briefing, the oral arguments of counsel, and review of the documents submitted in camera, the Court announced the following rulings at the hearing: Defendant HTP's Motion to Compel (ECF No. 124) is GRANTED; and Plaintiff's Motion to Compel (ECF No. 125) is GRANTED in part and DENIED in part as set forth below.

         I. Background [1]

         Plaintiff Travelers Home and Marine Insurance Company (“Travelers”) insured a residential home, owned by the Julian family in McPherson, Kansas, against damage by fire. The Julian home contained a Voyager Water Heater, designed and manufactured by defendant HTP, Inc. The water heater used a hot surface igniter, rather than a pilot light, to ignite natural gas to heat water, and in late 2013, the igniter dislodged causing a fire that seriously damaged the Julian home. Travelers paid the Julians' claim for repairs, and filed this subrogation action in November 2015 against all defendants to recover the costs of repair. Defendants Comfort Sales Agency, Comfort Products Distributing, Carrier 10 Enterprise, and Wonsetler Refrigeration are sellers and distributors of the HTP Hot Surface Igniters.

         Two issues have arisen which led to the instant discovery disputes. One issue concerns the occupancy of the Julian home. At the time of the fire, the home was listed for sale but personal belongings remained in the home. Citing the insurance policy's “vacancy clause, ” HTP now questions whether Plaintiff properly applied its policy to the Julians' claim.

         The second topic concerns other fires involving the same ignitor. During discovery, the parties learned of a series of events which led HTP to redesign the water heater to ensure the igniter did not dislodge. After discovering a number of other fires potentially related to the igniter issue, HTP prepared a spreadsheet in late 2009 or early 2010 containing information on those fires. That spreadsheet was first produced during the February 10, 2017 deposition of Kim Carvalho, records custodian for HTP. Marked “Deposition Exhibit 39, ” this spreadsheet contained multiple instances of similar fires across the country (filed as sealed exhibit, ECF No. 99, Ex. 1). Citing relevance to its claim that HTP failed to provide a post-sale warning to the Julians, Plaintiff has since been attempting to gain information about the fires listed on that spreadsheet.

         Despite the current disputes and the age of this action, this case has progressed through pretrial discovery with minimal disagreements, and the discovery deadline of December 20, 2017, is fast approaching. Dispositive motions are anticipated, with a filing deadline of January 25, 2018.

         II. Compliance with D. Kan. Rule 37.2

         Throughout the briefing (see., e.g., Motion, ECF No. 124 at 3, ¶ 4), prior briefing on similar issues (ECF Nos. 99, 100, 113, 117), and during the recent in-person hearing, the parties demonstrated multiple attempts to resolve their differences on the pending discovery issues. Therefore, the Court is satisfied they have sufficiently conferred as required by D. Kan. Rule 37.2 and Fed.R.Civ.P. 37(a)(1). However, despite their attempts, the parties could not resolve all disputes, leading to the following motions. The Court addresses each motion in turn.

         III. Defendant HTP's Motion to Compel Discovery Responses from Plaintiff (ECF No. 124)

         Arguing the vacancy clause of the insurance policy may have provided Plaintiff a defense to the Julians' claim, HTP seeks to discover from Plaintiff items responsive to the following request:

REQUEST NO. 11: Please produce Travelers' internal adjusting guidelines, policies and procedures for investigating and/or adjusting residential fire claims in which the residence is unoccupied or infrequently occupied or listed for sale.

         Plaintiff objected to production on two bases: 1) relevance, contending its internal policies and procedures are irrelevant to any claim or defense; and 2) confidentiality, arguing its policies constitute confidential commercial information; the production of which would cause harm to Plaintiff in its competition with other insurers, including those providing insurance in this case to Defendants. The Court considers each objection.

         A. Relevance

         HTP argues the vacancy of the Julian home is relevant to this case for a couple of reasons. To start, HTP contends because the home was apparently unoccupied at the time of the fire, the exact time of the fire is unknown. Also, because the fire was not immediately discovered, it caused additional damage-in this case, considerable water damage occurred between the apparent fire and its discovery. HTP contends this relates to the proper extent of damages, equating this to a mitigation issue. In response, Plaintiff argues that, rather than focusing on the cause of the fire and Defendants' potential liability to reimburse Plaintiff for the repairs (i.e., a standard subrogation claim), HTP is instead focusing on whether Plaintiff properly paid the claim in the first place.

         In its written motion, HTP provides no authority for its assertion that the internal adjusting guidelines are relevant to the parties' claims. Instead, HTP focuses on deposition testimony of Plaintiff's adjuster, Michael Wallace, who said the vacancy clause of the insurance policy was “applicable . . . but was not enforced.” During the motion hearing, however, HTP pointed the Court to two Kansas state court cases finding that equitable subrogation does not relieve a litigant from the consequences of its own negligence.[2] And, consequently, HTP contends that whether Plaintiff applied its own vacancy policies in its payment of the Julians' claim is relevant to not only the parties' claims, but also to its defenses insofar as Plaintiff's duty to mitigate damages.

         Plaintiff, on the other hand, contends HTP misconstrues Mr. Wallace's deposition and the context surrounding his comments (transcript attached to Pl.'s Response, ECF No. 133, Ex. A). Mr. Wallace also testified the home was “considered not to be vacant because of the periodic occupancy by the son, as well as personal belongings throughout the house.” (Wallace Dep., 41:1-3; ECF No. 133, Ex. A.). Although Plaintiff provides no binding authority for its position, it provides some persuasive authority from a Florida state appellate case[3] and from treatises on insurance law. Those sources essentially agree, “where [an] insurance company has paid a loss, its right to subrogation is generally not affected by the fact that it might have successfully contested the insured's claim.”[4]

         However, Plaintiff ignores an important piece of that statement-although this is generally true, other authority exists which analyze circumstances when a court might consider the appropriateness of the underlying payment of the claim within a subrogation action. For example, in the Tenth Circuit case of Weir v. Federal Ins. Co., [5] defendant Federal Insurance Company (“Federal”) paid its insured (Weir) $98, 207.30 on his fire damage claim after his Whirlpool dryer caught fire, causing damage to Weir's home. However, the coverage of the policy was only $49, 103.65. The day before the fire, Weir had asked his agent to double his coverage. Because the policy change had not been effected when the fire occurred, Federal initially refused to pay the higher amount. But after Weir sued Federal, they settled the policy claim portion of the suit for $98, 207.30. Federal then sued Whirlpool on its subrogation claim. Whirlpool claimed Federal was only obligated to pay the original policy amount of $48, 103.65, and the additional claim payment was paid voluntarily. The Tenth Circuit found, “if Federal paid the Weirs for losses not covered by the policy, Federal has no contractual right to recover that payment from Whirlpool. Federal could still recover that payment from Whirlpool through equitable subrogation, but only if the payment was not voluntary.”[6]

         Applying the rationale from Weir to this case, it suggests if Travelers paid the Julians for losses not actually covered under the policy (because the home should have been considered vacant), Travelers has no contractual right to recover the payment from HTP-because the insurance contract would not have applied. Here, it appears HTP is attempting to show that the Julians' loss was not covered under the insurance policy. If this is the case, Plaintiff's internal adjusting guidelines could be relevant to this defense.

         Moreover, the pleadings suggest-and Plaintiff's counsel confirmed at hearing- that Plaintiff asserts both contractual and equitable subrogation claims in this case. On Plaintiff's equitable subrogation claim, it may only recoup its claim payment from HTP if its payment to the Julians was not voluntary. HTP essentially claims that Plaintiff's payment of the claim was voluntary because it chose not to enforce the vacancy clause. So, under Weir, HTP makes a colorable argument that the underlying coverage issue is relevant to either a contractual or equitable subrogation claim.

         Admittedly, though, Weir is not controlling. Although Weir is a helpful illustration of the issues currently before this Court, this Tenth Circuit case interprets Colorado, not Kansas, law. The parties agree that Kansas law applies to this diversity action. But, similar to Weir, Kansas state courts have found voluntariness may be a defense to an equitable subrogation claim; although voluntariness is not a defense to a contractual (conventional) subrogation claim. In Hartford Fire Ins. Co. v. W. Fire Ins. Co., [7] the Kansas Supreme Court found, “The defense that the party claiming the rights of subrogation is a volunteer is available against a claim of legal [equitable] subrogation in appropriate circumstances, but not ...

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