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Atrium 5 Limited v. Butchee

United States District Court, S.D. Illinois

January 6, 2017

ATRIUM 5 LIMITED, Plaintiff,


          Reona J. Daly United States Magistrate Judge

         This matter comes before the Court pursuant to the Discovery Dispute Conferences on August 22, 2016 and on December 12, 2016. (Docs. 42, 66.) On January 4, 2016, Plaintiff commenced this action seeking a declaration of rights with respect to an insurance policy issued to Plaintiff. (Doc. 1.) On July 1, 2016, Defendant filed a third party complaint asserting breach of contract, bad faith refusal to settle, and estoppel against Certain Underwriters at Lloyd's, London, (“Lloyd's”) and negligence against Cutler Insurance Agency. LLC (“Cutler Insurance”). (Doc. 26.) On August 22, 2016, during a discovery dispute conference, Magistrate Judge Philip M. Frazier ordered Plaintiff to submit the documents identified in its privilege logs for in camera review. (Doc. 42.) On November 18, 2016, the Court requested additional argument with regard to the objections and privileges related to commissions, fees, and reserve amounts and set a discovery dispute conference, which was held on December 12, 2016. (Doc. 61.)


         To provide the necessary context for this discovery dispute, the Court will provide a brief overview of the fact allegations in the complaints. This case is based on a six-month insurance policy on a vacant property issued by Plaintiff (the insurer) to Defendant (the insured) on June 18, 2015. (Doc. 1.) On May 26, 2015, the insured purchased a vacant property (the “Property”) for $20, 000. In the application for the insurance policy, the insured represented that she had no loss exceeding $25, 000 on any rented or owned property within three years; that the Property was vacant; and that the Property was secured against unauthorized entry. The application warned that providing false information could result in the denial of a claim or a void policy.

         On July 3, 2015, the fire department responded to a fire in the building on the Property, and the suspected cause of the fire was arson. The insured submitted a claim to the insurer, and during the investigation, the insured testified that: (1) on February 25, 2015, she had purchased a different property for $25, 000, which she insured with Allstate for $100, 000; (2) on March 3, 2015, that property sustained a fire loss; and (3) Allstate paid her approximately $100, 000 for the loss. The insured further testified that the prior owners had access to the building on the Property through at least July 1, 2015. On September 2, 2015, the insurer denied the claim on the Property, citing material misrepresentations in the insurance application. The insurer seeks a declaratory judgment that the insurance policy is void due to the material misrepresentations regarding the prior loss and due to breach of warranty with respect to the prior owner's access to the Property.

         On July 1, 2016, the insured filed a third party complaint against Lloyd's and Cutler Insurance. (Doc. 26.) According to the insured's complaint, Lloyd's is the insurer, and Cutler Insurance assisted Defendant in obtaining the policy at issue. The insured alleges claims of breach of contract, bad faith refusal to settle a claim, and estoppel against Lloyd's and claims of negligence against Cutler Insurance. She specifically alleges that Cutler Insurance acted negligently by submitting the application of insurance without asking the insured questions or reviewing the application with the insured.


         The parties' arguments focus on the issue of relevance. Plaintiff also asserted in its brief and privilege log that much of the information requested is proprietary and confidential. The Court finds that these concerns can be addressed through a protective order. See Andrew Corp. v. Rossi, 180 F.R.D. 338, 340 (N.D. Ill. 1998) (“to facilitate discovery, confidential information is customarily made available under a protective order”).

         Under the Federal Rules of Civil Procedure, “parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense.” Fed.R.Civ.P. 26(1). “Information within this scope of discovery need not be admissible in evidence to be discoverable.” Id. “Rule 26 vests this Court with broad discretion in determining the scope of discovery, which the Court exercises mindful that the standard for discovery under Rule 26(b)(1) is widely recognized as one that is necessarily broad in its scope in order to allow the parties essentially equal access to the operative facts.” Scott v. Edinburg, 101 F.Supp.2d 1017, 1021 (N.D. Ill. 2000). The Seventh Circuit has recognized a trial court's “broad discretion over discovery matters.” Spiegla v. Hull, 371 F.3d 928, 944 (7th Cir. 2004).


          The insured seeks to discover the commissions paid for the insurance policy to the coverholder, [1] J.M. Wilson, who entered into the insurance policy with the insured as the insurer's agent. The insurer argues that the commissions are irrelevant to the legal claims in this action. The insured responds that the commissions are relevant with respect to J.M. Wilson's credibility, relationship with the insurer, and whether J.M. Wilson acted with due diligence.

         The Court notes the questions raised by the complaints regarding the issuance of the insurance policy and understands that J.M. Wilson had a role in issuing the insurance policy. While the requested information may not be relevant to the insurer's claims, it is relevant to the insured's claim of estoppel presented in the third party complaint. Under Illinois law, “equitable estoppel may be defined as the effect of the person's conduct whereby the person is barred from asserting rights that might otherwise have existed against the other party who, in good faith, relied upon such conduct and has been thereby led to change his or her position for the worse.” Geddes v. Mill Creek Country Club, Inc., 751 N.E.2d 1150, 1157 (Ill. 2001). “The general rule is that where a person by his or her statements and conduct leads a party to do something that the party would not have done but for such statements and conduct, that person will not be allowed to deny his or her words or acts to the damage of the other party.” Id. The insurer has represented that J.M. Wilson acted as its agent in issuing the insurance policy, and the insured alleges that the conduct of the insurer's agent estops the insurer from asserting fraud as a contractual defense.[2]

         Considering that the scope of the estoppel claim encompasses the conduct of the agent that issued the policy, J.M. Wilson's credibility and relationship with the insurer are relevant issues. Therefore, the Court finds the commissions paid to J.M. Wilson are relevant to the claims in this case for purposes of discovery.

         Investigatio ...

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