Free Reply to Response to Motion - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 03-cv-2577-RPM-OES M.D.C. HOLDINGS, INC.; and RICHMOND AMERICAN HOMES OF COLORADO, INC. Plaintiffs, v. INTERSTATE FIRE & CASUALTY COMPANY, Defendant.

REPLY IN SUPPORT OF PLAINTIFFS' MOTION TO COMPEL THE DEPOSITION OF ROB WELCH

COME NOW the Plaintiffs, M.D.C. Holdings, Inc. and Richmond American Homes of Colorado, Inc., by and through their attorneys, HOLLEY, ALBERTSON & POLK, P.C., and submit the following Reply in Support of Plaintiffs' Motion to Compel the Deposition of Rob Welch. IN SUPPORT THEREOF, Plaintiffs state: 1. Plaintiffs bring this motion compel the deposition of Rob Welch, a representative of Defendant Interstate Fire & Casualty Company ("Interstate"). Mr. Welch was the initial claims adjuster on the file and issued Interstate's initial coverage position to Plaintiffs. 2. Plaintiffs do not dispute that discovery at this stage of the case is limited to Plaintiffs' First Claim for Relief; however, based on Interstate's Response to Plaintiffs' motion, Plaintiffs and Interstate disagree on the scope of discovery permissible at this stage. 3. The "scope of discovery under the federal rules is broad[;] discovery is not limited to issued raised by the pleadings, for discovery itself designed to help define and clarify the issues."

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Gomez v. Martin Marietta Corp., 50 F.3d 1511, 1520 (10th Cir. 1995) (citations omitted). Rule 26 "allows broad discovery, not only of any matter, not privileged, which is relevant to the subject matter involved in the pending action, but also of matters that appear reasonably calculated to lead to the discovery of admissible evidence." Gillard v. Boulder Valley Sch. Dist. RE-1, 196 F.R.D. 382, 385 (D. Colo. 2000); Echo Star Communs. Corp. v. The News Corp., Ltd., 180 F.R.D. 391, 394 (D. Colo. 1998). 4. Mr. Welch's deposition is reasonably designed to lead to the discovery of admissible evidence on Plaintiff's First Claim for Relief because, among other things, Mr. Welch is apparently aware of an investigation of the claim conducted by Interstate, and because Mr. Welch authored Interstate's initial coverage position to Plaintiffs. Plaintiffs believe the relevance of Mr. Welch's testimony is, based on, among other things, the following: a. The Second Amended Scheduling Order does not limit the parties to written discovery; both parties are allowed to conduct both written discovery and depositions. b. The only Interstate representatives Interstate has identified under Rule 26(a)(1), see Fed. R. Civ. P. 26(a)(1)(A), are Mr. Welch and Greg Brown, both of whom acted as claims adjusters on the file, on subjects "concerning the various claims asserted by the underlying homeowners, Plaintiff's claims, Interstate's investigation and decisions regarding coverage, and other relevant matters." Mtn. Exhibit A, p. 1. Interstate did not limit Mr. Welch's or Mr. Brown's knowledge to Plaintiffs' extra-contractual claims. c. In its Answer to the Second Amended Complaint, Interstate raises some nineteen affirmative defenses in this case, including the following:

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i. Plaintiffs' Second Amended Complaint, at least in part, fails to state a claim upon which relief may be granted against Interstate. ii. Plaintiffs' claims, at least in part, are barred by the applicable statute of limitations. iii. Plaintiffs' damages, if any, are reduced by their failure to mitigate damages. iv. Plaintiffs are not the real party in interest to some or all of their alleged damages. v. Plaintiffs' alleged damages (and the damages of the underlying homeowners), at least in part, do not constitute "bodily injury" or "property damage" as those terms are defined by the Interstate insurance policy. vi. Plaintiffs' claims are barred or comparatively diminished by Plaintiffs' own comparative negligence, fault, bad faith, or inequitable conduct. vii. There is no coverage (or defense obligation) under the Interstate insurance policy to the extent all underlying insurance and self-insured retentions (SIR's) have not been exhausted by the claims of the underlying homeowners. viii. There is no coverage (or defense obligation) under the Interstate insurance

policy to the extent that none of the claims of the underlying homeowners involve "property damage" or "bodily injury" which occurred during the Interstate insurance policy period. ix. There is no coverage (or defense obligation) under the Interstate insurance policy to the extent the claims of the underlying homeowners were caused by multiple occurrences.

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x. There is no coverage (or defense obligation) under the Interstate insurance policy to the extent the claims of the underlying homeowners fall within the "your work," "your product," or "business risk" exclusions in the policy. xi. There is no coverage (or defense obligation) under the Interstate insurance policy for damages which are purely economic or intangible in nature. xii. There is no coverage (or defense obligation) under the Interstate insurance policy to the extent the claims of the underlying homeowners constitute continuous or progressive losses which manifested prior to the inception date of the Interstate insurance policy. xiii. There is no coverage (or defense obligation) under the Interstate insurance

policy to the extent Plaintiffs failed to comply with the cooperation clauses in the policy, or failed to give timely and adequate notice of the claims of the underlying homeowners to Interstate. xiv. There is no coverage (or defense obligation) under the Interstate insurance

policy to the extent Plaintiffs failed to maintain underlying primary insurance. xv. There is no coverage (or defense obligation) under the Interstate insurance policy to the extent the claims of the underlying homeowners fall within the "pollution" exclusion in the policy. xvi. There is no coverage (or defense obligation) under the Interstate insurance

policy to the extent the claims of the underlying homeowners fall within the exclusions contained in the primary insurance policies.

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xvii.

There is no coverage (or defense obligation) under the Interstate insurance

policy to the extent the claims of the underlying homeowners do not result from an "occurrence" as that term is defined in the Interstate policy. xviii. Interstate reserves the right to assert additional affirmative defenses pursuant to discovery and the evidence. d. Of the nineteen affirmative defenses raised by Interstate, only one (Paragraph 5) appears specifically directed toward Plaintiffs' extra-contractual claims; otherwise, the quoted affirmative defenses appear intended to apply both to Plaintiffs' First Claim for Relief and its extra-contractual claims. e. Mr. Welch authored Interstate's initial coverage position letter to Plaintiffs. Motion, Exhibit B. Among other things, Mr. Welch states that: i. Interstate has reviewed information furnished by Plaintiffs and "has conducted an investigation." Pltffs' Mtn., Exhibit B, p. 2. ii. Interstate "reserves its rights as to all the incorporated provisions of the underlying insurance provided by Zurich American Insurance Company and/or Liberty Mutual Insurance Company." Mtn., Exhibit B, p. 8. iii. As "a result of Interstate's preliminary coverage investigation and after review of the coverage afforded under the Policy, Interstate has concluded that there is no coverage available under the Policy at this time. Moreover, Interstate's investigation and coverage analysis reveals that there is or may be no coverage for the Claims in the future." Mtn., Exhibit B, p. 8. iv. "Our investigation reflects that no underlying primary insurance policy or other potentially applicable insurance policy has ceased to apply through exhaustion of the

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aggregate limits [of] such policy or policies." Mtn., Exhibit B, p. 9. "Our investigation reflects that no primary insurance underlying the Interstate Policy has been exhausted by payment, and accordingly Interstate has no present duty to indemnify you under the Policy." Mtn., Exhibit B, p. 9. v. "Interstate has concluded that the first of the Claims were manifest prior to 07/01/01. If a court determines that the Claims constitute continuous or progressively deteriorating personal injury or property damage under the Interstate policy, then the coverage limitation for `Continuous and Progressive Injury Damage or Offence [sic]' would apply to preclude any defense or indemnity obligation under the Policy for the 07/01/01-02 and 07/01/0203 policy periods." Mtn., Exhibit B, p. 9. vi. "Our investigation reflects that as of 07/01/02, you cancelled the scheduled primary insurance provided by Zurich American Insurance Company, failed to notify Interstate, and failed to secure additional primary insurance. Rather than continue the Zurich policy, you purchased a first layer excess policy from Liberty Mutual Insurance Company that is excess to a self-insured retention. The Liberty Mutual Insurance Company policy contains terms which are materially different than the terms of the scheduled Zurich primary policy. By the terms of the Maintenance of Primary Insurance condition quoted above, the Interstate Policy ceased to apply simultaneously with termination of the primary insurance previously provided by Zurich, and Interstate accordingly disclaims any duty to defend or indemnify you on that basis for any injury or damage during the 07/01/02 to 07/01/03 policy period." Mtn., Exhibit B, p. 9. vii. "The facts giving rise to the Claims may constitute one or many occurrences, and Interstate, therefore, reserves its rights to require the payment of one or many self-insured

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retentions pursuant to the incorporated terms of any underlying policy." Mtn., Exhibit B, p. 10. "To the extent any Claim is not caused by an occurrence, there would be no coverage in the underlying policy or the Interstate Policy. Interstate, therefore, reserves its right to disclaim coverage on this basis." Mtn., Exhibit B, p. 10. viii. "Some or all of the Claims may not constitute `property damage,'

`personal injury' and/or `bodily injury' as defined in the Interstate Policy and/or underlying policies and Interstate reserves its rights to deny coverage for one or more of the Claims on any and all of these basis." Mtn., Exhibit B, pp. 10. ix. "Some or all of injury or damage alleged in the Claims may fall within scope of the Pollution, Damage to Property, Damage to Your Product, Damage to Your Work and/or Damage to Impaired Property or Property Not Physically Injured exclusions contained within the Policy or within an underlying policy. Accordingly, Interstate reserves its rights to deny or limit coverage on the basis of these exclusions." Mtn., Exhibit B, p. 10. x. "Where there is Other Insurance available to you which applies, the Interstate Policy would apply as excess of and not contributory to such other insurance, and Interstate, therefore, reserves its rights on this basis." Mtn., Exhibit B, p. 10. xi. "The Policy provides that Interstate will pay those sums for which the Insured is `legally obligated to pay as damages' because of covered injury or damage. Accordingly, Interstate disclaims coverage for each Claim which does not seek `damages' for any of the Claims which are paid by you without a legal obligation to make such payment." Mtn., Exhibit B, p. 11.

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xii. "This letter is intended to provide you with notice of the policy provisions upon which Interstate reserves its rights and denies coverage for each of the Claims. Interstate is in the process of conducting further investigation of the Claims and applicable insurance policies." Mtn., Exhibit B, p. 11. "Interstate's reservations of rights and denials of coverage may also be supported by additional provisions of the Policy. Accordingly, Interstate's reservations of rights and denials of coverage are based upon the information received to date, and Interstate does not waive any rights or defenses which Interstate may have regarding this matter under any policy of insurance issued by Interstate, regardless of whether such rights or defenses are set forth above." Mtn., Exhibit B, p. 11. xiii. Mr. Welch's reservation of rights letter states that Interstate intends to rely

on the coverage position of its underlying insurer, Zurich, and apparently reserves the right to rely on Liberty as an underlying insurer (at the same time contending that the procurement of the Liberty policy is a breach of the Interstate policy). Mtn., Exhibit B, p. 8. f. Mr. Welch's coverage letter recites policy provisions, and asserts conclusions that Interstate's "investigation" and its analysis bars coverage, but fails to explain what facts, if any, support his analysis and conclusions. Mtn., Exhibit B, pp. 8-11. Without addressing the substantive propriety of Mr. Welch's reservation of rights letter, Mr. Welch's cryptic references to an "investigation" are just one example why Mr. Welch's deposition is reasonably calculated to lead to the discovery of admissible evidence. g. Interstate's affirmative defenses are similarly devoid of factual reference; however, Interstate has represented to Plaintiffs that its designated representatives, including Mr.

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Welch, disclosed under Rule 26(a)(1), have information relevant to those affirmative defenses, among other things. 5. In its Response, Interstate contends that nothing Mr. Welch could testify to would be relevant on Plaintiffs' First Claim for Relief1, and that Mr. Welch's deposition is designed only to elicit evidence about Interstate's claims practices. Resp., p. 4. To this end, Interstate suggests that coverage issues are limited to the application of a few select provisions of the Interstate policy. However, Interstate's affirmative defenses and Mr. Welch's reservation of rights letter demonstrate that Interstate has not waived or withdrawn any defenses to Plaintiffs' claim for coverage, e.g., failure to mitigate damages (not based on any policy provision), and are asserting policy defenses, e.g., failure to maintain primary insurance, lack of notice, as well as coverage provisions in the policy itself. 6. "Generally, an insurer must raise (or at least reserve) all defenses to coverage within a reasonable time after learning of such defenses." Public Serv. Co. v. Wallis and Cos., 955 P.2d 564, 571 (Colo. App. 1997), rev'd other grounds, 924 P.2d 968 (Colo. 1999). 7. There are significant factual disputes on Plaintiffs' First Claim for Relief. For example, this Court has previously concluded that factual issues precluded summary judgment on whether this case involves a single "occurrence" or multiple "occurrences," although the question of whether there was an "occurrence" should not be open to serious question, cf. Hoang v. Monterra Homes (Powderhorn) LLC, 129 P.3d 1028 (Colo. App. 2005); Colard v. American Fam. Mut. Ins. Co., 709 P.2d 11 (Colo. App. 1985). Similarly, many of the exclusions Interstate

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purports to rely on to exclude coverage have been held to be ambiguous. See, e.g., Simon v. Shelter Gen. Ins. Co., 842 P.2d 236 (Colo. 1992); Worsham Constr. Co. v. Reliance Ins. Co., 687 P.2d 988 (Colo. App. 1984); see also Colard v. American Fam. Mut. Ins. Co., 709 P.2d 11 (Colo. App. 1985); Lee Builders, Inc. v. Farm Bureau Mut. Ins. Co., 104 P.3d 997 (Kansas 2005). 8. Rather than address issues necessarily raised by Plaintiffs' First Claim for Relief, Interstate suggests that Plaintiffs "will surely expand their efforts to dig into claim handling issues and frustrate Interstate's ability to put legitimate coverage issues before the Court." Resp. at 6. Interstate's threat of prohibiting Mr. Welch's deposition in fact, should this Court grant this motion, is inappropriate, particularly given the fact that Plaintiffs have attempted to confer with Interstate on how to address the scope of discovery issues, Mtn., Exhibit C, without any meaningful response from Interstate. 9. Absent a court order, "methods of discovery may be used in any sequence, and the fact that a party is conducting discovery, whether by deposition or otherwise, does not operate to delay any other party's discovery." Fed. R. Civ. P. 26(d). Interstate's suggestion that Plaintiffs' deposition interferes with Interstate's discovery in this case. Nothing in the record supports this concern. Interstate has issued document subpoenas to insurers of various subcontractors of Plaintiff Richmond American Homes of Colorado, Inc. ("Richmond"). Plaintiffs have responded to written discovery propounded by Interstate. Interstate has requested and Plaintiffs have scheduled Richmond's Rule 30(b)(6) deposition on all of the issues requested by Interstate. Interstate has not been and will not be hampered in the conduct of discovery in this case by allowing Plaintiffs to depose Mr. Welch.

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10. Plaintiffs submit that the foregoing demonstrate that Plaintiffs have met their burden to compel Mr. Welch's deposition. As explained, Mr. Welch's testimony is reasonably calculated to lead to the discovery of admissible evidence on issues raised by Plaintiffs' First Claim for Relief. Plaintiffs are entitled to an Order compelling Interstate to allow the deposition of Rob Welch. WHEREFORE, Plaintiffs pray that the Court enter an Order compelling Interstate to allow Plaintiffs to depose Rob Welch, and for other and further relief as the Court deems just and proper. HOLLEY ALBERTSON & POLK, P.C.

BY:

s/ Eric E. Torgersen Eric E. Torgersen 1667 Cole Boulevard, Suite 100 Golden Colorado 80401 Telephone: (303) 233-7838 Fax: (303) 233-2860 E-mail: [email protected] Attorneys for Plaintiffs

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CERTIFICATE OF SERVICE I, Eric E. Torgersen, Attorney at Law, do hereby certify that on November 6, 2006, I electronically filed the foregoing PLAINTIFFS' REPLY IN SUPPORT OF MOTION TO COMPEL THE DEPOSITION OF ROB WELCH with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: Robert M. Baldwin, Esq. Peter J. Morgan, Esq. [email protected] [email protected]

s/ Eric E. Torgersen Eric E. Torgersen HOLLEY, ALBERTSON & POLK, P.C. 1667 Cole Boulevard, Suite 100 Golden Colorado 80401 Telephone: (303) 233-7838 Fax: (303) 233-2860 E-mail: [email protected] Attorneys for Plaintiffs

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