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Stay@Home Design, LLC v. Foremost Insurance Co.

United States District Court, W.D. Washington, Seattle

March 24, 2017

FOREMOST INSURANCE COMPANY GRAND RAPIDS, MICHIGAN, a foreign insurance company doing business in the State of Washington, Defendant.


          Mary Alice Theiler United States Magistrate Judge


         This case involves insurance coverage and bad faith claims brought by plaintiffs Stay@Home Design LLC, Brian and Janet Robinson, and Ned and Maura Cannon against defendant Foremost Insurance Company Grand Rapids, Michigan (“Foremost”). After conducting an investigation with the assistance of attorneys at Lether & Associates, PLLC (“Lether”), Foremost denied coverage for claims related to vandalism that occurred at a house owned by plaintiffs.

         The parties now seek cross-relief under Local Civil Rule 37(a)(2). (Dkt. 16.) Foremost requests the entry of a protective order related to documents withheld on the basis of attorney-client privilege and the work product doctrine. Plaintiffs contend the documents are not privileged or protected, and request that the Court compel their production. Both parties alternatively request an in camera review of the documents at issue. Having now considered the joint submission for relief, along with the remainder of the record, the Court finds some documents not subject to production and reserves a ruling as to the remaining documents pending an in camera review.


         Plaintiffs operate a business “flipping” houses for profit. (See Dkt. 17 at 6-12 (Ex. 1).) On September 24, 2015, after viewing a photograph from a prior listing and the location on a map, plaintiffs purchased the house at issue in this lawsuit at a foreclosure auction. (Id. at 10-14.)

         Plaintiffs initially purchased an insurance policy with Allstate. Allstate inspected the exterior of the property on September 30, 2015 and identified items to repair by November 2, 2015. (Dkt. 18-1 at 45-48 (Ex. E).) The repair items included a broken front door lock, the absence of a rear deck railing, moss on the roof, holes in the siding, a boarded-up front window, debris, trash, and discarded appliances in the back yard, and trees over-hanging the roof. (Dkt. 17 at 23 (Ex. 2).) Plaintiffs thereafter took out a policy on the property with Foremost, through an application dated October 30, 2015 and with an effective date of November 2, 2015. (Id. at 24-29 (Ex. 3).)

         The house was occupied by tenants at the time of purchase. On December 1, 2015, following removal of the tenants through eviction proceedings, plaintiffs entered the house for the first time. (Dkt. 18-1 at 29-34 (Ex. E).) Plaintiffs observed that the interior of the house had been gutted, including the removal of the interior walls, framing, and fixtures, the back deck torn from the house, and the backyard covered in debris from the gutted house. (Id. at 34-40).

         Plaintiffs filed a claim with Foremost in early December 2015 for vandalism damage occurring sometime after November 2015 and totaling approximately $185, 000. (Dkt. 17 at 30-32 (Ex. 4).) Foremost retained Lether and the claim investigation commenced, including Lether's examinations under oath (“EUO”) of plaintiffs (see, e.g., Dkt. 18-1 at 28-59 (Ex. E)), and Foremost's conversation with Marketa Garrett, a former tenant of the house (Dkt. 17 at 33 (Ex. 5)). Plaintiffs' original counsel first raised the possibility of an Insurance Fair Conduct Act (IFCA) claim in a February 2016 email to Lether, and plaintiffs submitted their IFCA twenty-day written notice later that month. (Id. at 34-38 (Exs. 6-7).)

         Foremost denied plaintiffs' claim in April 2016, concluding they failed to establish the loss occurred during the policy period beginning November 2, 2015. (Dkt. 18-3 at 2-4 (Ex. G).) Foremost noted plaintiffs' testimony they did not enter the property until December 1, 2015 and that Garrett indicated the damage to the property began approximately a year prior to the Foremost policy inception date and ended prior to that date. (Id. at 3.) (See also Dkt. 17 at 33 (Ex. 5) (notes from Garrett conversation reflect her report the former owner began to take down interior walls nine months to a year prior to the eviction, either to convert the house for use as a marijuana “grow house operation and or remodel[, ]” that “the last wall probably came down in the middle of October [2015]”, and that the damage occurred before the month or two preceding the eviction).) Foremost found plaintiffs misrepresented the extent of the loss by including pre-existing damage, misrepresented communications with Allstate and attempted to conceal material and germane information, and misrepresented information on the policy application by stating they had not had a policy cancelled, denied, or not renewed within the past five years. (Dkt. 18-3 at 3-4 (Ex. G).)

         Counsel for plaintiffs responded to the denial with a description of evidence supporting their contention the damage occurred during the policy period. (Id. at 17-18.) For example, between September and November 2015, looking through the front door and windows and from photographs of the backyard, plaintiffs and others observed that the house was intact and the backyard contained limited debris. (Id.; Dkt. 18-1 at 28 through Dkt. 18-4 at 29 (Exs. E-K).) Plaintiffs also challenged the alleged misrepresentations, noting, inter alia, their prompt corrections to mistaken testimony and the accuracy of their application answer given that Allstate had not cancelled their policy prior to the purchase of the Foremost policy. (Dkt. 18-1 at 18-21 (Ex. G).) Plaintiffs' current counsel submitted another IFCA claim in August 2016 (Dkt. 17 at 39-42 (Ex. 8)), and plaintiffs initiated this lawsuit the following month (Dkt. 1-1).

         Foremost states it produced some 4, 500 pages of discovery, including its claim file and related documents and the claim file from Lether, with the exception of documents withheld on the basis of attorney-client privilege and/or as work product. (Dkt. 18-1 at 17-25 (Exs. B & C).) Plaintiffs herein seek production of 113 out of the 123 documents withheld from discovery (see id. and Dkt. 16 at 3), while Foremost seeks a protective order relating to those same documents.


         The Court may issue a protective order limiting discovery for good cause shown. Fed.R.Civ.P. 26(c)(1). The party seeking the protective order must show that “specific prejudice or harm will result if no protective order is granted.” Foltz v. State Farm Mut. Auto. Ins. Co., 331 F.3d 1122, 1130 (9th Cir. 2003) (cited sources omitted). The Court has broad discretion to determine whether a protective order is appropriate and the degree of protection required. Seattle Times Co. ...

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