Ramaco Resources, LLC v. Chubb INA Holdings, Inc.

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA

CHARLESTON DIVISION

RAMACO RESOURCES, LLC,

Plaintiff,

v. Case No.: 2:19-cv-00703

FEDERAL INSURANCE COMPANY, and

ACE AMERICAN INSURANCE COMPANY,

Defendants.

MEMORANDUM OPINION AND ORDER

Pending is Plaintiff’s Motion to Compel the Resumed Deposition of William

Blake. (ECF No. 109). Defendants have filed a response in opposition to the Motion,

(ECF No. 124), and Plaintiff has replied. (ECF No. 127). The Court does not find that oral

argument on the Motion is necessary. For the reasons that follow, the Court GRANTS

the Motion to Compel.

I. Relevant Background

This case involves an insurance dispute over the November 5, 2018 collapse of a

raw coal silo on the Elk Creek Property owned and operated by Plaintiff, Ramaco

Resources, LLC (“Ramaco”). Ramaco held a property insurance policy with Defendant,

Federal Insurance Company (“Federal”),1 and reported the loss to Federal immediately.

At the time of the report, Ramaco’s insurance broker advised Ramaco of a potential

coverage issue, noting that the insurance policy excluded loss or damage related to

1 Federal is the parent company of most of the insurance subsidiaries of Chubb Group of Insurance

Companies. “Federal” and “Chubb” are used interchangeably for purposes of this opinion.

“settling, cracking, shrinking, bulging, or expansion of … concrete surfaces, buildings or

other structures.” After investigating the loss for approximately two months, Federal

denied Ramaco’s claim. Federal based its denial on a rust exclusion contained in the

insurance policy. Federal contended that Wiss Janney Elstner, Inc. (“WJE”), the

engineering firm Federal hired to determine the cause of the loss, had concluded that

corrosion of the hopper and supporting plate resulted in the silo’s collapse.

In August 2019, Ramaco filed suit against Federal in the Circuit Court of Logan

County, West Virginia, asserting various claims including bad faith, breach of contract,

and violations of the West Virginia Unfair Trade Practices Act (“UTPA”). (ECF No. 1-1

at 5). Federal removed the case to this Court in September 2019 on the basis of diversity

of citizenship. (ECF No. 1). A Rule 26(f) meeting was held in late October 2019, and

discovery began shortly thereafter.

On April 6, 2020, Daniel Zaluski, Vice-President and Corporate Secretary of

Ramaco, wrote a letter to Frank Gonsalves, a representative of Federal. Zaluski reviewed

highlights of discovery in the case between Ramaco and Federal, and posited that recent

evidence confirmed Ramaco’s position that corrosion was not the sole cause of the silo’s

collapse. (ECF No. 109-1). Pointing to deposition testimony by WJE’s engineers, Zaluski

argued that WJE’s investigation of the loss was biased and unreasonably flawed. Based

on this evidence, Zaluski asked Federal to withdraw its denial of Ramaco’s claim “and

make a prompt, fair, and equitable settlement offer.” (Id. at 6). Mr. Zaluski added that

“[c]ontinued refusal can be used as evidence of continued bad faith,” citing to Jackson

v. State Farm Mut. Auto, Ins. Co., 600 S.E.2d 346, 359 (W. Va. 2004). (Id.).

On April 16, 2020, William T. Blake, Chubb’s VP Claim Leader, North American

Property Claims, responded to Zaluski’s letter. (ECF No. 109-2). Blake captioned the

written response “FOR SETTLEMENT PURPOSES ONLY,” and indicated that he was

writing on behalf of Federal. Blake noted that Zaluski had made “a significant number

of specific factual assertions relating to a deposition of … WJE,” prompting Blake to

obtain a copy of the transcripts for review. Blake agreed to consider other evidence

referenced by Zaluski in his letter and promised to provide an assessment of the

information and a response to the settlement demand by May 6, 2020. (ECF No. 109-

2).

As promised, on May 6, 2020, Blake sent a more detailed response to Zaluski’s

letter. (ECF No. 109-3). Again, Blake captioned his correspondence “FOR

SETTLEMENT PURPOSES ONLY” and further designated it as a confidential

settlement communication. Blake stated in his response that he had reviewed the

discovery referenced by Zaluski and had spoken to WJE about the assertions made in

Zaluski’s letter. Blake assured Zaluski that “[a]t all times, Federal has been willing to

review any factual information that Ramaco has regarding this matter, and … remains

willing to review any information Ramaco wants to provide.” (Id.). However, Blake

disagreed with Zaluski’s contention that corrosion was not the cause of the silo’s collapse

and noted that Ramaco had never offered an alternative theory of causation. Blake

declined to make a settlement offer on behalf of Federal, but agreed to engage in private

mediation. He additionally asked that all further communications be directed to

Federal’s counsel. (Id.).

On June 25, 2020, Ramaco took Blake’s deposition. (ECF No. 109-4). In the

course of the deposition, Ramaco’s counsel asked Blake questions about the April and

May 2020 correspondence between him and Zaluski. (Id.). Counsel for Defendants

objected to the questioning, providing three grounds for the objection: (1) attorney-

client privilege; (2) relevancy, given that the letters were written after the denial of

coverage and the inception of litigation; and (3) the letters constituted post-litigation

settlement communications, which were inadmissible under Federal Rule of Evidence

408. Defense counsel instructed Blake not to answer most of the questions posed about

the letters. (Id.).

II. Motion to Compel and Response

Ramaco now moves the Court to compel Blake to return for a “resumed”

deposition in order to answer the questions posed by Ramaco regarding the April and

May 2020 correspondence. In support of the motion, Ramaco argues several points.

First, Ramaco asserts that defense counsel’s instructions to Blake based on the attorney-

client privilege were improper, because no privilege attached to the information sought.

Ramaco indicates that its counsel never asked about privileged communications; rather,

he inquired regarding Blake’s actions, which were matters of fact. (ECF No. 110).

Ramaco contends that, in any event, if attorney-client privilege attached to the

information contained in the correspondence, the privilege was waived by Blake sending

the letters to Ramaco. (ECF No. 127).

Second, Ramaco asserts that defense counsel’s relevancy objection is meritless,

because the steps taken by Federal to reevaluate Ramaco’s claim—even post-litigation—

are relevant. According to Ramaco, insurance companies have an ongoing obligation to

exercise good faith in assessing and reassessing an insured’s claim for coverage, and this

obligation extends beyond the commencement of litigation. Relying on Barefield v.

DPIC Companies, Inc., 600 S.E.2d 256, 266 (W. Va. 2004), Ramaco argues that the

UTPA intends for insurers to deal fairly with individuals asserting a right, or demanding

relief under an insurance policy, regardless of whether litigation is pending, (ECF Nos.

110, 127).

Finally, Ramaco claims that defense counsel’s reliance on a “settlement

communications” exemption from discovery is misplaced. (ECF No. 110). Ramaco

emphasizes that the Rules of Evidence do not govern discovery; instead, discovery is

guided by the Federal Rules of Civil Procedure, which allow the collection of evidence

even when it is not admissible. Furthermore, as settlement communications are not

always inadmissible, Ramaco has the right to conduct discovery on them. Ramaco

contends that it is entitled to investigate “what actions Mr. Blake took to reassess

Ramaco’s claim based on the information provided in Mr. Zaluski’s letter.” (Id. at 14).

Ramaco asks that the Court order the deposition to be reconvened, and that Ramaco be

awarded fees and costs associated with the motion to compel and the resumed

deposition.

In response, Defendants claim that Ramaco has misread Barefield and seeks

information that is not discoverable, because it is irrelevant to the claims and defenses

in the case. (ECF No. 124). Specifically, Defendants contend that the Barefield decision

applies only to the duties of an insurance company after a third-party has filed a lawsuit

against the insured, not the actions of an insurance company after its insured has filed

a lawsuit against it. As such, Barefield does not make information regarding post-

litigation settlement discussions relevant to the underlying claim of unfair trade

practices.

Defendants further argue that Ramaco’s questions were improper, because they

could not be answered without invading privileged attorney-client communications.

(Id.). Defendants indicate that even asking Blake what materials he reviewed required

him to tell Ramaco what documents had been selected for his review by counsel.

Defendants argue that defense counsel allowed Blake to answer questions to the extent

his answers did not reveal attorney work product and privileged communications, but

Blake was unable to do so, because his actions in responding to the letter written by

Zaluski were “formulated in consultation with counsel.” (Id. at 12).

III. Discussion

Each of Defendants’ three reasons for prohibiting discovery concerning the April

and May 2020 letters is addressed below.

A. Relevancy of Post-litigation Communications Between Insurer and

Insured

Ramaco claims that Federal has an ongoing obligation to act in good faith when

evaluating Ramaco’s claim for coverage under the insurance policy issued by Federal.

This obligation includes evaluating new evidence pertinent to the claim whenever the

evidence is supplied or obtained. In Ramaco’s view, an insurer’s breach of the duty to

act in good faith, as well as violations of the UTPA, are actionable regardless of when

they occur—before or after institution of a lawsuit against the insurer. In contrast,

Federal contends that there is no law upon which to assert a first-party claim of post-

litigation bad faith in a pending bad faith case brought by the insured against its

insurance company for denying coverage. Federal argues that Ramaco’s interpretation

of the Barefield decision is erroneous; therefore, its motion to compel, which is based

largely on Barefield, is meritless.

Federal Rule of Civil Procedure 26(b) sets forth the scope and limits of discovery.

Rule 26(b)(1) states:

(1) Scope in General. Unless otherwise limited by court order, the scope

of discovery is as follows: Parties may obtain discovery regarding any

nonprivileged matter that is relevant to any party's claim or defense and

proportional to the needs of the case, considering the importance of the

issues at stake in the action, the amount in controversy, the parties'

relative access to relevant information, the parties' resources, the

importance of the discovery in resolving the issues, and whether the

burden or expense of the proposed discovery outweighs its likely benefit.

Information within this scope of discovery need not be admissible in

evidence to be discoverable.

Consequently, if Ramaco asserts a potentially valid claim for breach of an ongoing duty,2

then Blake’s actions in response to Zaluski’s letter are relevant, and discovery is

appropriate, unless the information sought is otherwise privileged, or its collection is

disproportional to the needs of the case. Ramaco relies on the Barefield decision as

establishing the ongoing duty of good faith by an insurance company. Defendants argue

that Ramaco is not correct, because the facts underlying the Barefield decision vary from

those in this case, making the decision distinguishable and inapposite.

Defendants are correct that Barefield involved a different procedural and factual

setting. In Barefield, the Supreme Court of Appeals of West Virginia (“WVSC”)

considered two certified questions from the United States District Court for the

Northern District of West Virginia in a case that examined the duties of an insurer after

its insured had been sued by a third party. Barefield, 600 S.E.2d at 262. Of relevance

here, the WVSC answered the question of whether “an insurance company under any

circumstances [could] be held liable for its violations of the [UTPA] that occur after the

filing of a civil action against an insured.” Id. In contrast, in this action, the question is

whether an insurance company can be held liable for violations of the UTPC, which occur

after the institution of a lawsuit by the insured alleging, in part, violations of the UTPC.

Defendants insist that Barefield cannot be read that broadly.

2 Even though Ramaco has not expressly asserted a claim for the alleged breach of Federal’s ongoing duty,

such a claim could be added under Fed. R. Civ. P. 15(d). Therefore, as the discovery sought by Ramaco

could potentially provide the factual basis for such a claim, the court will consider the relevance of the

discovery in the context of a claim for relief.

Although the WVSC did not consider in Barefield the precise situation that exists

in this case, the principles and policies expressed in Barefield can be applied here and

support, at least, a colorable claim that an insurance company can be held liable for

violations of the UTPA, which occur after the initiation of litigation by its insured. In

Barefield, the WVSC held that “[t]he UTPA is intended to require insurance companies

to deal fairly with individuals seeking to recover under an insurance policy, and to

promptly resolve valid claims that are not reasonably in dispute—regardless of whether

or not a lawsuit has been filed.” Id. at 265 (emphasis added). The WVSC added that the

word “claim” in the UTPA is not limited to pre-litigation claims, and found “nothing to

show that the public policy established in W. Va. Code 33-11-1 is obviated once litigation

ensues … therefore … the language of the UTPA does not restrict the scope of conduct

that is proscribed by the Act to that which occurred prior to the filing of a lawsuit.” Id.

at 266. The WVSC explained further:

Were we to adopt the defendant’s argument, and hold that the UTPA did

not apply to insurance company conduct occurring after litigation ensues,

would be to suggest that the Legislature intended to reward obstinacy by

insurance companies in the compromise and settlement of claims. Such an

interpretation of the UTPA would provide a disturbing incentive for

insurance companies to push meritorious claims into litigation, thereby

consuming limited judicial resources, further crowding congested dockets,

and burying claimants in a “prolonged blizzard of mindless motions,

countless continuances, and dreadful delay.”

Id. at 267 (citation omitted). Finally, the WVSC concluded:

In summary, we hold that the conduct of an insurance company or other

person in the business of insurance during the pendency of a lawsuit may

support a cause of action under the West Virginia Unfair Trade Practices

Act, W.Va.Code, 33–11–1 to –10. In so holding, we reject the district

court's conclusion in McDaniel, supra, that the word “claim” in the UTPA

precludes the application of the UTPA to “litigation” conduct by an

insurance company or other person in the business of insurance.

Barefield, 600 S.E.2d at, 271. Given these pronouncements by the WVSC, which make

no distinction between first-party or third-party litigation, Ramaco’s claim of ongoing

violations by Federal is sufficiently viable to allow discovery. Indeed, at least one other

court in this circuit has reached a similar conclusion by allowing a plaintiff to

supplement its pleading under Rule 15(d) and add a claim alleging ongoing, post-

litigation bad faith by the defendant insurance company. See Episcopal Church in South

Carolina v. Church Insur. Co. of Vermont, Case No.: 2:13-cv-02475-PMD, 2014 WL

12605568, at *2 (D.S.C. June 3, 2014). Accordingly, the undersigned finds that the

requested discovery of Blake is relevant. As the questions asked by Ramaco at Blake’s

deposition were limited to the circumstances surrounding his 2020 correspondence

with Ramaco, which are key to a claim of ongoing violations by Federal, the undersigned

further finds that the discovery is proportional to the needs of the case.

B. The Propriety of Discovery Regarding Settlement Discussions

Defendants argue that discovery regarding settlement communications is not

permitted, because Federal Rule of Evidence 408 prohibits the introduction of such

evidence at trial. Defendants’ argument is without merit inasmuch as Rule 26 explicitly

states that “[i]nformation within the scope of discovery need not be admissible to be

discoverable.” Fed. R. Civ. P. 26(b)(1). Moreover, courts in this circuit have “generally

declined to recognize a federal settlement privilege.” Townsend v. Nestle Healthcare

Nutrition, Corp., No. 3:15-CV-06824, 2016 WL 1629363, at *5 (S.D.W. Va. Apr. 22,

2016) (listing cases). Accordingly, the mere fact that the information sought by Ramaco

involves settlement communications is not enough to prohibit its discovery.

C. The Discovery Seeks Information that is Privileged as

Attorney/Client Communications or Attorney Work Product

Federal Rule of Evidence 501 supplies the general rule for matters of privilege in

a federal court proceeding, providing in relevant part, “in civil actions and proceedings,

with respect to an element of a claim or defense as to which State law supplies the rule

of decision, the privilege of a witness, person, government, State, or political subdivision

thereof shall be determined in accordance with State law.” Fed. R. Evid. 501. The

substantive claims and defenses in this civil action are matters of state law; accordingly,

the question of whether information related to Blake’s letters is privileged as a

confidential attorney-client communication is governed by West Virginia law. The

WVSC has set forth a three-factor test for asserting the attorney-client privilege as

follows:

In order to assert an attorney-client privilege, three main elements must

be present: (1) both parties must contemplate that the attorney-client

relationship does or will exist; (2) the advice must be sought by the client

from the attorney in his capacity as a legal advisor; (3) the communication

between the attorney and client must be intended to be confidential.

State ex re. Montpelier U.S. Insurance Company v. Bloom, 757 S.E.2d 788, 794 (W. Va.

2014) (citation omitted). The attorney/client privilege protects from disclosure:

Communications made in confidence either by an attorney or a client to

one another are protected by the privilege. In other words, the privilege

protects the substance of communications. Communications are protected

whether they are made verbally or in writing, including electronic mail

messages and facsimile transmissions.

State ex rel. Med. Assurance of W. Virginia, Inc. v. Recht, 583 S.E.2d 80, 88 (2003).

However, as a general matter, it has been recognized that “[s]tatements made by a client

to an attorney are not within the attorney-client privilege if the information is given with

the intent that it be used and disseminated to third parties.” Montpelier U.S. Insurance

Company, 757 S.E.2d at 794 (quoting State ex rel. Ash v. Swope, 751 S.E.2d 751, 757

(2013)). Moreover, while communications between an attorney and his client are

privileged, “neither the fact that the attorney communicated with his client, nor that

subsequently the client acted under advice of counsel, nor the date that the attorney

communicated with such client, is excluded by reason of privilege.” State v.

Rodoussakis, 511 S.E.2d 469, 480 (W. Va. 1998).“The burden of establishing the

attorney-client privilege or the work product exception, in all their elements, always

rests upon the person asserting it.” Med. Assurance of W. Virginia, Inc., 583 S.E.2d at

88. “Any disclosure inconsistent with maintaining the confidential nature of the

attorney-client relationship waives the attorney-client privilege. Any voluntary

disclosure by the client to a third party waives the privilege not only as to the specific

communication disclosed, but often as to all other communications relating to the same

subject matter.” State ex rel. McCormick v. Zakaib, 189 W. Va. 258, 261, 430 S.E.2d 316,

319 (1993) (citation omitted).

While issues of the attorney-client privilege are governed by state law, the extent

of any waiver of the privilege is a matter of federal law. See Fed. R. Evid. 502(f). Federal

Rule of Evidence 502(a) provides that when a disclosure is made and an attorney-client

privilege or work product protection is waived, the waiver extends to undisclosed

information or communications only if (1) the waiver is intentional; (2) the disclosed

and undisclosed communications or information concern the same subject matter; and

(3) they ought in fairness to be considered together. One exception to this rule is when

a disclosure is made inadvertently. In that case, the disclosure does not operate as a

waiver of the privilege attached to the communication and, understandably, never

results in a subject matter waiver, so long as the factual circumstances surrounding the

disclosure correspond with the conditions outlined in Federal Rule of Evidence 502(b).

Although state law governs the scope of the attorney-client privilege in cases

pending in federal court, “[i]n matters involving work product protection … federal

courts apply federal law, even in diversity cases.” Mason C. Day Excavating, Inc. v.

Lumbermens Mut. Cas. Co., 143 F.R.D. 601, 605 (M.D.N.C. 1992); see, also, Cont'l Cas.

Co. v. Under Armour, Inc., 537 F. Supp. 2d 761, 769–74 (D. Md. 2008) (collecting cases).

Federal Rule of Civil Procedure 26(b)(3) codifies the doctrine of work product

protection, stating as follows:

(A) Documents and Tangible Things. Ordinarily, a party may not discover

documents and tangible things that are prepared in anticipation of

litigation or for trial by or for another party or its representative (including

the other party's attorney, consultant, surety, indemnitor, insurer, or

agent). But, subject to Rule 26(b)(4), those materials may be discovered if:

(i) they are otherwise discoverable under Rule 26(b)(1); and

(ii) the party shows that it has substantial need for the

materials to prepare its case and cannot, without undue

hardship, obtain their substantial equivalent by other

means.

(B) Protection Against Disclosure. If the court orders discovery of those

materials, it must protect against disclosure of the mental impressions,

conclusions, opinions, or legal theories of a party's attorney or other

representative concerning the litigation.

As plainly stated, “[t]o qualify as work-product shielded from discovery, the evidence

must be: (1) documents or tangible things otherwise discoverable; (2) prepared in

anticipation of litigation or for trial; and (3) by or for a party to the lawsuit or by or for

the party’s representative.” United Prop. & Cas. Ins. v. Couture, No. 2:19-CV-01856-

DCN, 2020 WL 2319086, at *4 (D.S.C. May 11, 2020). As can be further deduced from

the rule's language, work product is separated into two categories: (1) opinion work

product, or in other words, “mental impressions, conclusions, opinions, or legal

theories” of an attorney or other representative, which is “absolutely” immune from

discovery; and (2) fact work product consisting of “documents prepared by an attorney

that do not contain the attorney's mental impressions,” which may be discovered “upon

a showing of both a substantial need and an inability to secure the substantial equivalent

of the materials by alternate means without undue hardship.” In re Grand Jury

Proceedings #5 Empanelled January 28, 2004, 401 F.3d 247, 250 (4th Cir. 2005); see

also Nat'l Union Fire Ins. Co. v. Murray Sheet Metal Co., 967 F.2d 980, 983-84 (4th

Cir. 1992). The work product doctrine protects not only those materials prepared by a

party and its agents, including its attorney, but also those materials prepared by “agents

for the attorney.” United States v. Nobles, 422 U.S. 225, 238-39 (1975). “The same

‘principle applies to intangible work product: an attorney's analysis made in anticipation

of litigation which has not been memorialized. Such work-product is immune from

discovery just as if it had been reduced to writing.’” Wellin v. Wellin, 211 F. Supp. 3d

793, 808 (D.S.C. 2016), order clarified, No. 2:13-CV-1831-DCN, 2017 WL 3620061

(D.S.C. Aug. 23, 2017) (quoting U.S. Info. Sys., Inc. v. Int'l Bhd. of Elec. Workers Local

Union No. 3, 2002 WL 31296430, at *5 (S.D.N.Y. Oct. 11, 2002).

In this case, Blake wrote two letters responding to Ramaco’s correspondence.

Counsel for Defendants would not allow Blake to provide answers to even the most basic

questions about the letters. As Ramaco points out, its counsel did not ask about attorney

communications, seek trial strategy, or request documents and tangible things. Instead,

he asked questions about the actions of Blake, a fact witness in the case. While there may

be questions that could be posed to Blake, which would inappropriately seek attorney-

client communications, defense counsel interfered with the deposition before Ramaco’s

counsel got to that point. Ramaco is entitled to discover factual information underlying

claims and defense, which Blake clearly has in his role as a corporate Vice President. See

Upjohn Co. v. United States, 449 U.S. 383, 395 (1981) (“The privilege only protects

disclosure of communications; it does not protect disclosure of the underlying facts by

those who communicated with the attorney.”). Defendants’ claim that even allowing

Blake to answer questions about what materials he reviewed before writing the letters

would invade attorney-client communications is unpersuasive. While it is true that, in

some circumstances, documents collected, culled and provided by an attorney to a client

might constitute work product, in this case, Blake simply reviewed materials highlighted

by Ramaco in its letter to Federal. Accordingly, lodging a blanket objection to the entire

line of questioning and effectively instructing the witness not to answer any questions

were inappropriate.

As to whether Blake waived Federal’s attorney-client privilege by writing the

letter, the answer is not entirely clear, because no background information about the

letters was provided. Apparently, the information supplied by Blake in the letters was

not produced inadvertently. Therefore, if a waiver of the privilege was made, the extent

of the waiver would be governed by Fed. R. Evid. 502(a).

D. Fees and Costs

As for Plaintiff’s motion for fees and costs, it is hereby ORDERED that Plaintiff

shall have through and including September 4, 2020 in which to file an affidavit of

reasonable fees and expenses incurred in making the motion to compel and rescheduling

the deposition, as well as any supportive documentation or argument to justify the

amount of fees and expenses requested. See Robinson v. Equifax Information Services,

LLC, 560 F.3d 235, 243-44 (4th Cir. 2009). Failure to timely file the affidavit and

supporting documentation shall result in a denial of fees and costs.

Defendants shall have through and including September 23, 2020 in which to

respond to Plaintiff’s submission. The response shall include any justification that would

obviate against an award of expenses. Failure to file a response shall be deemed an

admission of or agreement with the representations and arguments of Plaintiff. Plaintiff

shall have through and including September 30, 2020 in which to file a reply

memorandum. At the conclusion of the period allowed for briefing, the Court shall either

schedule a hearing, or simply rule on the request for reasonable fees and costs.

The Clerk is instructed to provide a copy of this Memorandum Opinion and Order

to counsel of record.

ENTERED: August 6, 2020

Uni ates Magistrate Judge

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