*1 By Order dated January 13, 2021 (ECF No. 52) (“Appointment Order”), the Court directed the Special Master to prepare and submit this report and recommendations on three groups of discovery disputes: (1) matters raised in a motion to compel filed by plaintiff Brink's on November 13, 2020 (ECF No. 30) (“Dispute 1”); (2) contested provisions of a Stipulated Protective Order and an ESI Protocol, see The Parties' Joint Statement on Discovery Disputes, December 15, 2020 (ECF No. 41) (“Dispute 2”); and (3) matters relating Lloyd's service of ninety-one (91) non-party subpoenas, see The Parties' Joint Statement on Discovery Disputes, January 6, 2021 (ECF No. 45) (“Dispute 3”). See also Appointment Order at 2, ¶ 1 (duties and authority of Special Master); and Memorandum Order, January 12, 2021 (Resolving Several Discovery Disputes) (ECF No. 50) at 4-6.

After off-the-record discussions with the Special Master, counsel for all parties advised that they had given further consideration to the disputed language in the competing drafts of the Stipulated Protective Order and the ESI Protocol, and were in agreement on mutually acceptable language. At the request of the Special Master, counsel for Brinks' filed the parties' joint motion for entry of the protective order and submitted the ESI protocol in the agreed form. See Stipulated Protective Order, entered February 16, 2021 (ECF No. 58); Agreed Protocol Regarding Discovery of Electronically Stored Information, filed February 2, 2021 (ECF No. 54). Consequently, Dispute 2 was resolved by agreement of the parties and requires no further attention.

On February 3, 2021, the Special Master conducted an on the record hearing during which counsel presented argument on Disputes 1 and 3. Counsel were advised that the objectives of the hearing were twofold: first, to educate the Special Master about their respective positions, and second, to make a robust record for review by the Court in the event they were to object to any of the Special Master's recommendations. A transcript of the hearing was provided to all parties and is referenced below where relevant.

When the hearing concluded, all issues presented by Dispute 1, the Brink's motion to compel, were ripe for resolution, except two: (1) Brink's entitlement to defendants' reserve information relating to the claim advanced in this action, (Interrogatory No. 4, Request for Production of Documents No. 4) (see The Brink's Company's First Interrogatories, Requests for Production and Requests for Admission to Chubb European Group Limited ( ECF No. 31-1) and The Brink's Company's First Interrogatories, Requests for Production and Requests for Admission to Certain Underwriters at Lloyd's, London Subscribing to Policy No. B0901/LI1183111( ECF No. 31-2)) (hereafter “Brink's First Discovery Requests”), and (2) Brink's entitlement to Chubb's and Lloyd's customer files relating to similar coverage claims from January 1, 2015, to date (Interrogatory No. 5, Request for Production of Documents No. 5). Id. The Special Master determined that the parties had not fully presented the supporting legal authorities bearing directly on these two issues. Thus, the parties were directed to make written submissions on or before close of business on Tuesday, February 9, 2021, offering all legal authority supporting their respective arguments. The parties did so, and their submissions are filed with this report. See The Brink's Company's Supplemental Authority in Support of Interrogatory Nos. 4 and 5 and Requests for Production Nos. 4 and 5, submitted February 9, 2021 (“Brink's Supp. Authorities”) (Exhibit 1); Defendants' Joint Supplemental Brief Regarding Plaintiff the Brink's Company's Discovery Requests for Reserve Information and Other Claims Made Under Other Policies (“Insurers' Supp. Authorities”), submitted February 9, 2021 (Exhibit 2).

*2 During the February 3, 2021, hearing, the parties also reported on the status of compliance with two distinct groups of subpoenas: (1) three subpoenas issued in mid-December, 2020, to professionals and consultants engaged by Brink's to evaluate and calculate the losses at issue in this action -- KPMG, LLP, DeLoitte & Touche LLP, and Marsh USA, Inc.; and (2) subpoenas issued by Lloyd's in early January 2021 to ninety-one (91) non-party customers of Brink's who were among approximately 7,000 customers whose accounts receivable were allegedly manipulated as part of an illegal scheme to steal from Brink's. With respect to the former, no issues were assigned to the Special Master. Counsel for the defendants, Brink's and the subpoenaed parties reportedly have conferred, and with the entry of the Stipulated Protective Order a significant source of the previously-reported friction concerning those three subpoenas appears to be removed. Compliance is under way, although not within the deadline previously ordered by the Court (see ECF No. 50 at 4-5), and the three December 2020 subpoenas appear to present no unresolved disputes at this time. See February 3, 2021, Hearing Tr. at 92:20 – 98:3 (report by counsel on the status of the three subpoenas).

Finally, for reasons discussed more fully below, it appears that the Court's rulings and the entry of the Stipulated Protective Order have rendered moot Dispute 3, the motion to quash the ninety-one subpoenas issued on behalf of Lloyd's to Brink's customers.

On or about May 15, 2020, Brink's served its First Discovery Requests on Chubb and Lloyd's. (See ECF Nos. 31-1 and 31-2.) After obtaining an extension of time to respond to both the Complaint and the First Discovery Requests, both defendants served objections and responses. See Defendant Chubb Underwriting Agencies Limited for and on Behalf of Syndicate 2488's Objections and Responses to the Brink's Company's First Interrogatories [and separate objections and responses to requests for production and requests for admissions], served July 13, 2020 (ECF No. 31-4) and Certain Underwriters' Answers and Objections to the Brink's Company's First Set of Interrogatories [and separate objections and responses to requests for production and requests for admissions], served July 9, 2020 (ECF No. 31-5).

Brink's considered many of the defendants' objections to be improper, and their responses to be incomplete. Brink's concerns extended not only to the defendants' written objections and responses but to certain privilege logs provided by Chubb when it produced responsive documents. Over the late summer and into the fall of 2020, the parties' attorneys spilled much ink over the unreasonableness and perfidy of their opposing counsel concerning these matters; a considerable amount of the email traffic and correspondence documenting these communications is on the record in this action.[1]

Brink's filed its Motion to Compel Discovery Responses and Production of Documents on November 13, 2020 (ECF No. 30) (“Brink's Motion to Compel”). Defendants jointly filed an opposing brief on November 27, 2020 (ECF No. 35), and Brink's filed its reply brief on December 3, 2020 (ECF No. 38). The Court ruled on certain matters raised by Brink's Motion to Compel at a hearing conducted on January 7, 2021, and embodied its rulings in its Memorandum Order (Resolving Several Discovery Disputes) (ECF No. 50) dated January 12, 2021.

The Court's January 12, 2021, Memorandum Order OVERRULED all defense objections based on improper service of discovery. By necessary implication, that Order also overruled the defendants' objections to discovery based on the effect of removal from state court and the consequent obligations of a party to respond in light of the different discovery timeline established by the Federal Rules of Civil Procedure. Consequently, the Special Master does not address General Objections 1 and 2 in the defendants' respective responses, as the Court has rejected them.

*3 The Court's January 21, 2021, Memorandum Order also DENIED as moot the Brink's Motion to Compel to the extent Brink's argued that the production of privilege logs by defendants was untimely. The Court reserved for future resolution any issues about the adequacy of privilege logs. No motion concerning the adequacy of privilege logs was before the Court then, and none has been filed at the date of this report. At the February 3, 2021, hearing, defense counsel advised the Special Master that their privilege logs have been supplemented and improved, and no party identified a concrete privilege log dispute requiring resolution. February 3, 2021, Hearing Tr. at 73:10-25.

This leaves for resolution (1) the defendants' remaining objections to Brink's First Discovery Requests and (2) the adequacy of the defendants' responses to Brink's First Discovery Requests provided to date. For purposes of tracking the recommendations below, it is helpful to understand the structure of the discovery served on the defendants. Brink's served identical requests on the two defendants – six interrogatories, six requests for production of documents, and nine requests for admissions. Thus, for example, Interrogatory No. 4 propounded to Chubb is identical to Interrogatory No. 4 propounded to Lloyd's. (Compare ECF No. 31-1 and 31-2). This simplifies the presentation of the analysis, as the objections of the two defendants can be addressed together as responding to precisely the same request.

Brink's challenges all of both defendants' objections to its First Discovery Requests. The objections are resolved by the plain language of the Federal Rules of Civil Procedure. As previously noted, general objections are disfavored in this Court, in part because they create the illusion of disputes where none exist. See Williams v. Microbilt Corp., 2021 U.S. Dist. LEXIS 8697 at 9-10 (E.D. Va. Jan. 15, 2021).

Chubb general objection Number 3 reserves Chubb's “rights to supplement, amend, and/or modify its responses.” The objection is not necessary, as the duty of supplementation by all parties is expressly governed by Rule 26(e). The Special Master recommends that this objection be OVERRULED as it is of no legal effect. The same recommendation, for the same reasons, is made as to Lloyd's general objection Number 16.

Chubb general objection Number 4 is a reservation by Chubb of its right to make evidentiary objections to discovered materials should they be offered on any motion or at trial. Admissibility is not the outer boundary of discoverability under the express language of Rule 26(b)(1). More to the point, a party's right to object to the evidentiary use of discovery material is always reserved, subject to the rules of civil procedure and evidence that expressly govern admissibility. The Special Master recommends that this objection be OVERRULED as it is of no independent legal effect. The same recommendation, for the same reasons, is made with regard to Lloyd's general objection Number 14.

Chubb general objection Number 5 is an incorporation by reference of each general objection into each specific response. As mentioned above, this is a disfavored practice, and the overruling of the other general objections renders it moot in any event. The Special Master recommends that the objection be OVERRULED. The same recommendation, for the same reasons, is made with regard to Lloyd's general objection Number 1.

Lloyd's made an additional thirteen general objections, Objection Numbers 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, and 15. Defense counsel expressed some confusion as to what the characterization of objections as “boilerplate” means. These objections answer that question. They reference, parrot, or paraphrase various provisions of the Federal Rules of Civil Procedure that apply to all civil discovery in the federal courts. Those provisions cannot be redefined, expanded, or diminished by the draftsmanship of counsel. None of the objections is tethered to any specific problem created by Brink's First Discovery Requests. This is unnecessary boilerplate, and the Special Master recommends that all thirteen be OVERRULED.

*4 Rule 26(b)(1) describes the scope and limits of discovery: “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.”

The Advisory Committee's comments regarding Rule 26 are noteworthy. Its discussion of changes to language in what is now Rule 26(b)(1) reveal a decades-long effort to corral essentially unbounded discovery undertaken pursuant to case law that spoke of discovery rules being “broadly construed.” This expansive tendency was magnified when businesses moved to the storage of massive quantities of ESI, turning discovery into a costly process frequently untethered to what was at stake in the underlying case. Legal and academic groups studied these tendencies, and proposed rule changes to reconnect the scope and expense of discovery to the subject matter of the case and the amount in controversy.[2]

Current Rule 26(b)(1) looks to both (a) the relevance of the matter sought to the claims and defenses of the parties, and (b) the proportionality of the requested matter to the needs of the case. Although admissibility of the material sought does not determine the outer boundaries of discovery, the Court, in evaluating proportionality, may consider the amount in controversy, the importance of the material sought to the resolution of the issues presented, the parties' resources, and the parties' respective abilities to otherwise access the materials.

In addition to the inherent authority of the Court, Rule 26(b)(2)(C) states that the Court may act on its own initiative to “limit the frequency or extent of discovery otherwise allowed” when circumstances warrant. This includes the express authority recognized in Rule 26(b)(2)(C)(iii) to limit discovery when it is “outside the scope of rule 26(b)(1).” The Court is concerned with fairness to the litigants, and it can step in when trial counsel, regardless of their motives, are unable to either contain the scope of their requests or cooperate to avoid imposing unnecessary expense on an adversary's client. When ruling on a motion to compel, the Court may enter any protective order authorized under Rule 26(c). Fed. R. Civ. P. 37(a)(5)(B) and (C).

Applying Rule 26(b)(1), the starting point is an evaluation of the claims and defenses asserted in the parties' pleadings. Brink's alleges that Chubb issued a policy of insurance protecting it from losses that occurred between April 1, 2018 and April 1, 2019. Complaint (“Compl.”) ¶s 11-12. Chubb insured the risk that a Brink's employee might commit an internal crime causing loss to Brink's, and agreed to pay up to $10 million for a single covered loss. See Compl. Ex. A (Chubb Elite Fraudprotector Policy) at 2-3 (ECF No. 1-1, pages 14 and 15 of 63). The Lloyd's excess policy attaches upon the exhaustion of Chubb's $10 million obligation, providing an excess coverage layer of $40 million for a single loss. Compl. ¶s 11, 12 and Exhibit B (JLT Specialty Limited contract documentation identifying participating syndicates and terms and conditions of coverage) at 1 of 14 (ECF No. 1-1 at 39 of 63) (stating risk details).

*5 Brink's two-count Complaint asserts that the insurers breached their obligation to insure covered losses. Count I alleges a breach of contract by Chubb; Count II alleges a breach of contract by Lloyd's. Brink's alleges that its management discovered in August 2018 that a longtime employee with billing and collections responsibility had been manipulating Brink's computer systems to divert money to himself. Compl. (ECF No. 1-1) ¶ 20 and ¶s 15-19 (describing basic scheme). His manipulation of those systems resulted not only in the direct diversion of funds to himself, but the corruption of records documenting customer accounts receivable. Brink's engaged forensic accountants at KPMG to untangle the corrupted accounts. Compl. ¶ 23. Brink's gave notice of the theft loss to Chubb in September 2018, and in October 2018 advised Chubb that its investigation was ongoing and might identify other losses. Id. at ¶ 22. Brink's alleges that Chubb's agent confirmed that additional losses would be part of a single claim and would attach back to the originally reported loss. Id. KPMG's investigation revealed not only the initially-reported direct diversion of funds to the employee, but the manipulation of many accounts receivable that allegedly rendered them unrecoverable. Id. at ¶ 24. At a time not stated in the Complaint, Brink's gave notice to Lloyd's agent, who was also Chubb's agent, that the losses uncovered by KPMG could approach $25 million. Id. at ¶ 26.

Chubb paid $1,120,078.27, the entire amount of the sums transferred to the employee's personal credit cards. Id. at ¶ 27. Chubb declined to pay $21,765,000.00 for lost or uncollectible accounts receivable caused by the corruption of computer data, and declined to pay $4,500,000 for the costs of time and labor to reproduce confidential accounts, records and electronic data. Id. at ¶s 25, 28. Brink's alleges that those unpaid losses are covered by the Chubb and Lloyd's policies, and that the failure to pay for them constitutes a breach of their contracts of insurance. Id. at ¶s 31-33 (Chubb); ¶s 37-39 (Lloyd's).

Chubb denies the alleged breach of contract. Defendant Chubb Underwriting Agencies Limited for and on Behalf of Syndicate 2488's Answer and Affirmative Defenses (“Chubb Answer”) ¶ 33. Chubb raises fifty-five (55) affirmative defenses.

Despite Chubb's denial of liability, its answers to certain specific averments in the Complaint are relevant to the assessment of the claims and defenses in the case, and thus to the scope of discovery. One issue is notice of the claim. Chubb admits that the Policy Period for the Policy is April 1, 2018 to April 1, 2019. Chubb Answer ¶ 11. In addition:

Id. at ¶ 13. The Policy Period is noted above. Item 6 on the declarations page of the Policy describes a 60-day Discovery Period. Chubb Policy at 2 (ECF No. 1-1 at 14 of 63). The Policy requires that notice of a loss must be provided as soon as practicable, but in any event within the Policy Period or the Discovery Period. Id. at 5 (“How to advise us of a loss”) (ECF No. 1-1 at 17 of 63). Finally, Chubb admits that Brink's agent, JLT Specialty Limited “provided notice of a loss in September 2018 and, further, provided notice that further losses could be identified as a result of Plaintiff's investigation into the activities of the Employee.” Chubb Answer ¶ 22.

These admitted facts coexist with Chubb's denial of Brink's allegation that Brink's provided timely notice of its claim. Chubb Answer ¶ 32. They are further accompanied by affirmative defenses alleging that the claims are barred “to the extent the amounts sought” were not discovered during the Policy Period or Discovery Period, or that notice of the losses was not provided during the Policy Period. See Chubb Answer, Fourth, Fifth, Sixth, Thirty-Fifth, and Fifty-Third Affirmative Defenses (ECF No. 17 at 8, 13, and 15 of 17).[3] By all appearances, regardless of the merits of the parties' positions, the resolution of any notice or discovery issues in this action will almost certainly be resolved by direct proof of the dates on which Brink's took certain actions, and whether those dates fell within the dates appearing plainly on the face of the Policy.

*6 A second issue is whether Brink's fulfilled its duty of cooperation with Chubb as set forth in the Policy. After receiving notice, the insurer and insured owe each other certain obligations:

Chubb Policy at 5 (ECF No. 1-1 at 17 of 63). Brinks' affirmatively avers that it cooperated with Chubb's investigation. Compl. ¶ 32 (ECF No. 1-1 at 9 of 63). Chubb denies that Brinks's cooperated with the investigation. Chubb Answer ¶ 32; see also Lloyd's Fourth Affirmative Defense. No additional factual averments flesh out these positions, but it again appears that direct evidence of the communications between Brink's (including its agents and retained professionals) and the defendant insurers will be the centerpiece of any effort to prove whether cooperation was sufficient.[4]

With this summary of claims and defenses in mind, the completeness of defendants' discovery responses may be addressed. Each of the six interrogatories, its status as of February 3, 2021, and the proposed resolution of any disputes, is discussed in turn.

Interrogatory No. 1 is a simple request for a listing of persons with knowledge of the claims in the Complaint. It is essentially a repetition of one of the voluntary disclosure requirements under Rule 26(a)(1)(A)(i). Defendants' counsel represented that their responses are complete to the best of their present knowledge. February 3, 2021, Hearing Tr. at 23:11-24:15. With the objections overruled as noted above, this response appears to require no further attention, and it remains subject to the supplementation requirements of Rule 26(e). To the extent the Motion to Compel was directed at requiring a further response to this interrogatory, the Special Master recommends that it be DENIED.

*7 Interrogatory No. 2 seeks all written statements received by defendant from Brink's or its representatives relating to the events and claims set forth in the Complaint. When asked what “written statements” means as used in this interrogatory, counsel for Brink's argued that it means all communications of any kind by Brink's with the defendant relating to the subject matter of this dispute. February 3, 2021 Hearing Tr. at 25:2-10. Defendant interpreted the request to mean statements by Brink's or its agents summarizing or reporting on relevant facts and reduced to writing, and in its response identified Brink's internal investigation report, along with three email messages from Brink's agent, JLT Specialty Limited. (ECF 31-4 at 8). February 3, 2021 Hearing Tr. at 29:20-24.

Whether or not Brink's undefined use of the term “written statements” was inadvertent, it was reasonable for the defendants to interpret it as they did. It is a term of art in the Federal Rules of Civil Procedure, as well as the Rules of the Supreme Court of Virginia under which the discovery was initially issued. Rule 26(b)(3)(C) addresses the discoverability of “a person's own previous statement about the action or its subject matter” and includes within its scope “a written statement that the person has signed or otherwise adopted or approved” or a contemporaneous recording of an oral statement. See also Va. S. Ct. Rule 4:1(b)(3) (parallel provision). Thus, the interrogatory on its face is fairly read to demand that Chubb and Lloyd's identify all previous “written statements” made by Brink's or its representatives about this civil action or its subject matter. Defendants are under a continuing obligation to identify any additional written statements should any be located. To the extent the Motion to Compel seeks more than this, Interrogatory No. 2 did not clearly ask for more, and the Special Master recommends that the motion be DENIED.[5]

Interrogatory No. 3 asks each defendant to “describe in detail the formation of the agreement between [each insurer] and Brink's that is reflected in the policy.” Chubb responds that it will produce the underwriting file, and the burden of reviewing it is substantially the same for itself and Brink's. (ECF No. 31-4 at 11). Although the written answer did not cite the rule upon which Chubb relies, Chubb's counsel asserts that this response is permitted by Rule 33(d), the option to produce business records. February 3, 2021 Hearing Tr. at 31:9-15. Brink's argues that only a narrative response will suffice, Id. at 32:16-18, and Chubb responds that it need not undertake the burden of writing out the contents of its underwriting file in exhaustive detail when the content of the file speaks for itself.

Rule 33(d) does not contemplate such a superficial response. It states:

A fair reading of Interrogatory No. 3 is that it requests a succinct narrative of the process by which the contract of insurance was formed. This connotes a basic timeline of events and the identification of the individuals who participated in the relevant communications and negotiations. The narrative would presumably include references to key documents that capture the granular details of contract formation, and those documents can simply be identified in the interrogatory answer. Chubb's narrative, because it is sworn, should certainly be accurate, but Chubb is not required to write the equivalent of War and Peace, nor does it need to provide granular details that Brink's experienced counsel certainly know they will elicit more effectively by reviewing the documents in the underwriting file and taking depositions.

The Special Master recommends that the motion to compel be GRANTED as to Interrogatory No. 3, and that each defendant be required to provide a succinct summary of the negotiations leading to formation of the insurance contracts, as described above. Brink's counsel should be cautioned that this type of interrogatory is not for the purposes of laying traps based on the omission of details, and they should look to other forms of discovery to elicit details that are beyond the scope of a complete but reasonable interrogatory response.

Interrogatory No. 4 requests that Chubb “[i]dentify the reserve information on the claim identified in the Complaint.” Chubb objects to this request on several grounds: (1) that it has no bearing on the allegations in the Complaint and will not lead to the discovery of admissible evidence, (2) that it is not proportional to the needs of the case, (3) that it seeks confidential, proprietary information, (4) that it is overbroad, burdensome, and harassing, and (5) that it is protected by attorney-client privilege and the attorney work product doctrine.

Some objections do not fit. The interrogatory is quite direct, not unduly broad, and not burdensome in the plain sense of the word. Chubb can presumably disclose the amount reserved for this claim in short order and without conducting an extensive inquiry. Thus, objections based solely on burden should be OVERRULED. Similarly, the parties have submitted a Stipulated Protective Order that governs commercially sensitive information, and objections based on disclosure of sensitive material should be OVERRULED as moot. Chubb also raised concerns about attorney-client privilege and the disclosure of materials prepared in anticipation of this litigation. Those concerns are noted and should not be diminished. However, the disposition of this issue is recommended on other grounds that do not require resolution of privilege or work product arguments.

The fundamental issue is whether the requested reserve information is relevant to any party's claim or defense. If that threshold cannot be crossed, the request is beyond the scope of discovery as provided in Rule 26(b)(1). Brink's asserts that the scope of discovery is broad in this jurisdiction, and applies a broad interpretive gloss on Rule 26 to suggest a sufficient connection between reserve information and (1) the timeliness of notice, (2) the adequacy of its cooperation, (3) the situation of the loss within the terms of the policy, and (4) the insurers' asserted lack of information about the claim. Brink's Supp. Authorities (Exhibit 1) at 2-4. Chubb and Lloyd's assert that the cases most directly on point, concerning simple first-party coverage claims, weigh strongly against the discoverability of reserve information. Insurers' Supp. Authorities (Exhibit 2) at 2-4.

*9 The parties thoroughly briefed the discoverability of reserves in insurance disputes. Many of the opinions they cite reference the case-by-case nature of the analysis, conducted in the context of the claims and defenses at issue. Nonetheless, there is a strong theme running through all cases when they are carefully analyzed. Courts are far more likely to allow the discovery of reserve information in cases alleging bad faith by an insurer, which arise not exclusively but frequently in a setting where a liability insurer has failed to meet its obligations to defend or indemnify a third-party claim against its insured. Cases seeking to establish coverage by a first-party insurer are far less likely to implicate the production of reserve information.

The opinion in the lead case cited by Brink's explains this distinction clearly. See National Union Fire Ins. Co. of Pittsburgh, PA v. H&R Block, Inc., 2014 WL 4377845 (S.D.N.Y. 2014). National Union Fire Insurance Company issued a commercial umbrella general liability insurance policy to HRB Tax Group, Inc. Id. at * 1. A competitor sued Tax Group, the insured, under Section 43(a) of the Lanham Act. Id. National Union denied coverage, claiming that Tax Group's claim was excluded under the policy and that Tax Group had failed to cooperate with National Union. Tax Group settled the underlying claim without the participation of National Union, which denied that it had sufficient information to participate in settlement discussions while simultaneously refusing to sign a protective order that would have allowed it to see the information. Id. at *2.

Within days of the settlement, National Union sought a declaratory judgment that it had no obligation to fund the settlement. Id. Tax Group counterclaimed, alleging that the settled claim was covered, that it was entitled to the expenses of defense and settlement, that National Union's bad faith refusal to pay violated Missouri law, and that it was entitled to its attorneys' fees. Id. Tax Group served discovery that requested the production of documents showing the reserve amounts on the settled underlying action and National Union resisted.

In requiring the production of reserve information, the magistrate judge made an explicit distinction between the relevance of reserve information to the interpretation of the insurance policy and the insured's cooperation, on the one hand, and its relevance to the bad faith refusal to pay, on the other hand. With regard to the former, the magistrate judge stated:

Id. at *3. Having found reserve information to be immaterial to coverage or cooperation, the magistrate judge turned his attention to Tax Group's claim that National Union had engaged in a bad faith refusal to pay. Id. at *4. He concluded that, in the bad faith context, the reserve information could be relevant, citing several cases in which such information was deemed to have probative value in determining the insurer's state of mind. By way of example, the court cited a California opinion reasoning that the setting of a reserve by a liability insurer may be evidence of bad faith where it thereafter fails to defend or attempt to settle the case. Id. at *4 (citing Am. Prot. Ins. Co. v. Helm Concentrates, Inc., 140 F.R.D. 448, 449-50 (E.D. Cal. 1991)). For this reason, the court determined that the reserve information was discoverable.

*10 Thus, Brink's assertion that National Union is merely a “coverage case” is not correct, and examination of the other nine cases submitted by Brink's reveals that each of them presented issues of extra-contractual liability that went beyond the mere determination of coverage. See Brink's Supp. Authorities (Exhibit 1) at 4-9 (listing cases and citing excerpts from opinions). Although no party has presented any Fourth Circuit appellate opinion analyzing the discoverability of reserve information in insurer-insured disputes, district courts in this circuit have rejected efforts to discover reserve information in first-party coverage disputes. See, e.g. Imperial Textiles Supplies, Inc. v. Hartford Fire Ins. Co., Case No. 6:09-cv-03103 (JMC), 2011 WL 1743751 at *4 (D.S.C. May 5, 2011) (reserve information not relevant to determination of claims for breach of contract, specific performance, and bad faith); Front Royal Ins. Co. v. Gold Players, Inc., 187 F.R.D. 252, 257 (W.D. Va. 1999) (redaction of reserve information from claim file ordered to be produced).

The case law supports the conclusion that, under the circumstances of this case, the reserves set by defendants for this action are simply not relevant to the claims asserted or the defenses raised. The information has no meaningful tendency to educate the Court or the finder of fact on the meaning of the policy language, the sufficiency of notice to the insurers, the degree of cooperation that Brink's offered its insurers, or the completeness of the information that Brink's provided to them. Because Rule 26(b)(1)'s threshold requirement of relevance to the claims and defenses as presented by the parties in their pleadings is not met, the Special Master recommends that the Motion to Compel as to Interrogatory No. 4 (and associated Request for Production No. 4) be DENIED.

Interrogatory No. 5 asks that each defendant “Identify all claims made by your policyholders from January 1, 2015 to date seeking coverage for any act of fraud or dishonesty committed by an employee which caused the policyholder to suffer a loss as a result of the intentional or willful use of the policyholder's computers or network services to erase, modify or corrupt data.” (ECF Nos. 31-1 at 4, 31-2 at 4). The defendants object to this interrogatory on both elements of rule 26(b)(1), that the discovery sought is not relevant to the claims or defenses as presented, and that it is not proportional to the needs of the case. They further object that such discovery invades privileges and confidences of other insureds, and would compel the disclosure of materials prepared in anticipation of litigation, as well as attorney-client communications.

Brink's asserts that this discovery is relevant to two defenses:

February 3, 2021 Hearing Tr. at 39:6-12 (italics added). Further:

Id. at 39:13-19 (italics added).[6] Defendants respond that “patterns and practices are irrelevant here,” and that “the issue is what does the policy say and what are the facts of this case.” Id. at 42:3-6.

*11 The relevance of this inquiry to notice may be addressed by reading the parties' pleadings. The notice language of the Policy is explicit. There appears to be no facial ambiguity regarding that provision, and no party seems to suggest that there is an ambiguity. Thus, the timeliness of notice, admittedly given within the Policy Period and allegedly provided the month after discovery of the loss, speaks for itself based on the Complaint and the Answers without reference to other insureds or to any other policies issued by the defendants.

The relevance of this inquiry to cooperation requires closer examination. Defendants both assert a lack of cooperation, although their pleadings do not reveal the nature of Brink's alleged deficiencies. No party has offered an argument that the Policy's cooperation provisions are ambiguous. As the arguments are presently framed, Brink's appears to be asserting that the Policy's cooperation language is unambiguous, but the Court's determination of whether Brink's cooperation was inadequate under that language requires examination of five-years' worth of coverage claims involving defendants' other insureds. Implicit in defendants' position is the premise that the cooperation language is unambiguous and that the adequacy of Brink's cooperation may be determined by evidence of Brink's conduct relating to the disputed claim in this action. See February 3, 2021, Hearing Tr. at 42:4-6 (Counsel for Chubb: “The issue is what does the policy say and what are the facts of this case.”); Id. at 43:23-25 (Counsel for Chubb: “the terms of the policy are what the terms of the policy are.”).

The relevance of such discovery under Rule 26 (b)(1) is the subject of a number of reported decisions, reaching varying case-specific conclusions. See, e.g., City of New Martinsville v. Liberty Mut. Ins. Co., 2018 U.S. Dist. LEXIS 231576 (permitting targeted discovery concerning other insureds in dispute over interpretation of corrosion exclusion); Leski, Inc. v. Federal Ins. Co., 129 F.R.D. 99, 105-06 (D.N.J. 1989)(denying discovery of other insureds' claims, including a “sampling” proposal, in a declaratory judgment action to establish coverage under commercial general liability policy).

Taken as a whole, Brink's relevance argument on the cooperation issue is tenuous. Whether it carries the day requires examination of the proportionality of the evidence Brink's seeks to the needs of the case. Some of the proportionality factors are self-evident: only defendants control access to their own. claims files, the resources of all parties to this case are substantial, and the amount in controversy, while not overwhelming when compared to many claims in the federal courts, is nonetheless a policy-limits issue for Chubb and a substantial potential payout for excess insurer Lloyd's.

More germane are “the importance of the discovery in resolving the issues, and whether the burden and expense of the proposed discovery outweighs its likely benefit.” Rule 26(b)(1). The importance of the discovery in resolving the issues has already been addressed to some degree in the discussion of relevance above. Given the efficiency with which this Court conducts its proceedings, it is difficult to foresee a trial in which evidence other insureds' comparative cooperation would be allowed to push evidence of Brink's communications with these defendants off center stage. And, although defendants' warnings about a series of mini-trials are overstated, it is fair to consider whether answering Interrogatory No. 5 and producing related files leads down the path to depositions of non-party insureds to compare and contrast the facts and circumstances of their “cooperation” disputes with the dispute presented here.

*12 The issue of burden and expense has been addressed exhaustively by the parties. Counsel for defendants raised the issue early, submitting declarations from employees or representatives of the insurers. See Binning Declaration (“Decl.”)(ECF. No. 35-42)(Chubb); Kim Decl. (ECF No. 35-42)(QBE Syndicate, syndicate leader for Lloyd's); Young Decl. (ECF No. 35-44)(Probitas Syndicate 1942); Hopwood Decl.(ECF No. 35-45)(Liberty Syndicate 4472); Dacey Decl. (ECF No. 35-46)(XL Syndicate 2003). The initial declarations were far from exhaustive, a point emphasized by Brink's in its reply to the defendants' opposition. At the February 3, 2021, hearing, the Special Master allowed, but did not require, the defendants promptly to supplement their initial declarations, and they did so.[7] Brink's was allowed to comment on the additional submissions, and it did so, arguing that they remain inadequate in light of this Court's recent decision in Williams v. Microbilt, 2021 U.S. Dist. LEXIS 8697 (E.D. Va., January 15, 2021).[8]

Each declaration recites basic information about the affiant, his or her company, and general matters. Brink's attacks the near-identical formatting of the declarations as boilerplate, but some of the language covers routine, uncontroverted matters. What is pertinent are the paragraphs in each declaration that explain what a search for the requested information would require. One might assume that in 2021 these defendants would maintain a robust system for conducting an electronic search to identify, at minimum, claims made on the relevant policy form, or perhaps on a family of related policy forms covering internal crime and theft losses. However, each insurer's declarant describes what is essentially a manual review of all commercial crime policy files that they maintain in electronic systems, involving the opening and review of each file. See, e.g., Binning Decl. (ECF No. 35-42) ¶ 8. It seems counterintuitive that an initial segregation of policies on which a claim has been made cannot be conducted by some electronic means short of physically opening the file of every policy issued. However, the clear message of the declarations submitted by the insurers is that they cannot do so. Further Supp. Decl. of Kam Binning, February 15, 2021 (Exhibit 8) ¶ 4.

Having thus characterized their process for locating potentially responsive records, each defendant identifies a large number of policy files, estimates the time required for a manual search of each file to verify the responsiveness of its contents, and estimates the value of that time given the compensation paid to the individuals performing the search. Chubb states that 10,695 commercial crime policy files must be searched, a task requiring an estimated 1782.5 to 32,085 hours, at a cost ranging from $ 225,000 to $2 million. Binning (Chubb) Supp. Decl., February 11, 2021 (Exhibit 3) ¶s 7-12. The agents of the four participating syndicates underwriting the Lloyd's excess policy provide estimates along similar lines. See Kim (QBE Syndicate 1886) Supp. Decl., February 12, 2021 (Exhibit 4) ¶s 5-10 (2358 commercial crime policies; 393 to7,074 search hours; $39,320 to $373,360 in search costs); Young (Probitas Syndicate 1942) Supp. Decl., February 12, 2021 (Exhibit 5) ¶s 5-10 (475 commercial crime policies; 158.4 to 1,504.2 search hours; $7,920 to $75,280 in search costs); Hopwood (Liberty Syndicate 4472) Supp. Decl., February12, 2021 (Exhibit 6) ¶s 5-10 (9149 commercial crime policies; 3049.6 to 28,971.8 search hours; $152,480 to $1,441,600 in search costs; Dacey (AXA XL Syndicate 2003) Supp. Decl., February 12, 2021 (Exhibit 7) ¶s 5-10 (1050 commercial crime policies, 175 to 3150 search hours, $17,520 to $166,240 in search costs).

*13 In addition to the party declarations characterizing the time and expense to conduct a search for responsive records, counsel of record for defendants have submitted their own sworn declarations explaining that each file identified as responsive would require additional review by lawyers to determine whether production of the requested information might implicate the privileges or rights of insureds, or breach promises of confidentiality made in connection with settled claims. Sean R. Simpson Supp. Decl., February 9, 2021 (Exhibit 9); Craig A. Jacobson Supp. Decl., February 9, 2021 (Exhibit 10). It is self-evident that the number of files requiring such attorney review is derivative of the number of files identified by the defendant insurers as potentially responsive to the discovery requests. Because the insurers provide no estimate of the number of responsive files that their labor-intensive searches might locate, the declarations of counsel estimating the amount of attorney time and expense required to review responsive files are speculative.

However, whether the defendant insurers' searches uncover ten, one-hundred, or a thousand responsive files, there is little doubt that those files, once identified, would require attorney review. Non-party insureds with pending claims for coverage may have communicated confidential demands to the insurers. Non-party insureds with claims that have been resolved may have settled them under terms or conditions that make responsive information confidential; the insurers may have agreed to provide notice to those insureds should their claim files be subject to future subpoenas or discovery requests. Counsel cannot identify those issues without examining the files, and they would not be diligent in the protection of their clients' interests should they fail to do so. Brink's dismisses this concern by referring to the Stipulated Protective Order, but that order operates with regard to the handling of discovery materials by the parties to this action. It does not protect a defendant insurer from a complaint by a non-party insured that production of its files breaches a duty owed to it by that insurer.

The question of proportionality, at this stage of the action, should be resolved in favor of the objecting defendants. With the relevance of the requested information hovering at the outer boundary of Rule 26, Brink's has not established that the needs of the case require production of the requested documents, or the identification of the policies identified by Brink's. Setting aside the precision of the time and expense estimates in their declarations, and assuming arguendo that they may be overstated, defendants have shown that a search through the policy files of thousands of non-party insureds will be costly, and that responsive files, once located, will impose on the defendants the additional cost of attorney review.

The Special Master recommends that the Motion to Compel with regard to Interrogatory No. 5 (and associated Request for Production No. 5) be DENIED. However, it should be denied without prejudice to Brink's revisiting these requests, in a narrower and more targeted version, if the Court later determines that (1) there is an ambiguity in relevant Policy language, and the controlling substantive law allows extrinsic proof of the defendant's interpretation and application of the disputed language to be offered to resolve the ambiguity;[9] or (2) other discovery, such as depositions, reveals that any declarant obfuscated in providing the information submitted by the defendants.

Interrogatory No. 6, directed to both defendants, asks: “For any Request for Admission that you did not admit without qualification; identify all documents information, and persons with knowledge upon which you base your denial or qualified admission.” By its plain terms, it is tied to the defendants' responses to the nine identical requests for admissions served on them. Chubb, in addition to making objections already overruled by the Court, offers nine additional objections to this interrogatory.[10] (ECF No. 31-4 at 14-15 of 55)). Lloyd's is more restrained, objecting only that the interrogatory is overbroad and vague. (ECF No. 31-5 at 6 of 19).

*14 Both Chubb and Lloyd's responded to this interrogatory by directing Brink's to the documents they produced or will produce in response to the requests for production of documents. Both defendants also directed Brink's to the list of persons with relevant knowledge they provided in their responses to Interrogatory No. 1. (ECF No. 31-4 at 17 of 55)(Chubb); (ECF No. 31-5 at 6 of 19)(Lloyd's). Essentially, defendants' interpret Interrogatory No. 6 to require the identification of every document they produced and every witness they listed. See Defendants' Joint Opposition to Plaintiff the Brink's Company's Motion to Compel Discovery Responses and Production of Documents (ECF No. 35) at 28-29.

Resolution of the dispute over Interrogatory No. 6 requires reference to the answers provided by the defendants to Brinks's requests for admissions. (See ECF No. 31-4 at 37-53 Of 55 (Chubb objections and answers); ECF No. 31-5 at 15-17 of 19 (Lloyd's objections and answers). The parties affirmed at the February 3, 2021, hearing that there is no current dispute relating to the defendants' objections and responses to the requests for admissions. February 3, 2021, Hearing Tr. at 65: 16-18. However, Brink's signaled that it may later address those issues directly under Rule 36 (a)(6) at a later date with the Court. Id. at 50:16-24.

Turning first to the objections offered by both defendants, it is clear that Interrogatory No. 6 is not vague. It asks each defendant to provide the reasons for its denial of, or qualified response to, each request for admission. It is noteworthy that Rule 36 itself, governing requests for admissions, contains a passage addressing this: “If a matter is not admitted, the answer must specifically deny it or state in detail why the answering party cannot truthfully admit or deny it. A denial must fairly respond to the substance of the matter; and when good faith requires that a party qualify an answer or deny only a part of a matter, the answer must specify the part admitted and qualify or deny the rest.” Fed. R. Civ. P. 36(a)(4)(italics added). Thus, to the extent Interrogatory No. 6 is essentially reinforcing this requirement there is nothing unclear about its purpose. It seeks information relevant to claims and defenses in the action.

Defendants overstate the burden imposed by this interrogatory. They object to filling out “to the nth degree every single fact, despite the fact that this is all set forth in the claim file and the underwriting file.” February 3, 2021, Hearing Tr. at 48:21-49:1. However, the nine requests for admission target specific issues and contentions. Directing Brink's counsel to fish in the underwriting and claims files for defendants' views on those matters is not a direct response to the interrogatory.[11] As Brink's counsel noted: “They deny that Roy Gotiango was an employee. Why? What's your basis for saying he's not an employee? Is the whole claim file the basis? I don't think so. I think there's probably a real short, two sentence, explanation about why Roy Gotiango is not an employee under the policy.” February 3, 2021 Hearing Tr. at 64:10-15.

The burden on defendants to provide a succinct summary of the reasons for their denials or qualified responses is simply not great. Neither is it objectionable to do so because it calls for a “legal conclusion.” Rule 36 specifically permits inquiry into “facts, the application of law to fact, or opinions about either.” Fed. R. Civ. P. 36(a)(1)(A). Moreover, to the extent a defendant has made an unqualified denial of a request for admissions (as opposed to responding that it has made reasonable inquiry and has insufficient information to admit or deny), it presumably had a good faith basis for doing so, and it is not premature provide the basis for the denial.

*15 The remaining objections offered by defendants are not an impediment to providing an answer to Interrogatory No. 6. Defendants may plainly state their positions in a few sentences without revealing the content of attorney-client communications, materials they have prepared in anticipation of this litigation or during its conduct, trade secrets, or expert work product. To the extent a defendant responded to a request for admissions by stating that it cannot admit or deny the request after making reasonable inquiry, it need not respond to the interrogatory. However, it must timely supplement the response to Interrogatory No. 6 to conform it to amended answers to the requests for admissions should such answers consist of additional denials.

For these reasons, the Special Master recommends that the Motion to Compel be GRANTED as to Interrogatory No. 6, requiring that a succinct explanation of the basis for the denial of any request for admissions be provided, and that the objections interposed to that interrogatory by the defendants be OVERRULED in their entirety.

Resolution of disputes concerning Brink's six requests for production of documents tracks the discussion of objections and responses to interrogatories discussed above. With the passage of time since the filing of the motion to compel there has been movement on document production. With the Court having overruled significant objections, and having entered a pretrial order that governs the disclosure of material generated in connection with expert witness work, it appears that the insurers' records to be produced in this action boil down to the following: (1) a copy of each governing policy, presumably in a format stipulated by the parties to be complete and accurate: (2) the underwriting files for their respective policies; (3) the claims files for the Brink's claim; and (4) electronic records generated by the parties' relevant custodians, retrieved and produced in accordance with the agreed ESI protocol.[12] These documents would appear to satisfy Brink's Requests for Production No. 2 (requesting the underwriting file), No. 3 (requesting the claim file), and No. 6 (requesting a complete version of the relevant policies). Similarly, Request No. 1 simply seeks production of materials relied on in responding to interrogatories, and the comments of counsel at the hearing do not suggest that anything responsive is being withheld.

This leaves for consideration Request for Production No. 4 (seeking reserve information) and Request for Production No. 5 (seeking post January 1, 2015 claims by other policyholders resulting from corruption of computer networks). See Chubb Objections and Responses to requests for production at 9-12 (ECF No. 31-4 at 29-32 of 55); Lloyd's Objections and Responses to requests for production at 4 (ECF No. 31-5 at 12 0f 19). The analysis of these requests is addressed in the discussion of Interrogatory Nos. 4 and 5 above. For the reasons stated above, the Special Master recommends that the objections to Requests for Production Nos. 4 and 5 be SUSTAINED on the ground that the requests exceed the scope of proper discovery under the test of Rule 26(b)(1) and that the Motion to Compel responses to these requests be DENIED.

*16 As reported above, this dispute was rendered moot by agreement of the parties.

Brink's objected to the subpoenas issued by Lloyd's to ninety-one (91) customers of Brink's over the New Year's Holiday, primarily on the ground that they imposed undue burdens on those customers. See The Parties' Joint Statement on Discovery Disputes (ECF No. 45) at 3-7 (setting forth Brink's position). Secondarily, Brinks raised concerns about customers' production of the requested documents causing the release of its confidential pricing information and trade secrets. February 3, 2021, Hearing Tr. at 104:6-9.

At the February 3, 2021, hearing, counsel for Brink's asserted that, in light of discovery provided directly by Brink's to the defendants, the subpoenas were largely unnecessary and duplicative, and not the best discovery vehicle for obtaining the requested information. Id. at 104:1-105:3. Lloyd's responded that the discovery was more than mere duplication of materials held by Brink's, and necessary to confirm how much was billed to the customers, what Brink's did to collect the accounts receivable, and whether the customers were contacted during the fraud investigation. Moreover, the customer information reflects a representative sample of customer data to confirm whether the information reported by Brink's and its consultants is complete and accurate. Id. at 106: 15-21; 113: 3-10.[13]

Between the parties' submission of their January 6, 2021, Joint Statement on Discovery Disputes and the February 3, 2021, hearing, Brink's main burdensomeness concerns were alleviated by the Court's extension of the response deadline. Id. at 111:13-16. Acknowledging this, Brink's counsel confirmed that the remaining objection to the subpoenas was the protection of confidential commercial information by a protective order. Id. at 104: 10-15 (“we have taken no steps to prohibit anyone from producing any documents. Once these – once a confidentiality provision is in place, we don't have any objection to producing the documents so long as they're properly labeled as Brink's confidential pricing information.”); see also Id. at 110:23-111:8. Since the February 3, 2021 hearing, the Court entered the Stipulated Protective Order (ECF No. 58). This rendered the dispute over the ninety-one subpoenas moot, and the Special Master recommends that the motion to quash those subpoenas be DENIED on that ground.

Attached to this Report and Recommendations is a proposed Order for the Court's consideration.

*17 Respectfully submitted,

I hereby certify that on February 24, 2021, I electronically filed the foregoing with the Clerk of the Court using the CM/ECF system, which will cause a Notice of Electronic Filing (NEF) to be delivered to all parties' counsel of record.

Craig T. Merritt (VSB No. 20281)

CHRISTIAN & BARTON, L.L.P.

909 East Main Street, Suite 1200

Richmond, Virginia 23219

Tel. (804) 697-4100

Fax (804)697-4112

cmerritt@cblaw.com