KB Home v. Ill. Union Ins. Co.
KB Home v. Ill. Union Ins. Co.
2023 WL 3433556 (C.D. Cal. 2023)
March 30, 2023
Staton, Josephine L., United States District Judge
Summary
The court addressed the parties' motions in limine, granting some and denying others. IUIC's Motion in Limine No. 1 was granted, while IUIC's Motion in Limine No. 4 was granted in part. KB Home's Motions in Limine Nos. 2, 3, 4, 5, and 7 were denied. IUIC's Motions in Limine Nos. 2, 6, and 10 were also denied.
KB HOME et al
v.
ILLINOIS UNION INSURANCE COMPANY et al
v.
ILLINOIS UNION INSURANCE COMPANY et al
Case No. 8:20-cv-00278-JLS-JDE
United States District Court, C.D. California
Filed March 30, 2023
Counsel
Anne Klawiter Kelley, Gregory Lee Dillion, Alan Packer, Newmeyer and Dillion LLP, Walnut Creek, CA, Brandon A Clouse, Louis M. Schotemeyer, Newmeyer and Dillion LLP, Newport Beach, CA, for KB Home.Brittany Fowler, Jonathan R. Gross, Lawrence Hecimovich, Mound Cotton Wollen and Greengrass LLP, Emerville, CA, Leah Godesky, O'Melveny and Myers LLP, Los Angeles, CA, for Illinois Union Insurance Company.
Staton, Josephine L., United States District Judge
PROCEEDINGS: (IN CHAMBERS) ORDER ON MOTIONS IN LIMINE (Docs. 97, 98, 100, 101, 102, 103, 104, 105, 107, 108, 109, 110, 111, 112, 140, 141)
*1 Before the Court are ten motions in limine filed by Defendant Illinois Insurance Company (“IUIC” or “Chubb”) and six motions in limine filed by Plaintiffs KB Home, KB Home Coastal Inc., KB Home Greater Los Angeles Inc., and KB Home South Bay Inc. (collectively, “KB Home”).[1] (Mots., Docs. 97, 98, 100, 101, 102, 103, 104, 105, 107, 108, 109, 110, 111, 112, 140, 141.) Except as otherwise noted below, both parties opposed and replied. (Opps., Docs. 143, 144, 146, 147, 148, 149, 150, 151, 152, 153, 156, 157, 158, 159, 160, 162; Replies, Docs. 163, 164, 166, 167, 168, 169, 170, 171, 173, 174, 179, 181, 182, 183, 184.) The Court found the matters appropriate for decision without oral argument and took the motions under submission. For the reasons and in the manner stated below, the Court GRANTS IN PART and DENIES IN PART the parties' motions.
I. LEGAL STANDARD
A motion in limine is a procedural device to obtain an early ruling on the admissibility of evidence. Luce v. United States, 469 U.S. 38, 40 n.2 (1984). Motions in limine should “not be used to resolve factual disputes or weigh evidence.” Wilson v. City of Los Angeles, 2020 WL 7296507, at *2 (C.D. Cal. Dec. 9, 2020) (quoting C&E Servs., Inc. v. Ashland Inc., 539 F. Supp. 2d 316, 323 (D.D.C. 2008)). Instead, they are typically reserved for instances when a party believes “the mere mention of the evidence during trial would be highly prejudicial and could not be remedied by an instruction to disregard.” Goodman v. Las Vegas Metropolitan Police Dept., 963 F. Supp. 2d 1036, 1047 (D. Nev. 2013), aff'd in part, rev'd in part (on other grounds), dismissed in part, 613 F. App'x 610 (9th Cir. 2015) (cleaned up)). Further, “motions in limine must identify the evidence at issue and state with specificity why such evidence is inadmissible.” United States v. Lewis, 493 F. Supp. 3d 858, 861 (C.D. Cal. 2020) (cleaned up); Jackson v. Cnty. of San Bernardino, 194 F. Supp. 3d 1004, 1008 (C.D. Cal. 2016) (“Motions in limine that seek exclusion of broad and unspecific categories of evidence, however, are generally disfavored.”).
“To exclude evidence on a motion in limine, the evidence must be inadmissible on all potential grounds.” Id. (cleaned up). Unless a party can meet this “high standard,” evidentiary rulings should be deferred until trial because “a court is almost always better situated during the actual trial to assess the value and utility of the evidence.” Id.
“[T]he motion in limine gives the court the opportunity to take up before trial ... certain and limited evidentiary issues[.]” Campbell v. Sainz, 2022 WL 2595035, at *1 (D. Wyo. July 8, 2022) (quoting Beech Acceptance Corp., Inc. v. Connell, 1990 WL 171000, at *1 (D. Kan. Oct. 31, 1990)). Because the anticipated comments and arguments of counsel “are not evidence,” they “are not an appropriate subject for a motion in limine.” Id. at *2. Nor should “motions in limine ... be used as disguised motions for summary judgment.” Altair Instruments, Inc. v. Telebrands Corp., 2021 WL 5238787, at *1 (C.D. Cal. Feb. 18, 2021) (cleaned up).
*2 “Trial courts have broad discretion when ruling on motions in limine.” Matrix Int'l Textile, Inc. v. Monopoly Textile, Inc., 2017 WL 2929377, at *1 (C.D. Cal. May 14, 2017). Rulings on such motions are “not binding on the trial judge, and the judge may always change [her] mind during the course of a trial.” Ohler v. United States, 529 U.S. 753, 758 (2000). “Denial of a motion in limine does not necessarily mean that all evidence contemplated by the motion will be admitted at trial. Denial merely means that without the context of trial, the court is unable to determine whether the evidence in question should be excluded.” Matrix Int'l Textile, 2017 WL 2929377, at *1 (cleaned up).
II. KB HOME's MOTIONS IN LIMINE
A. Motion in Limine No. 2 (Doc. 107)
KB Home's Motion in Limine No. 2 to preclude IUIC from arguing that KB Home is a “sophisticated insured” is DENIED.
KB Home argues that IUIC should be precluded “from asserting, directly or through the opinions of its experts, the ‘sophisticated insured’ defense” because IUIC has no evidence that KB Home “was involved in actually negotiating or jointly drafting the policy, especially with respect to the disputed provisions at-issue in this action.” (Doc. 107 at 2.) To the extent that this motion seeks to preclude IUIC from making certain arguments or seeks an in limine determination as to whether a specific legal doctrine is applicable, it demands a ruling on an issue that is not the proper subject of a motion in limine. If KB Home seeks to exclude specific evidence that IUIC claims tends to show that KB Home was a “sophisticated insured,” the Court will consider objections to the admission of that evidence at trial. Whether the jury should be instructed to construe the terms of the policy against IUIC or whether it should take into account KB Home's sophistication and participation in the drafting process will be determined during the jury instructions conference.
Accordingly, the Court DENIES KB Home's Motion in Limine No. 2.
B. Motion in Limine No. 3 (Doc. 108)
KB Home's Motion in Limine No. 3 to exclude any argument by IUIC that the “genuine dispute” doctrine applies to defeat KB Home's claim for breach of the implied covenant of good faith and fair dealing is DENIED.
KB Home's Motion is directed entirely at a legal argument that it anticipates IUIC will make, and KB Home identifies no evidence that it seeks to exclude from presentation at trial. Again, the arguments of counsel are not appropriate subjects for a motion in limine. Nor are motions in limine appropriate for deciding factual or legal issues before trial.
Accordingly, the Court DENIES KB Home's Motion in Limine No. 3.
C. Motion in Limine No. 4 (Doc. 109)
KB Home's Motion in Limine No. 4 to exclude the expert testimony of Justin Austin for lack of qualification is DENIED.
KB Home argues that Justin Austin, IUIC's expert on construction scheduling and delays, is not qualified to offer opinions in this case because he has “conceded that he has no specialized knowledge pertaining to delay calculations in the single-family homebuilder industry[,]” and has no experience in or familiarity with the single-family home building industry. (Doc. 109 at 4.) IUIC argues that Austin's lack of particularized experience in or knowledge of the home building industry is not adequate grounds to exclude his opinions on construction delays, as he “has over 25 years of experience across a wide array of construction projects, including the construction of large, phased residential projects.” (Doc. 159 at 2.)
*3 Federal Rule of Evidence 702 provides that expert opinion is admissible if (1) the witness is sufficiently qualified as an expert by knowledge, skill, experience, training, or education; (2) the scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (3) the testimony is based on sufficient facts or data; (4) the testimony is the product of reliable principles and methods; and (5) the expert has reliably applied the principles and methods to the facts of the case. Fed. R. Evid. 702; see also City of Pomona v. SQM N. Am. Corp., 750 F.3d 1036, 1043 (9th Cir. 2014).
The proponent of the expert carries the burden of proving admissibility. Lust By & Through Lust v. Merrell Dow Pharm., Inc., 89 F.3d 594, 598 (9th Cir. 1996). Expert testimony is admissible if the reliability and relevance requirements are met by a preponderance of the evidence. Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 593, n.10 (1993) (discussing applicability of Federal Rule of Evidence 104(a) to expert testimony and citing Bourjaily v. United States, 483 U.S. 171, 175-176 (1987), for preponderance standard).
The Court agrees with IUIC that KB Home's standard for the degree of specialized knowledge necessary to qualify as an expert witness is unduly narrow. “Rule 702 does not require that an expert's qualifications be narrowly defined, and ‘contemplates a broad conception of expert qualifications.’ ” Sullivan v. Costco Wholesale Corp., 2018 WL 4057447, at *3 (E.D. Cal. Aug. 23, 2018) (quoting Thomas v. Newton Intern. Enters., 42 F.3d 1266, 1269 (9th Cir. 1994)). And if “a putative expert possesses reasonably sufficient qualifications in a field relevant to the subject matter, their expert testimony may be admitted.” Id. (citing Casey v. Ohio Med. Prods., 877 F. Supp. 1380, 1383 (N.D. Cal. 1995)).
Austin does not need to show familiarity with or experience in single-family home building industry if he can explain how his experience in the construction industry serves as the foundation for his opinions on the delays at issue in this case. Cf. Siqueiros v. General Motors LLC, 2022 WL 74182, at *5 (N.D. Cal. Jan. 7, 2022) (rejecting narrow characterization of the expertise that Rule 702 requires because an expert witness “need not demonstrate past experience investigating the precise issues in this litigation,” such that an aerospace engineer could offer valid opinions in an automotive defect case). The Court has reviewed a declaration from Austin detailing his extensive experience in the residential construction industry, which IUIC submitted with its Opposition. (See Austin Decl., Doc. 159-1.) If IUIC establishes at trial the qualifications identified in the Austin Declaration, the Court is satisfied that his experience in residential construction equips him to shed light on construction delays in a way that would assist a lay jury here.
Accordingly, KB Home's Motion in Limine No. 4 is DENIED.
D. Motion in Limine No. 5 (Doc. 110)
KB Home's Motion in Limine No. 5 to exclude documents produced by Justin Austin after his deposition in this matter and any opinions based on those documents is DENIED.
KB Home asserts that IUIC failed to timely produce certain documents in Austin's expert file before his deposition on March 25, 2022. (Doc. 110 at 2–4.) KB Home does not identify those documents in its Motion, nor does it articulate how it has been prejudiced by its inability to depose Austin regarding the documents.
In response, IUIC argues that none of the documents in Austin's file that were produced after his deposition were documents that he relied on to form his opinions. (Doc. 160 at 2–3.) Further, IUIC claims that the documents at issue, which consisted of “billing records, handwritten notes, and emails[,]” were produced “immediately upon discovering that they were inadvertently omitted from Austin's production—now almost a year ago.” (Id. at 2.) Last, IUIC notes that it agreed to present Austin for further deposition regarding the materials but that KB Home did not pursue the re-deposition after IUIC did not agree to pay KB Home's attorney's fees for the deposition. (Id.)
*4 KB Home's Motion in Limine No. 5 is overbroad and fails to specify what evidence it seeks to exclude and what prejudice it would suffer if that evidence is admitted at trial. There is no indication in the record before the Court that the documents that IUIC failed to produce in advance of Austin's deposition included materials Austin relied on in forming his opinions. And KB Home's refusal to depose Austin again unless IUIC covered its attorney's fees for the second deposition suggests that the documents at issue are not significant.
Accordingly, KB Home's Motion in Limine No. 5 is DENIED.
E. Motion in Limine No. 6 (Doc. 111)
KB Home's Motion in Limine No. 6 to exclude argument by IUIC that it relied on the advice of counsel in handling its claim for insurance benefits is GRANTED.
IUIC has filed a notice of non-opposition that it does not intend to assert reliance on the advice of counsel as a defense. (Doc. 161.) Accordingly, IUIC will be precluded from presenting such argument at trial.
F. Motion in Limine No. 7 (Doc. 112)
KB Home's Motion in Limine No. 7 to prevent IUIC's expert witnesses from testifying about the interpretation or meaning of the insurance policy at issue here is DENIED.
KB Home argues that IUIC's expert witnesses—Steven Rosenthal, Peter Evans, and Justin Austin—offer opinions on the meaning of the insurance policy at issue in this case and parrot IUIC's interpretation of that policy. (Doc. 112 at 2–4.) According to KB Home, those opinions offer conclusions of law and should be excluded as outside the scope of proper expert testimony. (Id.) In response, IUIC argues that it does not oppose precluding all experts from offering legal conclusions, but that the testimony that KB Home identifies as offering legal conclusions in its Motion does not consist of legal opinions. (Doc. 162 at 1–3.)
The Court agrees with IUIC that none of the testimony that KB Home identifies in its Motion states a legal opinion or conclusion. First, Rosenthal opines that KB Home's claimed costs are not associated with the completion of “individual projects” understood as individual communities rather than individual buildings or structures. (See Doc. 112 at 4–5.) Rosenthal assumes a certain interpretation of the insurance policy, but does not argue that such an interpretation is correct. If KB Home intends to present damages based on its claimed costs from delays in the completion of communities, Rosenthal's testimony is undoubtedly relevant and appropriate to rebut KB Home's claimed costs. If Rosenthal's assumption about the costs that KB Home was entitled to claim under the insurance policy is erroneous, KB Home will expose that through cross-examination.
Second, Evans opines that “establishing delay in projected completion that requires necessary additional expenses cannot be calculated without evidence being supplied to show actual delay in completion that relates directly to the covered loss event.” (Id. at 5.) This is an opinion about the evidence that is required to substantiate a claimed cost based on delay in the completion of a project, not an interpretation of the insurance policy. Whether KB Home offered adequate evidence to support its claimed cost is a factual issue, not a matter of contract interpretation. Federal Rule of Evidence 704 allows expert witnesses to opine on ultimate issues of fact. Fed. R. Evid. 704(a) (“An opinion is not objectionable just because it embraces an ultimate issue.”); see also In re ConAgra Foods, Inc., 302 F.R.D. 537, 557 (C.D. Cal. 2014) (“While an expert witness may not testify to a legal conclusion, he may testify to an ultimate issue of fact.”). Thus, Evans's opinion falls within permitted bounds.
*5 Third, Austin opines that one cannot determine whether a project was actually delayed until after passing the point when the project was expected to be completed. (See Doc. 112 at 5–6.) Like Evans's challenged opinion, this is not an interpretation of the insurance policy but a factual opinion about whether KB Home can show delay. This opinion does not usurp the Court's role in interpreting the contract and deciding the law.
Accordingly, KB Home's Motion in Limine No. 7 is DENIED as to the evidence sought to be excluded. Of course, if IUIC attempts to elicit legal opinions from its experts at trial, KB Home may object.
III. IUIC'S MOTIONS IN LIMINE
A. Motion in Limine No. 1 (Doc. 97)
IUIC's Motion in Limine No. 1 to exclude expert opinion testimony regarding KB Home's “reasonable expectations” as to the policy term “Project” is GRANTED.
KB Home intends to introduce expert testimony regarding its reasonable expectations of coverage at trial on the grounds that “expert testimony of the insured's understanding of the policy language at the time of formation is necessary to resolve the ambiguity in the policy language.” (Doc. 143 at 10.) IUIC argues that KB Home should be precluded from offering expert testimony on its reasonable expectations of coverage because by interpreting the policy at issue, KB Home's experts invade the roles of the Court and the jury. (Doc. 163 at 3–6.)[2]
The Court has already ruled that the testimony of KB Home's expert Jeffrey Stempel is inadmissible because it consists entirely of legal opinions and conclusions—impermissibly invading the province of the Court and the jury in determining the applicable law and applying it to the facts of the case. (See Doc. 199.) Therefore, the Court addresses only whether KB Home's other expert whose testimony on “reasonable expectations” IUIC seeks to exclude, Robert Anderson, may opine on the topic.
Anderson opines that IUIC understood KB Home's unique risk profile when it issued the policy to KB Home “through its supposed knowledge of the insurance requirements of large public Homebuilders, its specific investigation of KB Home through the underwriting of the subject Policy, and previous Policies[,]” which “created a reasonable expectation that KB Home insurable risks, including Soft Cost risks, were covered under the Policy produced.” (Anderson Rep. at 16, Doc. 105-9.) Anderson also opines that IUIC's failure to define key terms in the policy at issue here leaves IUIC open to an interpretation of those terms that is most favorable to KB Home. (Id. at 16–19.)
The challenged portions of Anderson's report clearly consist of contract interpretation and conclusions as to coverage. Like Stempel, Anderson's opinions instruct the jury on the law of the case and how to apply it:
Brought into play here are the traditional understanding [sic] of insurance contract interpretation: (1) construction against the insurance company, (2) strict construction of a coverage exclusion, and (3) construction according to the insured's reasonable expectation.
*6 It is my opinion Illinois Union stated that they understood KB Home “unique” risk profile both through its supposed knowledge of the insurance requirements of large public Homebuilders, its specific investigation of KB Home through the underwriting of the subject Policy, and previous Policies created [sic] a reasonable expectation that KB Home insurable risks, including Soft Cost risks, were covered under the Policy produced. Solidifying this reasonable expectation was the promise of a manuscript policy tailored to KB Home ' [sic] business model and unique situation.
(Id. at 17.) Anderson restates this opinion at the conclusion of his Report:
Illinois Union through lack of defining critical terms, or through poor drafting of other sections that seem to contradict each other leaves the carrier open to the interpretation most favorable interpretation to the benefit of KB Home. Illinois Union stated that they understood KB Home “unique” risk profile both through its supposed knowledge of the insurance requirements of large public Homebuilders, its specific investigation of KB Home through the underwriting of the subject Policy, and previous Policies created [sic] a reasonable expectation that KB Home insurable risks, including Soft Cost risks, were covered under the Policy produced.
(Id. at 19.) Like Stempel's testimony, Anderson's challenged opinions set forth legal principles and interprets the evidence to advance legal conclusions—which is proper for an advocate, rather than an expert.
KB Home may rely on evidence that the Court has not ruled is inadmissible at trial to demonstrate that it had a reasonable expectation of coverage for its claimed soft costs under the policy. But KB Home has not shown that expert testimony is either necessary or even helpful to interpret any of that evidence—the Court can interpret the policy without expert assistance and the jury can likewise interpret the evidence and decide whether KB Home's claimed soft costs were covered under the policy.
Accordingly, IUIC's Motion in Limine No. 1 is GRANTED in the manner stated herein.
B. Motion in Limine No. 2 (Doc. 98)
IUIC's Motion in Limine No. 2 to exclude extrinsic evidence regarding the meaning of the policy term “projected completion date” is DENIED.
When a court interprets a contract under California law, it must begin with the contract's language—its plain meaning. See Cal. Civ. Code § 1638 (“The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.”); id. § 1644 (“The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed.”). “When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible[.]” Id. § 1639.
California case law holds that “even if the trial court personally finds the document not to be ambiguous, it should preliminarily consider all credible evidence to ascertain the intent of the parties.” Appleton v. Waessil, 27 Cal. App. 4th 551, 555 (1994). When the trial court considers whether to admit extrinsic or parol evidence, it follows a two-step process:
First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties' intentions to determine “ambiguity,” i.e., whether the language is “reasonably susceptible” to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is “reasonably susceptible” to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step—interpreting the contract.
*7 Winet v. Price, 4 Cal. App. 4th 1159, 1165 (1992) (quoting Blumenfeld v. R.H. Macy & Co., 92 Cal. App. 3d 38, 45 (1979)); accord, e.g., City of Oakland ex rel. Bd. of Port Comm'rs v. Harding ESE, Inc., 2004 WL 2646654, at *4 (N.D. Cal. Nov. 17, 2004).
Last, California law makes extrinsic evidence “inadmissible to ‘add to, detract from, or vary the terms of a written contract.’ ” Chinacast Educ. Corp. v. Chen Zhou Guo, 2018 WL 7448913, at *4 (C.D. Cal. Dec. 28, 2018) (quoting Pac. Gas & Elec. Co. v. G. W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33, 39 (1968)). While a party may use extrinsic evidence to support a reading of a contract provision to which that provision is reasonably susceptible, that party “must first present the evidence to the Court and explain how it supports a reasonable interpretation of the contract.” Id. at *5. This threshold showing must be made “outside the presence of the jury.” Id. Until the proponent of extrinsic evidence makes such a showing, the evidence is not admitted. Id.
The Court will follow—as it must—California substantive law to determine the meaning of any disputed terms in the policy at issue here. Accordingly, the Court will receive without admitting, outside the presence of the jury, any extrinsic evidence that KB Home argues demonstrates ambiguity in the policy terms and can aid interpretation of those terms. If KB Home meets its burden in demonstrating that the extrinsic evidence that it seeks to introduce supports its interpretation of the policy, the Court will admit that evidence at trial.
Accordingly, IUIC's Motion in Limine No. 2 is DENIED.
C. Motion in Limine No. 4 (Doc. 100)
IUIC's Motion in Limine No. 4 to bifurcate the adjudication of KB Home's breach of contract claim from adjudication of its bad faith claim is GRANTED.
Federal Rule of Civil Procedure 42(b) provides that “[f]or convenience, to avoid prejudice, or to expedite and economize, the court may order a separate trial of one or more separate issues, claims, crossclaims, counterclaims, or third-party claims.” Courts have “broad discretion” in determining whether to bifurcate a trial under Rule 42(b). Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080, 1088 (9th Cir. 2002). “The party seeking bifurcation has the burden to prove bifurcation is justified.” Stein v. Farmers Ins. Co. of Arizona, 2021 WL 2376027, at *1 (S.D. Cal. June 10, 2021) (citing Spectra-Physics Lasers, Inc. v. Uniphase Corp., 144 F.R.D. 99, 101 (N.D. Cal. 1992). “One favored purpose of bifurcation is ... avoiding a difficult question by first dealing with an easier, dispositive issue.” Danjaq LLC v. Sony Corp., 263 F.3d 942, 961 (9th Cir. 2001) (citing Hirst v. Gertzen, 676 F.2d 1252, 1261 (9th Cir. 1982)). Indeed, “the separate trial has proved a very flexible and useful instrument for preventing confusion, avoiding prejudice, and providing a convenient method of disposing of litigation as fairly and quickly as possible.” In re Paris Air Crash of Mar. 3, 1974, 69 F.R.D. 310, 319 (C.D. Cal. 1975) (quoting 9 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2387).
*8 IUIC argues that bifurcating adjudication of KB Home's breach of contract claim from adjudication of its bad faith claim is appropriate here because: (1) if the contract claim is tried first and IUIC prevails, that would obviate the need to try KB Home's bad faith claim; (2) KB Home's claims are easily separable because they involve distinct issues and evidence; (3) KB Home's stated intention to use evidence related to IUIC's claims handling to prove coverage will unduly prejudice IUIC and invite jury confusion. (See Doc. 100 at 3–6; Doc. 166 at 2–6.) According to IUIC, KB Home's attempt to establish coverage through estoppel using evidence from the investigation of the claim is improper and contrary to law. (Doc. 166 at 4–6.)
In response, KB Home argues that the evidence it intends to use to prove its bad faith is relevant “also as to estoppel, [which is] highly relevant to KB's breach of contract claim.” (Doc. 146 at 4–5.) According to KB Home, IUIC's choice not to issue a formal coverage interpretation or reservation of rights and its issuance of a denial letter after the litigation commenced “go to [IUIC's] breach of its obligations and to estoppel.” (Id. at 6.) KB Home also argues that evidence relating to IUIC's investigation is relevant to adjudication of the contract claim because the claims adjusters' actions tend to show that KB Home had coverage under the policy. (Id. at 6–7.)
Under California law, estoppel and waiver cannot be used to create coverage under an insurance policy where coverage did not exist in the first place. See Advanced Network, Inc. v. Peerless Ins. Co., 190 Cal. App. 4th 1054, 1066 (2010) (“[I]t is the general and quite well settled rule of law that the principles of estoppel and implied waiver do not operate to extend the coverage of an insurance policy after the liability has been incurred or the loss sustained.”) (quoting Aetna Cas. & Sur. Co. v. Richmond, 76 Cal. App. 3d 645, 652–53 (1977)); accord Dollinger DeAnza Assocs. v. Chicago Title Ins. Co., 199 Cal. App. 4th 1132, 1154 (2011) (collecting cases). “It is well established that coverage cannot be established by post-claim actions, and waiver and estoppel ‘are not available to bring within the coverage of a policy risks not covered by its terms, or risks expressly excluded therefrom.’ ” Garcia v. Allstate Ins. Co., 2015 WL 12696207, at *4 (C.D. Cal. Aug. 11, 2015) (quoting Manneck v. Lawyers Title Ins. Corp., 28 Cal. App. 4th 1294, 1303 (1994)).
KB Home has expressly argued that it intends to use of evidence of post-claim actions to establish coverage by estoppel—i.e., that it intends to invite jury confusion as to what facts can prove coverage and what facts can prove bad faith. “A separate trial may ... be ordered to avoid prejudice, as where evidence admissible only on a certain issue may prejudice a party in the minds of the jury on other issues.” In re Paris Air Crash of Mar. 3, 1974, 69 F.R.D. at 320 (quoting 9 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2388). Given KB Home's stated intention, the Court finds that the likelihood of jury confusion and undue prejudice to IUIC alone are sufficient to warrant bifurcated adjudication of the contract and bad faith claims here. Cf. Humes v. Acuity, 2021 WL 1971491, at *2 (D. Nev. May 14, 2021) (bifurcating adjudication of contract and bad faith claims in part because “evidence needed to resolve the contractual and extracontractual claims can be effectively siloed” and “failure to separate” the evidence “may prejudice the jury's damages and liability determinations”); Nelson v. Zurich Am. Ins. Co., 2006 WL 8440336, at *1 (D. Ariz. Oct. 17, 2006) (bifurcating coverage and bad faith issues to “avoid jury confusion” and to “prevent any unfair prejudice to defendant that could arise from trying a coverage claim with a bad faith claim, which may support an award of punitive damages”).
*9 Accordingly, IUIC's Motion in Limine No. 4 is GRANTED. KB Home's contract claim and bad faith claim will be bifurcated into two trials with separate juries. In advance of the Final Pretrial Conference, the parties are to meet and confer regarding a joint proposed trial plan that will preserve the parties' right to a jury trial and prevent reexamination of the first jury's factual findings by the second jury.
D. Motion in Limine No. 5 (Doc. 101)
IUIC's Motion in Limine No. 5 to exclude evidence or argument relating to reserves and reinsurance is GRANTED.
IUIC argues that evidence pertaining to reserves and reinsurance is irrelevant, unfairly prejudicial, and likely to lead to confusion here. (Doc. 101 at 3–8.) IUIC cites to various district court opinions, including from courts in this district, that have excluded such evidence in first-party insurance cases such as this one. (Id.) In response, KB Home argues that reserve information is relevant here and can be used to show that IUIC acted in bad faith because it shows IUIC's state of mind.[3] (Doc. 147 at 9–5.) KB Home also notes that California courts have allowed evidence of reserves as tending to prove insurer bad faith. (Id. at 15–16.) KB Home also cites to various district court cases concluding that reserves information is discoverable and potentially relevant in bad faith cases. (Id. at 16–17.)
As an initial matter, the Court notes that although “[w]hether evidence of reserves meets the broad standard for discovery has been a close call for courts ... at trial that broader standard narrows, and a court must consider, even if reserve evidence were relevant, whether the probative value of such evidence is substantially outweighed either by a danger of unfair prejudice, confusing the issues, misleading a jury, or wasting time.” Memory Card Int'l v. St. Paul Fire & Marine Ins. Co., 2013 WL 12131743, at *2 (C.D. Cal. May 14, 2013) (citing Fed. R. Evid. 403). Furthermore, the greater weight of authority holds that evidence of an insurer's reserves is not relevant to a determination of whether benefits were owed to the insured under a policy or whether withholding benefits rises to the level of bad faith. See, e.g., Grant v. Allstate Ins. Co., 2010 WL 11519538, at *3 (C.D. Cal. July 16, 2010) (concluding that “reserve information is not relevant to the issue of whether [the insurer] owed Plaintiffs insurance benefits under their policy and, if so, whether its conduct in withholding benefits rose to the level of bad faith”); see also Memory Card Int'l, 2013 WL 12131743, at *2 (C.D. Cal. May 14, 2013) (rejecting argument that reserves information “is of crucial importance in disclosing Defendant's statement [sic] of mind”); Spearman Indus., Inc. v. St. Paul Fire & Marine Ins. Co., 128 F. Supp. 2d 1148, 1154 (N.D. Ill. 2001) (excluding evidence of reserves at trial because in a first-party case “the potential for liability—and therefore reserve information—is irrelevant to a bad faith claim”).
Here, KB Home argues that evidence of IUIC's reserves is substantially probative of IUIC's state of mind during the claim handling process because it shows that IUIC “believed it may need to pay at least some money on [KB Home's Soft Cost] claim.” (Doc. 147 at 14.) According to KB Home, the way IUIC set reserves during its handling of the claim suggests that it initially intended to pay for KB Home's claimed soft costs because it interpreted the delay provision at issue here as covering KB Home's claimed costs. (Id. at 10–11, 14.) Essentially, KB Home aims to present reserves information as an implicit admission of liability. But reserve information does not tend to prove or disprove coverage in the way that KB Home suggests. Therefore, the Court is skeptical that the information is relevant here.
*10 Even if the reserves information is somehow relevant, however, the Court finds that the potential for confusion and unfair prejudice to IUIC substantially outweighs any probative value it may have. Another district court's reasoning on this matter is sound and persuasive:
Admitting evidence of an insurer's loss reserves could lead the jury to assume that amount was an internal valuation of the claim and/or an assessment of its liability for settlement purposes.... Because a loss reserve does not reflect an admission by the insurance company that a claim is worth a particular amount of money, they have limited usefulness as valuations of a claim at trial, and instead contain a high possibility of unfair prejudice against an insurer.
Peden v. State Farm Mut. Auto. Ins. Co., 2018 WL 3496735, at *8 (D. Colo. July 20, 2018). The potential for confusion and unfair prejudice here is high, and unlikely to be remedied by a limiting instruction to the jury.
Accordingly, IUIC's Motion in Limine No. 5 is GRANTED.
E. Motion in Limine No. 6 (Doc. 102)
IUIC's Motion in Limine No. 6 to exclude opinions of KB Home's expert Glenn Taylor not set out in his expert reports is DENIED.
“Under Federal Rule of Civil Procedure 26(a)(2)(A), a party must disclose the identity of any expert witness it may use at trial. Rule 26(a)(2)(D) requires parties to make these disclosures at the time and in the sequence that the court orders.” Hellmann-Blumberg v. Univ. of Pac., 2013 WL 3422699, at *2 (E.D. Cal. July 8, 2013). A party's disclosure of an expert witness's identity “must be accompanied by a written report--prepared and signed by the witness[,]” which “must contain[,]” inter alia: “(i) a complete statement of all opinions the witness will express and the basis and reasons for them; (ii) the facts or data considered by the witness in forming them; [and] (iii) any exhibits that will be used to summarize or support them[.]” Fed. R. Civ. P. 26(a)(2)(D).
Rule 26(e)(1) allows an expert witness to supplement his report if he “learns that in some material respect the information disclosed is incomplete or incorrect and if the additional or corrective information has not been made known to the other parties during the discovery process or in writing.” Fed. R. Civ. P. 26(e)(1). “Courts do not allow supplemental or amended reports simply at the whim of a party; they are permitted: ‘(1) upon court order; (2) when the party learns that the earlier information is inaccurate or incomplete; or (3) when answers to discovery requests are inaccurate or incomplete.’ ” Barnes v. D.C., 289 F.R.D. 1, 6–7 (D.D.C. 2012) (quoting Minebea Co., Ltd. v. Papst, 231 F.R.D. 3, 6 (D.D.C. 2005)).
“Rule 37(c)(1) gives teeth to [Rule 26's disclosure] requirements by forbidding the use at trial of any information required to be disclosed by Rule 26(a) that is not properly disclosed.” Rodriguez v. Walt Disney Parks & Resorts U.S., Inc., 2018 WL 3532906, at *3 (C.D. Cal. July 2, 2018) (Staton, J.) (quoting Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001). “Such information may only be introduced if ‘the parties' failure to disclose the required information is substantially justified or harmless.’ ” Id. (quoting Yeti by Molly, 259 F.3d at 1106). “[D]istrict courts in the Ninth Circuit have identified ‘[s]everal factors to guide the determination of whether substantial justification and harmlessness exist, including (1) prejudice or surprise to the party against whom the evidence is offered; (2) the ability of that party to cure the prejudice; (3) the likelihood of disruption of trial; and (4) bad faith or willfulness in not timely disclosing the evidence.’ ” Sonneveldt v. Mazda Motor of Am., Inc., 2022 WL 4596648, at *2 (C.D. Cal. Sept. 19, 2022) (Staton, J.) (quoting Silvagni v. Wal-Mart Stores, Inc., 320 F.R.D. 237, 242 (D. Nev. 2017)).
*11 Here, IUIC seeks to exclude an opinion regarding the calculation of delays in construction that Taylor disclosed during his deposition but did not disclose in his opening or rebuttal reports in this case. (Doc. at 3–4.) IUIC claims that this belated disclosure is unfairly prejudicial to it because it was made four months after Taylor submitted his rebuttal report and at the close of expert discovery, depriving IUIC of the opportunity to properly examine Taylor during the deposition. (Id.) In response, KB Home argues that Taylor simply supplemented his initial opinions in response to IUIC's experts' reports and that the documents detailing his supplemental opinion were provided to IUIC prior to Taylor's deposition. (Doc. 148 at 4–7.) KB Home also adds that IUIC's counsel had the opportunity to ask Taylor about this supplemental document and method of calculating delays during his deposition and that, although IUIC reserved the right to reopen Taylor's deposition to examine him on this new opinion, it did not pursue re-deposition. (Id. at 7–8.)
Regardless of whether KB Home's late disclosure of Taylor's supplemental opinion and the data supporting it was substantially justified, the Court finds that it was harmless. IUIC found out about this new opinion nearly a year ago, yet it did not seek to reopen its deposition of Taylor in the intervening time. Granted, expert discovery in this case was supposed to close on March 11, 2022—before IUIC deposed Taylor on April 1, 2022. (See Doc. 74 at 2.) But IUIC could have sought leave to depose Taylor after the close of expert discovery on any previously undisclosed opinions and data, which it did not do. IUIC has long known about Taylor's purported new opinion, so it can hardly claim prejudice, surprise, or an inability to cure any prejudice at this point. For the same reason, IUIC has not shown that presentation of Taylor's new opinion would be disruptive at trial. And there is no evidence that KB Home acted willfully or in bad faith. Thus, the Court concludes that Taylor's supplemental opinion should not be excluded under Federal Rule of Civil Procedure 37(c)(1).
Accordingly, IUIC's Motion in Limine No. 6 is DENIED.
F. Motion in Limine No. 7 (Doc. 103)
IUIC's Motion in Limine No. 7 to exclude evidence or argument relating to other insurance claims is GRANTED IN PART.
IUIC argues that evidence relating to its handling of an insurance claim that KB Home brought on February 14, 2019 is irrelevant here and should be excluded under Federal Rules of Evidence 402 and 403. (Doc. 103 at 3.) KB Home counters that the evidence is relevant to its bad faith claim and admissible because it “goes to show [IUIC]'s state of mind and the numerous reasons why Chubb made an abrupt shift in or around February 2019 and began to affirmatively seek only ways to deny KB's Soft Costs claim.” (Doc. 149 at 9.) KB Home asserts that the February 2019 claim is “highly probative” of IUIC's bad faith because it explains IUIC's “about-face” in its coverage position and handling of the 2017 claim at issue here. (Id. at 6–7.) In its reply brief, IUIC argues that there is a high risk of unfair prejudice and jury confusion if this evidence is admitted because “[t]he jury may believe that since Illinois Union paid a portion of the repair costs for the 2019 claim, it was required to pay the 2017 claim as well, despite the fact that these claims involve different policies, different rain events and different damages, and that KB Home has not even submitted a claim for soft costs for 2019 claim.” (Doc. 169 at 4–5.)
At this juncture, the Court agrees with IUIC that evidence regarding the February 2019 claim for repair costs is, on one hand, of minimal probative value at best and, on the other hand, likely to mislead or confuse the jury on the issue of coverage. Nevertheless, the Court withholds judgment as to whether the probative value of this evidence is substantially outweighed by the likelihood of undue prejudice and confusion.
Accordingly, IUIC's Motion in Limine No. 7 is GRANTED IN PART. The Court will not admit evidence related to the February 2019 costs for trial of the contract claim and defers ruling on the admissibility of the evidence for trial of the bad faith claim.
G. Motion in Limine No. 8 (Doc. 104)
*12 IUIC's Motion in Limine No. 8 to exclude evidence or argument relating to subsequent policy forms and a March 2019 publication by IUIC is GRANTED.
KB Home seeks to use subsequent revisions to IUIC's homebuilders' risk policy form to show that the policy at issue here was ambiguous and IUIC read into it “definitions that would help it avoid paying the Soft Cost claim in contravention of the actual policy language at issue.” (Doc. 150 at 8–12.)
Under both Ninth Circuit and California case law, such use of subsequent policy language is improper because it violates public policy. In Tzung v. State Farm Fire & Cas. Co., 873 F.2d 1338 (9th Cir. 1989), the Ninth Circuit rejected the insured plaintiffs' “reliance on the revised policy[,]” which disambiguated an exclusion provision in the policy at issue, “for its negative inferences.” Id. at 1341. The Ninth Circuit reasoned that “accepting such an argument would discourage remedial action and thereby violate public policy[.]” Id. (citing McKee v. State Farm Fire & Cas. Co., 145 Cal. App. 3d 772, 777–78 (1983) (“[E]vidence of subsequent revisions of an exclusionary clause in an insurance policy should be inadmissible because it lacks relevance, i.e., has no tendency to prove a material fact.... [R]emedial action cannot logically be equated with liability, for there could be a number of reasons for pursuing it, to preclude litigation such as this, for example.”)); see also Forecast Homes, Inc. v. Steadfast Ins. Co., 181 Cal. App. 4th 1466, 1481 (2010) (“It is against public policy to view modification of the policy as creating a negative inference.”). Further, a recent unpublished decision from the Ninth Circuit applied Tzung at the pleading stage to conclude that subsequent revisions to policy language were “irrelevant.” In-N-Out Burgers v. Zurich Am. Ins. Co., No. 22-55266, 2023 WL 2445681, at *2 (9th Cir. Mar. 10, 2023) (“The fact that Zurich later amended its Louisiana Endorsement to explicitly reference its state-specific application is irrelevant.”). Therefore, KB Home may not introduce as evidence IUIC's revisions to the homebuilders' risk policy form to prove either that its losses were covered under the policy at issue here or that IUIC consciously misinterpreted that policy.
As to the March 2019 publication, “A Start-to-Finish Overview of Risks in Building Master Planned Communities,” KB Home argues that it is probative of IUIC's state of mind during the handling of the claim because: (1) it was authored by Deborah Grooms and Ray Szczucki, who were both involved in the handling of the claim at issue here; and (2) can demonstrate “the full picture” of IUIC's understanding of the single-family home industry during the handling of the claim. (Doc. 150 at 12–14.) IUIC argues that the publication is neither necessary nor relevant to show IUIC's understanding of the industry and business model because: (1) it describes the stages of building a master planned community at a general level, without mentioning KB Home; and (2) it was published in March 2019, by which time IUIC was already familiar with KB Home's business model from handling its claim. (Doc. 170 at 7–8.)
*13 There is only one paragraph in the March 2019 publication that is potentially relevant to the issues in this case, which states the following:
A crucial consideration in the project development phase is the need to anticipate and mitigate the impact of severe weather in certain regions of the country. It is not uncommon for an extreme weather event to cause damage during the land improvement phase. For example, if an unexpected and prolonged rainstorm occurs while the infrastructure is partially completed and in a vulnerable state, resulting rainwater and runoff may produce substantial physical damage losses and delays in the project's completion.
(Kelley Decl. Ex. N at 2, Doc. 154-14.) The publication does not mention KB Home or any other building company.
As best the Court can ascertain, KB Home's argument is that this paragraph tends to show that IUIC was aware that KB Home was owed benefits under the policy at issue. But there is no dispute that unexpected rainstorms can cause delays in the completion of construction projects. Rather, the dispute here is about whether KB Home sustained—and can show that it sustained—soft costs due to delays in the completion of projects caused by the January 2017 rainstorms. The paragraph cited above has no probative value for the adjudication of that dispute: it simply sets forth in general terms a risk that indisputably exists. The paragraph has no tendency to prove or disprove that KB Home in particular incurred soft costs due to delays traceable to the January 2017 rainstorms, which is what KB Home seeks to prove here. Therefore, the March 2019 publication is not relevant. See Fed. R. Evid. 401 (“Evidence is relevant if: (a) it has any tendency to make a fact more or less probable than it would be without the evidence; and (b) the fact is of consequence in determining the action.”).
Accordingly, IUIC's Motion in Limine No. 8 is GRANTED.
H. Motion in Limine No. 9 (Doc. 105)
IUIC's Motion in Limine No. 9 to exclude all evidence relating to IUIC representatives' communications with counsel is GRANTED.
KB Home intends “to use the fact that certain communications with counsel occurred at certain times in claims handling process and to introduce evidence of communications that occurred with [IUIC] and its counsel when third parties were present.” (Doc. 150 at 1.) Specifically, KB Home plans to present evidence that right after a “pivotal meeting” between KB Home, IUIC, and IUIC's claims handling team on August 15, 2019, IUIC met with its counsel. (Id. at 3.) KB Home avers that after that meeting with counsel took place it “had a very difficult time getting answers from Chubb about resolving the Soft Costs claim.” (Id.) According to KB Home, the fact that the meeting took place, when it took place, and who attended it are admissible evidence that does not invade the attorney-client privilege. (Id.)
KB Home also intends to use evidence of certain communications between IUIC's adjusters, counsel, and the team of independent claims adjusters that IUIC brought in to investigate the soft costs claim. (Id. at 3–4.) KB Home argues that such communications are not privileged because IUIC waived the attorney-client privilege by voluntarily involving third-parties—the independent claims adjusters. (Id.)
*14 First, the Court addresses the issue of waiver. Under Federal Rule of Evidence 501, “in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.” Fed. R. Evid. 501. Thus, California privilege law applies here. Under California law, “a client has a privilege to refuse to disclose, and to prevent another from disclosing, a confidential communication between the client and lawyer.” Zurich Am. Ins. Co. v. Superior Ct. (“Zurich”), 155 Cal. App. 4th 1485, 1494 (2007) (citing Cal. Evid. Code § 954). A “confidential communication” is defined as:
information transmitted between a client and his or her lawyer in the course of that relationship and in confidence by a means which, so far as the client is aware, discloses the information to no third persons other than those who are present to further the interest of the client in the consultation or those to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted, and includes a legal opinion formed and the advice given by the lawyer in the course of that relationship.
Cal. Evid. Code § 952 (emphasis added). The privilege extends to confidential communications “if they are made to attorneys, to family members, business associates, or agents of the party or his attorneys on matters of joint concern, when disclosure of the communication is reasonably necessary to further the interest of the litigant.” Zurich, 155 Cal. App. 4th at 1495–96 (cleaned up). That is, “[w]hile involvement of an unnecessary third person in attorney-client communications destroys confidentiality, involvement of third persons to whom disclosure is reasonably necessary to further the purpose of the legal consultation preserves confidentiality of communication.” Id. at 1496 (cleaned up).
A corporation is considered “a person whose confidential communications with its attorney are protected by the attorney-client privilege.” Id. (quoting Venture L. Grp. v. Superior Ct., 118 Cal. App. 4th 96, 102 (2004)). And “a corporation can speak only through an officer, employee, or some other natural person.” Id. “[I]n a corporate setting, the attorney-client privilege may extend to communications involving middle-and lower-level employees[,]” who often “have the relevant information needed by corporate counsel if he is adequately to advise the client” regarding legal difficulties. Zurich, 155 Cal. App. 4th at 1497–98 (citing Upjohn Co. v. United States, 449 U.S. 383, 391 (1981)). Indeed, the attorney-client privilege “exists to protect not only the giving of professional advice to those who can act on it but also the giving of information to the lawyer to enable him to give sound and informed advice.” Upjohn, 449 U.S. at 390. “Consistent with the underlying purposes of the attorney-client privilege,” communications made by the corporate defendant's employees to defendant's counsel “acting as such, at the direction of corporate superiors in order [for the corporate defendant] to secure legal advice from counsel” “must be protected against compelled disclosure.” Id. at 394–95. That is, “the privilege protects communications made by employees of the client when the client's attorney is interviewing those employees for the purpose of rendering legal services to the client.” Pike v. Cnty. of San Bernardino, 2019 WL 4390571, at *6 (C.D. Cal. Feb. 21, 2019).
*15 Last, federal courts in California have recognized that the privilege extends not only to “formal employees” of a corporation, but to its “functional” employees as well: “under Upjohn, ‘there is no reason to distinguish between a person on the corporation's payroll and a consultant hired by the corporation if each acts for the corporation and possesses the information needed by attorneys in rendering legal advice.’ ” Schaeffer v. Gregory Vill. Partners, L.P., 78 F. Supp. 3d 1198, 1203 (N.D. Cal. 2015) (quoting In re Copper Mkt. Antitrust Litig., 200 F.R.D. 213, 218 (S.D.N.Y. 2001)); see also United States v. Graf, 610 F.3d 1148, 1156–59 (9th Cir. 2010) (adopting “functional employee” approach). Thus, “confidential communications between third parties such as independent contractors, who are the functional equivalents of employees, and counsel, acting in such capacity, may be privileged where the communication is intended to facilitate the attorney's ability to render legal advice to the client.” Cameron v. City of El Segundo, 2021 WL 3466324, at *12 n.19 (C.D. Cal. Apr. 30, 2021); see also Memry Corp. v. Kentucky Oil Technology, N.V., 2007 WL 39373 *2 (N.D. Cal. 2007) (reasoning that disclosure to independent contractors and other third parties who are functional equivalents of employees is an “exception” to the general rule that disclosure to third parties waives the attorney-client privilege).
Here, KB Home argues that the presence of third parties during the meetings at issue—i.e., the independent claim adjusters who investigated KB Home's soft costs claim—constitutes a waiver of the attorney-client privilege. (Doc. 151 at 3–4.) IUIC counters that attorney-client privilege extends to the independent claim adjusters because they were agents and functional employees of IUIC during the relevant period. (Doc. 171 at 5–6.) Thus, the question of waiver here turns on whether the independent claim adjusters were third parties or functional employees or agents of IUIC. There is no dispute here that the independent claim adjusters here were part of IUIC's investigation team and were hired by IUIC to investigate KB Home's soft costs claim. In fact, KB Home avers that the independent claims adjusters were “monitored and supervised by [IUIC.]” (Doc. 151 at 3.) KB Home's argument that the independent claim adjusters should be considered third parties relies entirely on the fact that they were not directly employed by IUIC. (See Doc. 151 at 3–4.) But “there is no rational distinction between applying the attorney-client privilege to confidential communications between the insurer's counsel and its claims employee ... but refusing to apply the privilege to counsel's confidential communications with an independent insurance adjuster who performs the same functions as an ‘in-house’ claims employee.” Residential Constructors, LLC v. Ace Prop. & Cas. Ins. Co., 2006 WL 3149362, at *15 (D. Nev. Nov. 1, 2006). Therefore, KB Home's argument for finding waiver here falls short.
Next, the Court considers whether KB Home may use as evidence that a meeting with counsel took place, who attended that meeting, and when the meeting occurred. According to KB Home, the meeting and its timing tend to show that IUIC was “looking only for ways to defeat coverage and not pay the Soft Costs claim, in bad faith.” (Doc. 151 at 3.) IUIC argues that it will be unable to defend itself against KB Home's argument “[w]ithout disclosing the contents of its meeting with counsel—and thus waiving privilege[.]” (Doc. 171 at 2.) IUIC argues that KB Home should not refer to the meeting to have IUIC invoke the privilege and invite the jury to draw an adverse inference from IUIC's anticipated assertion of the privilege. (Id. at 2–3.)
KB Home's briefing all but confirms IUIC's claim that it aims to invite the jury to speculate about the substance of meeting between IUIC, the independent claims adjusters, and IUIC's counsel and draw an adverse inference from IUIC's assertion of privilege. The Court agrees with IUIC that that would be improper under Federal Rule of Evidence 403. The fact and timing of the meeting would have minimal probative value at best, on one hand, and, on the other hand, pose a substantial risk of confusing the jury and unfairly prejudicing IUIC if it asserts the privilege and the jury is left to speculate about the meeting.
*16 Accordingly, IUIC's Motion in Limine No. 9 is GRANTED.
I. Motion in Limine No. 10 (Doc. 140)
IUIC's Motion in Limine No. 10 to preclude KB Home from arguing that it suffered delays in the completion of entire communities, as opposed to delays in the completion of individual homes, is DENIED.
IUIC argues that KB Home should be precluded from arguing at trial that it suffered delays in the completion of entire communities because KB Home avoided summary judgment against it by arguing that it suffered delays in the completion of individual homes. (Doc. 140 at 9–11.) According to IUIC, KB Home is estopped from arguing that it incurred costs from the completion of entire communities because at summary judgment
[KB Home] did not present a triable issue of fact that any subdivision had a delay in completion caused by the Rain Event. Instead, [KB Home] avoided summary judgment by contending that a Project could be an individual house and that [KB Home] should be allowed to prove that the Rain Event delayed the completion of individual houses.
In response, KB Home argues that the Court's August 23, 2022 Order denying IUIC's Motion for Summary Judgment does not preclude KB Home from arguing that it incurred subdivision-wide soft costs because KB Home never argued and the Court never ruled that the policy terms “Insured Project” and “Project” can only be defined as an individual building or structure under the policy. (Doc. 152 at 14.) KB Home contends that the Court simply ruled that KB Home could show that it suffered delays in the completion of insured projects by showing delays in the completion of individual homes, without deciding whether KB Home had evidence that could lead a reasonable jury to conclude that it suffered delays in the completion of entire subdivisions or communities. (Id.)
The Court agrees with KB Home. In its August 23, 2022 Order, the Court did not rule that the policy terms “Project” and “Insured Project” referred only to individual buildings or structures and not to entire subdivisions or communities. Rather, the Court rejected IUIC's interpretation of the terms as encompassing only entire subdivisions or communities because individual buildings or structures could also be considered insured projects under the policy. (See Doc. 133 at 9–10.) Having concluded that KB Home had proffered sufficient evidence to persuade the trier of fact that it had suffered delays in the completion of individual homes, the Court did not reach the issue whether KB Home had sufficient evidence to persuade a reasonable jury that it suffered delays in the completion of entire subdivisions or communities as well. Thus, KB Home is not estopped from arguing at trial that it suffered delays in the completion of entire subdivisions or communities or presenting evidence of the costs that it incurred due to those delays.
*17 Accordingly, IUIC's Motion in Limine No. 10 is DENIED.
J. Motion in Limine No. 11 (Doc. 141)
IUIC's Motion in Limine No. 11 to exclude evidence and argument relating to alleged losses not disclosed in discovery is GRANTED.
“Federal Rule of Civil Procedure 26(a)(1)(A)(iii) requires that parties disclose ‘a computation of each category of damages claimed by the disclosing party—who must also make available for inspection and copying as under Rule 34 the documents or other evidentiary material, unless privileged or protected from disclosure, on which each computation is based, including materials bearing on the nature and extent of injuries suffered[.]’ ” Vinotemp Int'l Corp. v. Wine Master Cellars, 2013 WL 5366405, at *1 (C.D. Cal. Feb. 5, 2013) (quoting Fed. R. Civ. P. 26(a)(1)(A)(iii)). “Rule 26(e) also imposes a continuing obligation to supplement the initial disclosures whenever the parties find that the initial disclosures were ‘incomplete or incorrect,’ making the operation of Rule 26 the ‘functional equivalent of a Standing Request for Production under Rule 34.’ ” City & Cnty. of San Francisco v. Tutor-Saliba Corp., 218 F.R.D. 219, 220 (N.D. Cal. 2003). As noted above, Rule 37(c)(1) “gives teeth” to Rule 26's disclosure requirements by preventing parties from using at trial any information that they failed to disclose under Rule 26(a).
Here, IUIC argues that KB Home has never disclosed in discovery any alleged losses other than expenses KB Home claims were incurred by entire subdivisions during the two months following the January 2017 rainstorms. (Doc. 141 at 4–9.) Because KB Home did not disclose any alleged losses for another period during discovery, IUIC argues, the Court should preclude KB Home “from changing course at trial to make a claim for benefits relating to any other period of alleged delay.” (Id. at 10–11.)
In response, KB Home argues that: (1) because IUIC failed to investigate KB Home's claim properly and did not request information regarding losses for other periods of time during the investigation, it is unfair to “pigeon-hole” KB Home into only claiming damages for a certain period of time; and (2) KB Home provided ample evidence of delays to the completion of insured projects during discovery, which shows that “damages were incurred beyond the scope that Chubb requests this Court to limit.” (Doc. 153 at 9–15.)
IUIC replies that KB Home's counsel “know exactly what Soft Cost losses they will ask the jury to award” and KB Home has no excuse to avoid its “obligation to let Illinois Union (or the Court) know what losses it will claim at trial.” (Doc. 174 at 8.) IUIC also argues that KB Home's estoppel-based argument that IUIC should not be allowed to limit KB Home's damages in this case because IUIC requested only limited information during the investigation of KB Home's soft costs claim is legally baseless and advances a new legal theory IUIC had no opportunity to probe during discovery. (Id. at 8–10.)
Notably, KB Home does not argue that it has in fact provided IUIC with a computation of each category of damages that it intends to present at trial. Rather, KB Home's argument is that any omissions in its disclosures are justified because IUIC did not request during its investigation information that it later sought in litigation, thereby limiting the damages that KB Home was able to disclose during discovery. Additionally, counsel for IUIC has provided the Court with extensive meet-and-confer correspondence regarding KB Home's damages case and evidence, to which KB Home's counsel has not responded. (See Second Supp'l Hecimovich Decl. ¶ 28 & Ex. V, Docs. 142-1, 142-21.) KB Home has not disputed the authenticity of the letters or presented to the Court any indication that it has conferred with IUIC regarding its damages case. Nor has KB Home offered any justification for ignoring the letters.
*18 Given the record before it, the Court concludes that KB Home never disclosed during discovery claimed soft costs that it incurred due to the delay in the completion of individual buildings or houses or costs for entire subdivisions for any period other than the first two or three months after the 2017 rainstorms. KB Home has not provided the Court with any reason to find that its failure to disclose a computation of damages for those categories of losses was either harmless or substantially justified. Indeed, the Court finds that KB Home's refusal to fully disclose the damages it will seek at trial unduly prejudices IUIC by preventing it from preparing an adequate defense. And KB Home's briefing and non-responsiveness to IUIC's conferral efforts hardly assure the Court that KB Home does not intend to conduct the “trial by ambush” that Rules 26 and 37 are designed to prevent. Thus, to the extent that KB Home intends to present damages evidence for soft costs incurred due to delays in the construction of individual homes or for a period other than the first few months after the January 2017 rainstorms, it may not do so. KB Home may, however, present at trial any damages evidence that it properly disclosed during discovery—i.e., soft costs allocated to entire subdivisions incurred during the first few months after the rainstorms.
Accordingly, IUIC's Motion in Limine No. 11 is GRANTED.
IV. CONCLUSION
In sum, the Court rules as follows:
• KB Home's Motions in Limine Nos. 2, 3, 4, 5, and 7 (Docs. 107, 108, 109, 110, 112) are DENIED.
• Because IUIC did not oppose KB Home's Motion in Limine No. 6 (Doc. 111), that Motion is GRANTED.
• IUIC's Motions in Limine Nos. 1, 5, 8, 9, and 11 (Docs. 97, 101, 104, 105, 141) are GRANTED.
• IUIC's Motion in Limine No. 4 (Doc. 100) is GRANTED. The Court ORDERS that KB Home's breach of contract claim and bad faith claim be tried separately before different juries. The parties are to present a trial plan that conforms with the Court's Order no later than fourteen (14) days the Final Pretrial Conference to be held on July 7, 2023 at 10:30 a.m.
• IUIC's Motion in Limine No. 7 (Doc. 103) is GRANTED IN PART as follows: while KB Home is precluded from introducing evidence relating to other insurance claims at the breach of contract trial, the Court defers ruling on whether it may introduce that evidence at the bad faith trial.
• IUIC's Motions in Limine Nos. 2, 6 and 10 (Docs. 98, 102, 140) are DENIED.
Footnotes
IUIC initially filed eleven motions in limine but withdrew its Motion in Limine No. 3. KB Home initially filed seven motions in limine but withdrew its Motion in Limine No. 1. Accordingly, the Court disposes only of the motions in limine that are still pending before it.
IUIC's Motion in Limine No. 1 initially requested that KB Home be prevented from introducing any expert testimony inconsistent with its 30(b)(6) witness's testimony regarding the meaning of the policy terms “Insured Project” and “Project.” (See Doc. 97 at 5.) Because the Court ruled on whether the 30(b)(6) testimony at issue resolved the meaning of those policy terms in its August 23, 2022 Order denying IUIC's Motion for Summary Judgment (Doc. 133), IUIC refocused its argument in reply to highlight that Stempel and Anderson invade the Court's and the jury's roles.