Nationwide settles, Foremost faces order to produce documents in ongoing class action

By Michelle Massey, East Texas Bureau | May 13, 2009

TEXARKANA, Ark. � Although it was court ordered to produce documents in an ongoing discovery dispute, Nationwide Insurance opted to settle the class action case to avoid the burden and expense of the plaintiffs' requests.

Another defendant, Foremost Insurance Co., was ordered by Arkansas Circuit Court Judge Kirk Johnson to produce copies of files in an effort to prove they had not been destroyed.

The original lawsuit filed Sept. 8, 2004, in the Circuit Court of Miller County, accuses insurance companies of not disclosing or paying to their insured's the general contractors' overhead and profit. Disclosure is required when an insured's repairs require the services of at least three trades.

Plaintiffs allege civil conspiracy, unjust enrichment, fraud and constructive fraud.

Although the insurance companies paid previous damage claims, the plaintiffs argue they are entitled to the additional general contractors' overhead and profit.

Plaintiffs are seeking less than $75,000 total recovery for each plaintiff or potential class member.

Nationwide Insurance

During settlement negotiations with Nationwide, the plaintiffs brought to Judge Johnson's attention a pending settlement in Pennsylvania involving similar allegations against Nationwide.

The Pennsylvania litigation was filed May 1, 2003, as a statewide class action and differed from the Arkansas class action by not including the wording regarding the services of at least three trades.

The proposed settlement will give 100 percent of insurance benefits sought by eligible class members. Those class members will receive a cash payment representing 20 percent of his or her property damage claim.

According to the court documents, an estimated 700,000 people are eligible and total payments are estimated over $540 million. The named representative class members will receive a $5,000 cash incentive award and the proposed settlement will require the defendants to pay $9.5 million in attorney fees.

Not wanting Nationwide to use the pending Pennsylvania settlement as a means to circumvent the Arkansas court's jurisdiction, Judge Johnson ordered the Nationwide attorneys to produce discovery to determine possible violations of the court's scheduling order.

Less than a month later, Nationwide Insurance agreed to settle.

While denying any wrongdoing, Nationwide states that it has agreed to settlement to "avoid further burden and expense of protracted litigation and to be completely free of any further controversy with respect to the claims which have been asserted."

The Arkansas proposed settlement will provide eligible class members with a payment equal to 20 percent of the amount previously paid to complete repairs, minus any previously paid general contractor's overhead and profit.

The named representative class members will receive a $5,000 cash incentive award. Class counsel will receive $32 million in attorneys' fees, costs, and expenses.

The final settlement approval hearing is scheduled for July 27 at the Miller County Courthouse in Texarkana.
Foremost Insurance Company

To see if Foremost has destroyed relevant files, Judge Johnson granted a continuance regarding a motion for sanctions against the insurance company.

The continuance will allow 20 days for Foremost to produce hard copy files and the files in electronic format so the court to determine if relevant data was lost.

In March, the plaintiffs' sought the production of documents including e-mail from Foremost's employees, quality assurance documents that relate directly to claims handling practices, and a privilege log.

Foremost sought a protective order, arguing that the discovery is prohibitively expensive and unduly burdensome, that quality assurance documents are privileged and producing them would be an invasion of policyholder's privacy. Nonetheless, Foremost claims it has complied with the discovery requests.

In addition, Foremost has filed a motion for rehearing regarding the March order. Foremost states that the plaintiffs submitted the proposed order and the court signed the order the next day, without Foremost having an opportunity to respond.

"Due to the intervening time between the hearing and Plaintiffs' submission of the proposed order, the principles of fair play and substantial justice requires that Foremost be allowed equal access to the Court and an opportunity to comment on the Plaintiffs' erroneous order," Foremost argues within its request.

Evidencing the "dangers inherent in such haste," Foremost states that the plaintiffs' wrongfully argue that it has "not produced one e-mail to or from any employee."

Foremost states it has produced 888 pages of e-mails.

Furthermore, Foremost contends that the despite the plaintiffs' refusal to work toward developing a reasonable electronic discovery plan, Foremost has contracted an electronic evidence service provider to gather responsive documents.

The contractor estimated that it would cost the insurance company between $7 million and $20 million to collect, search, and produce email from each of the Foremost's employees.

The defendant argues that the requested audit reports are protected by Michigan's self-audit privilege. Claiming the documents are not ordinary business records, Foremost is attempting to withhold insurance compliance audit reports, information and conclusions drawn from those reports, documents analyzing audits and discussing implementation, and analytic data generated during the course of insurance compliance audits.

There are more than 7000 audit reports at issue.

In the May 1 letter to counsel granting the continuance regarding sanctions, Judge Johnson wrote that he did not believe a "generalized argument" will answer or determine the extent of damage done if Foremost destroyed files.

Judge Johnson has denied Foremost and Chubb Insurance's motion to dismiss stating a review of the issues would necessitate a consideration of the merits of the case. Under Arkansas law, a Court cannot engage in merits determination prior to class certification.
Certification hearings are currently scheduled for June 30 through July 1.

The plaintiffs are represented by Matt Keil and John Goodson of the Texarkana law firm Keil and Goodson, Michael B. Angelovich, Cary Patterson, Brady Paddock and Christopher Johnson of the Texarkana law firm Nix, Patterson and Roach, L.L.P.

Other class counsel includes Oklahoma City attorneys Jason Roselius, Derrick Morton, and Chad Ihrig of the law firm Nelson, Roselius, Terry, O'Hara, and Mortion, attorneys Reggie Whitten and Michael Burrage of Whitten, Burrage, Priest, Fulmer, Anderson, and Eisel and Little Rock attorney Stephen Engstrom of Wilson, Engstrom, Corum, and Coulter.

Chivers v State Farm et al, Case No: 2004-294-3

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