It is rare to see a state’s highest court address a discovery issue.  But the Supreme Court of Texas did just that recently in In re National Lloyds Insurance Co., holding that a policyholder’s demands for discovery about how her homeowner’s insurance carrier’s claims adjusters handled other insurance claims was an impermissible “fishing expedition.”  The decision is a sobering one for all policyholders, not just homeowners, that are insured under policies governed by Texas law and who believe that their insurers have not handled their claims in good faith.

After storms damaged Mary Erving’s home in Cedar Hill, Texas, she looked to her homeowner’s insurer, National Lloyds to help her rebuild.  National Lloyds sent two adjusters, Team One Adjusting, LLC and Ideal Adjusting, Inc., to inspect the Erving home, and National Lloyds ultimately paid the claims based on the adjusters’ assessments.  Convinced that National Lloyds had undervalued both claims, Erving sued, alleging that the insurance company had, among other things, breached the insurance policy, breached its duty of good faith and fair dealing, and violated Texas statutes prohibiting deceptive trade practices, unfair competition and deceptive practices in insurance and unfair claim settlement practices.

In discovery, Erving requested production of: all claims files from the previous six years involving three adjusters; all claims files in two counties involving Team One Adjusting and Ideal Adjusting; and, by interrogatory, identifying information associated with the requested claims files.  National Lloyds objected that the requests were overbroad, unduly burdensome, and not calculated to lead to the discovery of admissible evidence.  Erving moved to compel, and the trial court entered an order requiring production of a significantly narrowed set of documents.  Specifically, the court limited production to claims handled by Team One Adjusting and Ideal Adjusting related to properties in Cedar Hill and to the two storms that damaged Erving’s house.  National Lloyds sought relief from the court of appeals, which denied the petition.  National Lloyds then sought relief from the Texas Supreme Court, which agreed to take up the matter.

The high court began its analysis by reviewing the general rules of discovery in Texas, and noting that while those rules are “liberal,” they do not permit “[o]verbroad requests for irrelevant information.”  Of course, Erving had argued that her demands sought relevant information, because the documents would help prove whether the adjusters used consistent methods, spent an equivalent amount of time, and used the same pricing data.  She contended that the adjusters undervalued her claims by establishing a “baseline” and comparing her claims to it. 

The court, however, could not see how National Lloyds’ handling of the claims of third parties was probative of its conduct regarding Erving’s claims.  It observed that every claim involves many variables, including when the claim is filed, what condition the property is in, and what damage it suffers.  Although the court was unwilling to say that evidence regarding other policyholders’ claims can never be relevant, it viewed Mary Erving’s request for the information she needed to prove her bad faith claim as a “fishing expedition.”

National Lloyd’s is notable because many high courts give lower courts a wide berth in discovery issues, especially when the lower courts have already substantially pared down the discovery demands in dispute.  Particularly troubling is the fact that unfair claims handling by insurers is often apparent only when those practices are examined through a wider lens that captures how similarly situated policyholders are treated differently—but that perspective isn’t available without access to an insurer’s claims files.  Counsel seeking to prove an insurer’s bad faith in handling claims, at least in Texas, will have to keep in mind that the threshold to obtain the kind of comparative evidence Erving sought is now apparently fairly high.