The Cigna Group v. XL Specialty Insurance Company

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
THE CIGNA GROUP, )
)
Plaintiff, )
)
v. ) C.A. No. N23C-03-009 SKR CCLD
)
XL SPECIALTY INSURANCE )
COMPANY, IRONSHORE )
SPECIALTY INSURANCE )
COMPANY, and IRONSHORE )
INDEMNITY, INC., )
)
Defendants. )
MEMORANDUM OPINION AND ORDER
Upon Consideration of Plaintiff’s Motion to Compel Discovery
Directed at XL Specialty Insurance Company:
GRANTED in part and DENIED in part.
Jennifer C. Wasson, Esquire, Carla M. Jones, Esquire, and Ryan D. Kingshill,
Esquire, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware, and Brook
Roberts, Esquire, Drew Gardiner, Esquire, Christine Rolph, Esquire, James Tabb,
Esquire, Jessica England, Esquire, and Paula Moura, Esquire, LATHAM & WATKINS
LLP, San Diego, California, and New York, New York, Attorneys for Plaintiff The
Cigna Group.
Bruce E. Jameson, Esquire, and John G. Day, Esquire, PRICKETT, JONES & ELLIOTT,
P.A., Wilmington, Delaware, and Tammy Yuen, Esquire, Rebecca Amdursky,
Esquire, and Amber Locklear, Esquire, SKARZYNSKI MARICK & BLACK LLP, New
York, New York, Attorneys for Defendant XL Specialty Insurance Company.
Marc S. Casarino, Esquire, Karine Sarkisian, Esquire, and Gary S. Kull, Esquire,
KENNEDYS CMK LLP, Wilmington, Delaware, and Basking Ridge, New Jersey,
Attorneys for Defendants Ironshore Specialty Insurance Company and Ironshore
Indemnity, Inc.
RENNIE, J.
INTRODUCTION
This memorandum opinion considers, grants in part, and denies in part
Plaintiff The Cigna Group’s (“Cigna”) 1 motion to compel discovery from Defendant
XL Specialty Insurance Company (“XL”). 2 Cigna purchased excess insurance
policies from the defendant insurance companies, then received and defended
against a Civil Investigative Demand (“CID”) from the United States Department of
Justice (“DOJ”). In the underlying action, Cigna asserts that the insurers breached
these insurance policies by failing to reimburse Cigna for costs it incurred defending
against the CID because those costs are covered under the policies.
FACTUAL OVERVIEW3
Plaintiff Cigna, a Delaware corporation based in Connecticut, sells health
insurance. Through subsidiary Medicare Advantage organizations (“MAOs”),
Cigna offers Medicare Advantage health insurance plans, which provide
supplemental healthcare benefits for Medicare beneficiaries.
Defendants XL, a Delaware corporation based in Connecticut, Ironshore
Specialty Insurance Company, an Arizona corporation based in Massachusetts
1
Before February 2023, Cigna was named “Cigna Corporation.” Compl.
2
Pl. Cigna Group’s Mot. to Compel Directed at XL Specialty Insurance Company [hereinafter
“Mot. to Compel Directed at XL”].
3
These facts are largely derived from Cigna’s complaint, XL’s answer, Cigna’s motion to compel
discovery from XL, XL’s brief in opposition to that motion, and attachments thereto.
2
(“Ironshore Specialty”), and Ironshore Indemnity, Inc., an Illinois corporation based
in Massachusetts (“Ironshore Indemnity”) (together, “Ironshore,” and collectively,
the “Excess Insurers”), also sell insurance coverage.
On October 1, 2016, Cigna entered into a managed care organization errors
and omissions (“MCE&O”) insurance policy (the “Primary Policy”) with Ace
American Insurance Company (“Chubb”). On the same day, Cigna entered into
excess insurance policies with XL (the “XL Policy”) and Ironshore Indemnity (the
“Ironshore Policy”) (together, the “Excess Policies”) to receive two additional layers
of insurance coverage.
On December 15, 2016, Cigna received a CID from the DOJ. Seven months
later, on July 25, 2017, Cigna’s insurance broker, AON Financial Services (“AON”),
notified Chubb, XL, and Ironshore about the CID. On July 31, 2017, XL sent a letter
to AON, in which XL stated that its claims specialist, Rebecca L. Pidlak (“Pidlak”),
was reviewing the matter. On October 1, 2017, the Primary Policy and the Excess
Policies expired.
Over two years later, on December 10, 2019, Chubb wrote a letter to Cigna,
in which it stated that the CID constituted a coverable “Claim” under the terms of
the Primary Policy and agreed to reimburse Cigna for its defense against the CID.
On March 4, 2020, however, Ironshore and XL wrote letters to Cigna, in which they
stated that the CID does not constitute a “Claim” under their respective policies.
3
Accordingly, Ironshore and XL declined to reimburse Cigna for expenses incurred
defending against the CID.
In September 2020, Chubb reimbursed Cigna for part of the total CID defense
expenses, reaching the limit under the Primary Policy.
PROCEDURAL HISTORY
On March 1, 2023, Cigna filed the complaint in this case against the Excess
Insurers, XL and Ironshore. There, Cigna asserts claims for declaratory relief and
breach of contract, stemming from the failure by the Excess Insurers to reimburse
Cigna for the CID defense expenses.4
On June 23, 2023, pursuant to an extension from the Court, XL filed an answer
to the complaint, including counterclaims for declaratory relief and breach of
contract.5 On June 30, 2023, Ironshore filed an answer to the complaint.6 On August
18, 2023, Cigna filed an answer to XL’s counterclaims. 7
On November 17, 2023, Cigna sent a series of requests for production to XL.
On November 22, 2023, Cigna sent interrogatories and requests for admission to
XL. On December 18, 2023, XL responded to Cigna’s requests for production,
4
Compl.
5
XL Specialty Insurance Company’s Answer to Compl. and Countercls. Against Cigna Group.
6
Ironshore Specialty Insurance Company and Ironshore Indemnity Inc’s Answer to Pl.’s Compl.
7
Answer to XL Specialty Insurance Company’s Countercls.
4
raising objections. 8 On December 22, 2023, XL sent Cigna responses to the
interrogatories and requests for admission, raising objections. 9
On January 17, 2024, Cigna wrote a letter to XL, in which it stated that XL’s
discovery responses were inadequate. 10 On February 1, 2024, Cigna and XL met
and conferred about the adequacy of the discovery responses.11 On February 8,
2024, Cigna wrote a letter to XL, in which it attempted to memorialize in writing the
parties’ remaining disagreements on discovery.12
On February 26, 2024, Cigna filed the instant motion to compel discovery
from XL.13 On March 6, 2024, XL filed a brief in opposition to the motion. 14 On
March 14, 2024, the Court heard argument on the motion. At that time, the Court
reserved decision on the motion to compel directed at XL.15 This is the Court’s
ruling on that motion.
8
Aff. Paula Moura Supp. Mot. to Compel Directed at XL Specialty Insurance Company Ex. 1.
9
Id. Exs. 2, 3.
10
Id. Ex. 4.
11
Id. Ex. 6.
12
Id.
13
Mot. to Compel Directed at XL. On the same day, Cigna filed a motion to compel discovery
from Ironshore. Pl. Cigna Group’s Mot. to Compel Directed at Ironshore Specialty Company and
Ironshore Indemnity, Inc.
14
XL Specialty Insurance Company’s Resp. Cigna Group’s Mot. to Compel Directed at XL
Specialty Insurance Company [hereinafter “XL’s Resp.”]. On the same day, Ironshore filed a brief
in opposition to Cigna’s motion to compel directed at Ironshore. Defs. Ironshore Specialty
Insurance Company and Ironshore Indemnity Inc’s Opp’n Pl.’s Mot. to Compel.
15
At this hearing, the Court also granted in part and denied in part Cigna’s motion to compel
discovery from Ironshore.
5
STANDARD OF REVIEW
Superior Court Civil Rule 26 provides that the parties “may obtain discovery
regarding any matter, not privileged, which is relevant to the subject matter involved
in the pending action, whether it relates to the claim or defense of the party seeking
discovery or to the claim or defense of any other party.” 16 The scope of discovery is
“broad and far-reaching” and its purposes are “to advance issue formation, to assist
in fact revelation, and to reduce the element of surprise at trial.”17
To evaluate a motion to compel discovery, the Court “determines whether the
discovery sought is reasonably calculated to lead to admissible, non-privileged
evidence.”18 Objections to discovery requests “will not be allowed unless there have
been clear abuses of the process which would result in great and needless expense
and time consumption.” 19 The objecting party bears the burden to show that the
information was improperly requested. 20
16
Del. Super. Civ. R. 26(b)(1). Discoverable materials include “the existence, description, nature,
custody, condition and location of any books, documents, or other tangible things and the identity
and location of persons having knowledge of any discoverable matter.” Id. The inadmissibility of
that information at trial is no grounds for objection if the information is reasonably calculated to
lead to discovery of admissible evidence. Id.
17
Suburban Med. Servs. v. Brinton Manor Ctr., 2022 WL 17688194, at *2 (Del. Super. Dec. 15,
2022) (quoting Woodstock v. Wolf Creek Surgeons, P.A., 2017 WL 3727019, at *6 (Del. Super.
Aug. 30, 2017); Levy v. Stern, 1996 WL 742818, at *2 (Del. Dec. 20, 1996)).
18
Suburban Med. Servs., 2022 WL 17688194, at *2 (quoting Hunter v. Bogia, 2015 WL 5050648,
at *2 (Del. Super. July 29, 2015)).
19
Id. (quoting Prod. Res. Grp., L.L.C. v. NCT Grp., Inc., 863 A.2d 772, 802 (Del. Ch. 2004)).
20
Id.6
LEGAL ANALYSIS
In the Motion, Cigna requests that XL produce documents that contain three
categories of information: (1) XL’s claims handling and underwriting guidelines and
manuals related to XL’s primary and excess managed care and MCE&O insurance;
(2) XL’s communications with third parties, including XL’s reinsurers, about the
interpretation and application of the disputed terms in this case; and (3) how XL
reached the decision to deny coverage to Cigna. Further, Cigna requests that XL
respond more fully to Cigna’s interrogatories and requests for admissions on three
categories of information: (1) the identities of the supervisors of XL’s claims
specialist Pidlak; (2) XL’s knowledge of DOJ actions against MAOs under the False
Claims Act; and (3) the factual bases for XL’s conclusion that the CID is not a
“Claim” under the Primary Policy.
A. Production of the Underwriting Manuals
Cigna argues that the scope of the materials discoverable under the Superior
Court Civil Rules is broad and, thus, includes the production of the underwriting
manuals.21 XL responds that the underwriting manuals for its primary MCE&O
21
Mot. to Compel Directed at XL. Cigna also requests XL’s claims administration documents,
communications with reinsurers, and knowledge about DOJ enforcement actions against MAOs.
Id.7
insurance policies are beyond the limits of discovery in this case because they are
too remote from the controversy to be relevant.22
The standard for relevance is “broad at the discovery stage.”23 In discovery
disputes related to the interpretation of an insurance contract, the Court has tended
to give the parties “some opportunity to discover information which may present an
ambiguity in the insurance contracts at issue.”24 Generally, the drafting history and
interpretive materials behind an insurance policy are “discoverable as important to
a full understanding of the intent of insurance companies in coverage cases.”25
Training manuals and company policy memoranda and guidelines help to understand
how the insurance company intended to apply the policy language that they drafted
or adopted.26
Still, in high-complexity litigation, “the Court and parties must set rational
limits and boundaries on the extent of discovery.”27 Accordingly, the Court has
limited an insured’s discovery when “the existence of so many variables make[s] the
possibility of relevance too remote,” “the manner in which the claims of other
22
XL’s Resp.
23
Hartree Nat. Gas Storage, LLC v. PAA Nat. Gas Storage, L.P., 2023 WL 3914900, at *2 (Del.
Super. June 8, 2023).
24
Nat’l Union Fire Ins. Co. v. Stauffer Chem. Co., 558 A.2d 1091, 1094 (Del. Super. 1989).
25
Hoechst Celanese Corp. v. Nat’l Union Fire Ins. Co., 623 A.2d 1099, 1107 (Del. Super. 1991).
26
Id.27
E.I. Du Pont de Nemours & Co. v. Admiral Ins. Co., 1994 WL 555542, at *5-6 (Del. Super. Oct.
4, 1994) (limiting the scope of discovery when failing to do so would delay the trial by at least one
year). The burden of a discovery request “can be limited by tailoring the discovery order. Stauffer
Chem. Co., 558 A.2d at 1094.
8
policyholders are handled would create extended mini-trials,” or the discovery
would exceed rational limits. 28
Here, Cigna’s request for production of XL’s underwriting manuals for its
primary MCE&O insurance policies goes far afield from the relevant issue in this
dispute—XL’s underwriting and handling of Cigna’s claim. The policy at issue is
XL’s excess insurance policy, which is a follow-form policy to Chubb’s Primary
Policy. XL did not write or issue a primary MCE&O policy to Cigna. Thus, the
Court has difficulty understanding how XL’s primary MCE&O underwriting
manuals would inform XL’s understanding, interpretation, or position on the
disputed terms—“Claim” and “Wrongful Act.”29 XL’s interpretations of the
disputed terms of Chubb’s Primary Policy are best gleaned from the documents that
it has committed to producing:
its underwriting manuals for the issuance of excess, follow-form
policies available for use from January 1, 2016 to October 1, 2016, and
its claims handling manuals available for use from July 24, 2017 until
March 1, 2023. These are the manuals that were available for use by
XL when it underwrote the excess, follow-form policy to Cigna, and
during the entire time period from when the DOJ CID was noticed until
Cigna filed the instant action.30
28
Clark Equip. Co. v. Liberty Mut. Ins. Co., 1995 WL 867344, at *3 (Del. Super. Apr. 21, 1995).
29
The Primary Policy defines a “Claim” to include “any written notice received by an Insured that
a person or entity intends to hold any Insured responsible for a Wrongful Act which was committed
or allegedly committed.” Compl.
30
XL’s Resp.
9
B. Production of Communications with Counsel
Cigna argues that XL’s communications with counsel, including Pidlak, are
discoverable and not protected by the attorney-client privilege. 31 XL maintains that
it retained counsel to provide professional legal advice pertaining to the dispute after
it had already issued its coverage position that the XL Policy does not cover the CID
defense costs. Further, XL asserts that it did not waive the attorney-client privilege
by engaging legal services for the coverage dispute. Hence, XL contends that those
communications by outside counsel are privileged and, together with
communications by Pidlak during the claims process, will be reflected on a privilege
log or produced if not privileged. 32
Under the attorney-client privilege, the client “has a privilege to refuse to
disclose and to prevent any other person from disclosing confidential
communications made for the purpose of facilitating the rendition of professional
legal services to the client.”33 A client can waive the attorney-client privilege by
putting the communications at issue in the litigation.34 But a party “does not waive
31
Mot. to Compel Directed at XL.
32
XL’s Resp.
33
D.R.E. 502(b).
34
JPMorgan Chase & Co. v. Am. Century Cos., 2013 WL 1668393, at *3 (Del. Ch. Apr. 18, 2013).
This occurs when “(1) the party injects the communications themselves into the litigation, or (2)
the party injects an issue into the litigation, the truthful resolution of which requires an examination
of the confidential communications.” Id.; Hoechst Celanese Corp., 628 A.2d at 1125.
10
the attorney-client privilege merely by bringing a suit in which the communications
are relevant.” 35
Here, Cigna’s request for production of XL’s communications with Pidlak is
proper because, as acknowledged by XL, Pidlak was the sole claims handler for XL
with respect to this matter. It was not until after the claim position was tendered to
Cigna that XL engaged legal counsel to provide services specific to the dispute.
Thus, any confidential communications between XL and outside counsel that
originate from the provision of legal services in connection with the dispute appear
to be protected by the attorney-client privilege. XL’s communications with outside
counsel that are being withheld from production shall be included in its privilege
log, at which time a better determination can be made about privilege. Further, the
Court does not find that XL waived the privilege merely by engaging counsel to
provide legal services in connection with the dispute. XL has not relied upon any of
these communications with counsel to advance any position that it takes in this
lawsuit.
C. Interrogatories Concerning Knowledge of Other Enforcement
Actions
XL argues that Cigna’s interrogatories 22, 23, and 24 are facially overbroad
and unduly burdensome because they necessarily require an inquiry into the
35
Hoechst Celanese Corp., 628 A.2d at 1125.
11
identification of every XL employee who has knowledge of the interrogatories.36
Cigna’s challenged interrogatories are as follows:
INTERROGATORY NO. 22: Describe Your knowledge of
enforcement actions by the Department of Justice against Medicare
Advantage Organizations (“MAOs”) as of May 4, 2020.
INTERROGATORY NO. 23: Describe Your knowledge of United
States v. Anthem, Inc., No. 20-cv-2593 (S.D.N.Y.), including when You
first learned of the dispute between Anthem, Inc. and the United States
Government.
INTERROGATORY NO. 24: Describe Your knowledge of United
States ex rel. Poehling v. UnitedHealth Group, Inc., No. CV 16-08697
(C.D. Cal.), including when You first learned of the dispute between
UnitedHealth Group, Inc. and the United States Government.37
In Delaware, plaintiffs are entitled to “full interrogatory responses, including
the factual and legal bases of defendants’ affirmative defenses.” 38 That said, “the
Court should only direct an interrogatory to be answered if the interrogatory seeks
legitimately relevant information, does not annoy and oppress unjustly, and the party
made a showing of the need for the information sought by the interrogatory.” 39
Here, XL has sufficiently demonstrated that interrogatories 22, 23, and 24 are
overbroad. XL is a corporate entity. Because these interrogatories fail to specify
the identity of the person whose knowledge of the referenced case law is requested,
36
XL’s Resp.
37
Mot. to Compel Directed at XL Ex. 3.
38
Suburban Med. Servs. v. Brinton Manor Ctr., 2022 WL 17688194, at *3 (Del. Super. Dec. 15,
2022).
39
Id.12
the Court does not direct an answer in this instance. Moreover, the inquiries are not
relevant or reasonably calculated to lead to admissible evidence. Cigna contends
that the requested information goes directly to XL’s defense that it had no notice that
the government intended to hold Cigna responsible for a “Wrongful Act.”40 XL’s
knowledge of the DOJ’s investigations of other MAO organizations is far removed
from, and has no relevance to, the specific issue here—whether the DOJ CID issued
to Cigna is a “Claim” under the applicable policy.
D. Interrogatories Concerning the Interaction of CIDs and the Primary
Policy
XL argues that interrogatories 26, 27, 28, and 29 are improper because they
relate only to incomplete and nonspecific hypothetical scenarios, rather than to any
law or fact at issue in the case. XL asserts that it cannot speculate when, and under
what circumstances, a CID might become a “Claim,” as that term is defined in the
applicable policy. 41 Cigna’s challenged interrogatories are as follows:
INTERROGATORY NO. 26: Describe the circumstances under
which a CID can be both a Governmental Investigation and a Claim as
those terms are used in the Primary Policy.
INTERROGATORY NO. 27: Describe the circumstances under
which a CID can become a Claim under the Primary Policy.
40
Mot. to Compel Directed at XL (“Indeed, such evidence goes directly to XL’s defense that it
purportedly had no notice that the government intended to hold Cigna responsible for a Wrongful
Act.”).
41
XL’s Resp.
13
INTERROGATORY NO. 28: Describe the circumstances under
which a CID is to be treated as a Claim under the Primary Policy.
INTERROGATORY NO. 29: If You contend that a CID cannot be a
Claim under the Primary Policy, Describe the factual basis for Your
contention.42
Interrogatories “may relate to any matters which can be inquired into under
Rule 26(b).”43 This includes “any non-privileged matter that is relevant to any
party’s claim or defense and proportional to the needs of the case.” 44 An
interrogatory is “not necessarily objectionable merely because an answer to the
interrogatory involves an opinion or contention that relates to fact or the application
of law to fact.”45
Here, interrogatories 26, 27, 28, and 29 are not categorically improper.
However, they are divorced from the specific facts of this case. The issue in this
case is not the circumstances under which a CID can become a “Claim” under the
Primary Policy but, rather, the basis for XL’s position that the DOJ CID is not a
“Claim,” as that term is defined in the applicable policy. That inquiry should
properly be made through contention interrogatories. Hence, XL’s objection to these
interrogatories is warranted.
42
Id. Ex. 1.
43
Super. Ct. Civ. R. 33(c).
44
Super. Ct. Civ. R. 26(b)(1).
45
Super. Ct. Civ. R. 33(c).
14
E. Production of Communications with Reinsurers
By letter dated March 5, 2024, Cigna clarified to XL that it is seeking XL’s
communications with reinsurers “about the interpretation and application of the
disputed policy terms . . . or any substantively similar terms.” 46 XL objects to this
revised demand on the grounds that its communications with reinsurers about the
interpretation and application of the disputed insurance policy terms are not in
accordance with the proper breadth and relevance of discovery. 47 Cigna contends
that XL’s communications with reinsurers are relevant to the issue of whether XL
believed that Cigna’s claim was covered. 48
Delaware courts often “have recognized the relevance of reinsurance
information and ordered production of insurance company communications with
their reinsurers in connection with coverage actions.”49 That said, Delaware
decisions “have not been unanimous,” historically, on the extent to which insurers’
communications with reinsurers are discoverable.50 Production requests that are
46
XL’s Resp.
47
Id.48
Mot. to Compel Directed at XL Ex. 4.
49
Hoechst Celanese Corp. v. Nat’l Union Fire Ins. Co., 623 A.2d 1099, 1107-08 (Del. Super. 1991)
(“The Court finds that defendants’ communications with their reinsurers may provide or lead to
the discovery of potentially admissible extrinsic evidence of a meeting of the minds concerning
the language of the policies at issue.”); Nat’l Union Fire Ins. Co. v. Stauffer Chem. Co., 558 A.2d
1091, 1096-97 (Del. Super. 1989) (requiring insurers to produce communications with reinsurers
but not with outside counsel).
50
Clark Equip. Co. v. Liberty Mut. Ins. Co., 1995 WL 867344, at *1 (Del. Super. Apr. 21, 1995).
For instance, this Court has referenced cases in which discovery of reinsurance information was
denied, viewing reinsurance decisions as primarily business considerations rather than matters of
15
“carefully tailored . . . to focus on more precise issues of relevance” are viewed more
favorably by the Court. 51
Here, Cigna properly requested production of XL’s communications with its
reinsurers about the interpretation and application of the disputed policy terms,
“Claim” and “Wrongful Act.” To assuage XL’s concern about the breadth and
relevance of the request, the Court will further tailor and limit the request to DOJ
CIDs. These communications shed light on XL’s interpretation and application of
the insurance policy language at issue in this case.
CONCLUSION
Consistent with the foregoing, Cigna’s motion to compel discovery from XL
is GRANTED in part and DENIED in part.
IT IS SO ORDERED, this 27th day of June, 2024.
____________________ _________
Sheldon K. Rennie, Judge
insurance policy interpretation, and others in which Delaware courts upheld discovery of
reinsurance information. Id. at *2.
51
Id. at *2.
16