FEDERAL COURT COMPELS INSURER TO PRODUCE BROAD CATEGORIES OF DOCUMENTS RELATED TO INSURED’S COVID-19 CLAIM BUT FINDS NO HARM IN LATE DISCLOSURE

A federal court recently held that an insurer was required to produce several categories of documents in discovery, while giving the insurer additional time to supplement its response. Cinemark Holdings, Inc., et al. v. Factory Mut. Ins. Co., No. 4:21-CV-00011 (E.D. Tex. June 29, 2021) involved a dispute between one of the largest movie theater chains in the U.S.  (“Cinemark”) and its insurer (“Factory”) over whether the “all-risks” insurance policy (“Policy”) covered Cinemark’s claims for COVID-19-related losses.

After filing suit in federal court, the parties were required to exchange initial disclosures. Before the due date, Cinemark sent Factory a letter providing examples of the categories of documents it expected to receive in Factory’s initial disclosure regarding documents the party would use to support its claims or defenses, including (1) the drafting of the disputed Policy wording and underwriting of the Policy; (2) Factory’s investigation and handling of the claim; (3) Governing procedure manuals (claims and underwriting); (4) Representations to state regulators that inform he meaning of the Policy wording; (5) Factory’s knowledge of COVID-19 and Cinemark’s loss; and (6) Information about other similar COVID-19 claims. Factory objected to these categories of documents as irrelevant and unduly burdensome/unreasonable and did not produce them by the Court’s initial disclosure deadline.

Upon approval of the Court, Cinemark moved to compel production of the documents and asked the Court to prohibit Factory from relying on the categories of documents in the case due to Factory’s failure to produce the documents by the initial disclosure deadline.

The Court granted Cinemark’s motion to compel in part, holding that the categories of documents were relevant as to (1) Factory’s intent and understanding of the Policy; (2) whether Factory acted in good faith; (3) whether Factory followed industry custom and its own internal guidelines for investigating Cinemark’s claim; (4) whether the Policy can be reasonably interpreted in multiple ways; (5) how COVID-19 affected Cinemark’s property under the policy; and (6) Cinemark’s allegation that Factory used certain documents to uniformly deny COVID-19 claims.

The Court also held that Factory’s failure to disclose these materials by the initial disclosure deadline was harmless, as such disclosure would require production of thousands of documents (itself requiring thousands of hours of review prior to production) with only ten days’ notice. Therefore, the Court compelled production of the documents but gave Factory thirty days to produce them.