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Riddell, Inc. v. Superior Court (2nd Dist. Ct. App. 2017) ___Cal. App. 5th ___, 2017 DJDAR 8152, Case No. B275482

Monday, October 02, 2017

UNDERLYING CLAIM 

Riddell was sued by numerous former professional football players in consolidated actions alleging negligence and products liability resulting in neurological damage allegedly suffered as a result of wearing Riddell helmets while playing football.  Riddell filed a coverage action against various insurers alleging declaratory relief, breach of contract and bad faith.  The insurers filed answers alleging that Riddell expected or intended the injuries, that it had prior notice of the injuries but failed to disclose this information when purchasing the policies, and that the alleged injuries did not occur during their respective policy periods.  During the course of discovery, the insurers requested production of certain documents and answers to certain interrogatories to which Riddell refused to respond on the ground that the discovery was related to issues in the underlying third party action.  The insurers moved to compel responses and for the production of a privilege log.  Riddell moved for a protective order. 

The trial court granted the insurers' motions to compel and denied Riddell's motion for a protective order, finding that the insurers were seeking to determine when the injuries occurred for policy period purposes and the question of when the underlying claims arose was unrelated to issues of consequence in the underlying action. The court also determined that a protective order already in place was sufficient to protect Riddell from any prejudice in the underlying action.  The court ordered Riddell to produce privilege logs, excluding only communications with its coverage counsel in the coverage action or work product created in anticipation of the coverage action.  Riddell filed a petition for writ of mandate and the court of appeal issued an alternative writ directing the trial court to vacate its order or show cause why the petition should not be granted.  The trial court did not vacate the order. 

APPELLATE COURT'S RULING

The appellate court first noted that, under California law, when the factual issues in an action for declaratory relief overlap with those to be decided in an underlying action, the trial court must stay the action for declaratory relief because of the risk of collateral estoppel.  Similarly, when "discovery in the declaratory relief action is logically related to issues affecting liability in the underlying action," there is a similar risk of prejudice.  In addition to the risk of collateral estoppel, the appellate court noted that "the insured will inevitably be prejudiced by having to pay the costs of discovery in the declaratory relief action that would, if it had taken place in the underlying action, have been paid by any insurers with a duty to defend."  Simply put, "the insurer cannot use the discovery process in the declaratory relief action to investigate or develop those facts if they are logically related to issues affecting the insured's liability.  Rather, that factual investigation and development must take place in the underlying litigation, where any insurer with a duty to defend should be paying the insured's defense, including discovery costs. (Citation.)"

In the present case the insurers sought documents related to prior claims against Riddell, the defense or settlement of certain claims and the dates when the plaintiffs played professional football wearing the helmets and the models worn.  The appellate court found these issues were all related to the underlying action because the plaintiffs in those actions bore the burden of proving they played, when they played, that they wore Riddell helmets and the model worn.  Furthermore, discovery related to prior claims would bear directly on Riddell's knowledge of the risks of playing football while wearing Riddell helmets, an issue in the underlying action.  Since the discovery at issue in the coverage action was logically related to the issues affecting Riddell's liability in the underlying action, Riddell's request for a stay should have been granted. 

The appellate court also agreed with Riddell's contention that the protective order currently in place did not adequately protect Riddell's interests nor could it be amended to do so.  Once again, use of discovery in the coverage action could result in collateral estoppel in the underlying action and Riddell would be forced to pay fees and costs associated with discovery which would otherwise be paid for by insurers with a duty to defend the underlying action.  No order of protection would resolve these problems. 

Finally, the appellate court addressed the insurers' request for a privilege log identifying documents withheld from prior productions and concluded that the trial court had correctly compelled the production of such a log as to documents previously withheld, excluding privileged documents generated in connection with,  and after the filing of, the third party actions. 

Based on the foregoing,  the court of appeal granted the petition and issued a peremptory writ ordering the trial court to vacate its order compelling Riddell to respond to the discovery requests, and to enter a new order (1)granting the motion to compel a privilege log as to previously produced documents (excluding documents generated in connection with and post-dating the filing of the third party actions), (2)otherwise  denying the motions to compel and (3)staying the discovery at issue.

EFFECTS OF THE  COURT'S RULING

The court of appeal's ruling in this case follows established California case law requiring a stay of action or of discovery in a coverage action where such action or discovery in the coverage case is related to and would affect the insured's liability in the underlying third party action.  Interestingly, although prior decisions indicated that a stay of discovery must be issued unless a confidentiality order would adequately protect the insured's interests, the court of appeal in this case appears to effectively eviscerate this exception by concluding that the insured would be prejudiced any time it is forced to expend fees and costs on discovery in the coverage action that would otherwise be paid for by any insurer with a duty to defend the underlying action.  This would likely always be the case and therefore it is difficult to conceive of a situation in which a confidentiality order would be sufficient to protect the insured's interests.

 

This opinion is not final. It may be withdrawn from publication, modified upon rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.

This publication is intended for informational purposes only and is not intended as legal advice or as a substitute for legal consultation in a particular case or circumstance. Transmission of this information is not intended to create, and receipt does not create, an attorney-client relationship.

Last Updated Tuesday, January 16, 2018 - 07:35 PM.