Rule 26(a)(1) Disclosures — Failure to Identify Witnesses That Party “May Use” Not Excused by Their Mention in Produced Documents Nor by Reference to One as Knowledgeable in Interrogatory Answers — 26(e) No Defense

Wallace v. USAA Life Gen. Agency, Inc., 862 F. Supp. 2d 1062 (D. Nev. 2012):

This action involves USAA's denial of Plaintiff's claim for life insurance benefits based on the insurer's contention that Plaintiff's deceased husband's life insurance application contained misrepresentations and omissions that were material to the issuance of the $500,000 policy. More specifically, USAA contends that Mr. Wallace failed to disclose medical testing and treatment occurring between his application date and the issuance of the policy and that he answered certain questions incorrectly on his application.

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Following the USAA's denial of her claim, on September 21, 2010, Plaintiff filed her complaint in state court alleging five causes of action for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) breach of fiduciary duty, (4) insurance bad faith, and (5) declaratory relief, all based on USAA's failure to make prompt payment of benefits under the policy. On October 22, 2010, USAA removed the action on the basis of this court's diversity jurisdiction. Following discovery, USAA now moves for summary judgment (#18), and Plaintiff opposes and cross-moves for summary judgment (#22, #23). Plaintiff also moves to strike USAA's motion as based on the testimony of an expert witness the Magistrate Judge has since disqualified (#27) and other witnesses that were not properly disclosed during discovery. Plaintiff also moves to exclude those improperly disclosed witnesses (#28), as well as improperly disclosed documents (#30).

II. Evidentiary Motions

A. Plaintiff's Motion in Limine #1 (#28)

Plaintiff's first motion in limine seeks to exclude three witnesses--Peter Morris, Katy Luebke and Kim Wilhoite--as undisclosed or improperly disclosed during discovery. Morris is USAA's principal  [**4] underwriter and the person who, following the insured's death and Plaintiff's claim for benefits, reviewed the insured's insurance application and undisclosed medical history and determined that USAA would not have issued the life insurance policy had it known the correct information--i.e., that the inaccuracies and omissions were material. Luebke and Wilhoite are the underwriters that reviewed the insured's application before issuance of the policy.

As part of a party's initial disclosures in discovery, the party "must, without awaiting  [*1065]  a discovery request, provide to the other parties: (i) the name and, if known, the address and telephone number of each individual likely to have discoverable information--along with the subjects of that information--that the disclosing party may use to support its claims or defenses, unless the use would be solely for impeachment." Fed. R. Civ. P. 26(a)(1)(A)(i). Such initial disclosures must be made "at or within 14 days after the parties' Rule 26(f) conference unless a different time is set by stipulation or court order." Fed. R. Civ. P. 26(a)(1)(C). Furthermore, "[a] party must make its initial disclosures based on information then reasonably available to it. A party is not excused from making its disclosures because it has not fully investigated the case . . . ." Fed. R. Civ. P. 26(a)(1)(E).

Here, USAA issued its Rule 26(a)(1)(A)(i) initial disclosure of witnesses on January 7, 2011, and two supplemental witness disclosures on June 9, 2011 and July 19, 2011, the discovery cut-off date. None of these disclosures list Morris, Luebke or Wilhoite.

USAA points instead to its disclosure of Morris in its Answers to Interrogatories, which it issued along with its second supplemental witness disclosure on the discovery cut-off date, July 19, 2011. In response to Interrogatory No. 1, requesting the identities of "every person who had any involvement in handling the claim that is the subject of this lawsuit," USAA listed "Pete Morris" and others listed as "individuals [that] were involved in certain aspects of processing the claim." (Doc. #33-2, pp. 2-3.)

Regarding Luebke and Wilhoite, USAA has never specifically identified them as potential witnesses or even as persons with knowledge. Instead, their names appeared only in the bodies of documents disclosed in USAA's response to Plaintiff's request for production of documents and as part of USAA's supplemental Rule 26 disclosures, both of which were issued on the discovery cutoff date, July 19, 2011.

As to Luebke and Wilhoite, the court finds that USAA has never properly identified either individual as a potential witness in compliance with Rule 26. The mere appearance of their names within documents disclosed on the discovery cut-off date 3 is plainly insufficient to satisfy the requirements of Rule 26 for identifying potential witnesses. Such disclosure was purely incidental. USAA has never identified Luebke or Wilhoite as persons likely to have discoverable information, nor made any indication that they are witnesses that USAA "may use to support its claims or defenses." Fed. R. Civ. P. 26(a)(1)(A)(i) (also requiring disclosure of each witness' name, address, telephone number, and subjects of the discoverable information they are likely to have).

3   Regarding the timing of USAA's discovery responses, the court disapproves of USAA's obfuscation that it responded "prior to the close of discovery and a month before USAA's summary judgment motion." In fact, the disclosures were made on the discovery cut-off date, leaving Plaintiff no opportunity to conduct further discovery as to any witness disclosed on that date. Also, that a month passed before USAA filed its summary judgment motion is entirely irrelevant, as discovery had already closed.

The court also finds that USAA failed to comply with the plain requirements of Rule 26(a)(1) as to Morris, USAA's principal underwriter, notwithstanding USAA's identification of Morris in its Answers to Interrogatories at the close of discovery. Like Luebke and Wilhoite, Morris was never disclosed as a potential defense witness in any of USAA's initial or supplemental Rule 26 disclosures. Even in USAA's Answers to Interrogatories,  [*1066]  USAA identified Morris only as a person "involved in certain aspects of processing the claim." He was never identified by USAA as a potential witness that it "may use to support its claims or defenses." Fed. R. Civ. P. 26(a)(1)(A)(i) (emphasis added). USAA's intent to use Morris as a defense witness was not revealed until after the close of discovery, when USAA filed a motion for summary judgment that relies extensively on Morris' affidavit and no other witness to establish the materiality of the insured's alleged misstatements and omissions--the very core of the parties' dispute.

Moreover, beside USAA's failure to comply with the substantive requirements of Rule 26(a)(1)(A)(i), USAA's identification of Morris at the close of discovery was untimely under Rule 26(a)(1)(C). USAA has presented no grounds to avoid its obligation to disclose a known, key witness like Morris in its initial disclosures. Not only is USAA "not excused from making its disclosures because it has not yet fully investigated the case," here there is no question that Morris' identity, involvement and significance to Plaintiff's claims and USAA's defense was "reasonably available" to USAA at all stages of this case. Fed. R. Civ. P. 26(a)(1)(E). Morris was USAA's principal underwriter and was centrally involved in the denial of Plaintiff's claim for benefits. He personally reviewed Plaintiff's claim for benefits and the insured's disclosed and undisclosed medical information, and he personally made the determination that misstatements and omissions were made and that they were material, justifying denial of Plaintiff's claim. In its briefing on summary judgment, USAA admits as much (see Doc. #24 (Reply), p. 16) and accordingly presents the testimony of Morris and no other witness in support of its arguments on the central issue of materiality. On these facts, USAA's obligation to disclose Morris as a potential defense witness in its initial disclosures at the outset of discovery is plain. Its mere identification of Morris in a non-Rule 26 disclosure at the close of discovery is therefore untimely.

Such untimeliness is not excused by Rule 26(e), which requires prompt supplemental or corrective disclosures where a party "learns that in some material respect [a prior] disclosure or response is incomplete or incorrect." Rule 26(e) does not dispense with the substantive disclosure requirements of Rule 26(a), which the court has already concluded USAA has failed to satisfy. Moreover, there is nothing in the record to support the notion that USAA's identification of Morris in its Answers to Interrogatories at the close of discovery was either intended as a Rule 26(e) supplemental disclosure, or that it was justified as such because of some late realization on USAA's part that its prior Rule 26 disclosures were incomplete or incorrect. Indeed, USAA omitted Morris' name from its supplemental Rule 26 witness disclosure that it filed the same day as its Answers to Interrogatories. Simply put, USAA's disclosure was not a Rule 26 disclosure at all.

The court rejects USAA's argument that the fault of its failures to comply with Rule 26 lies with Plaintiff rather than itself, because Plaintiff did not depose the defense witnesses USAA did disclose or submit any discovery requests until late in the process. USAA's argument is directly contrary to the purpose and text of Rule 26(a)(1)(A), which expressly mandates disclosures "without awaiting a discovery request."

The court also rejects USAA's argument that the requirements of Rule 26(a) were only triggered "if a decision was made" that certain individuals "would be used" to  [*1067]  support its claims or defenses. This argument is also contrary to the purpose and text of Rule 26(a), which expressly provides that parties must disclose any witnesses likely to have discoverable information that the party "may use" to support its claims or defenses, that the party must make such disclosures "based on the information then reasonably available to it," and that the lack of a full investigation is no excuse. Fed. R. Civ. P. 26(a)(1)(A)(i), (E). USAA's construction would eviscerate the rule's mandatory nature and make disclosures subject to a party's whim.

The court further concludes that USAA's failure to comply with its Rule 26 obligations as to Morris, Luebke and Wilhoite is not excused as "substantially justified or . . . harmless." Fed. R. Civ. P. 37(c)(1). The court has already rejected as illegitimate USAA's attempt to justify its non-compliance by assigning blame to Plaintiff and by obfuscating as to the timing of its disclosures. Accordingly, for the reasons discussed above, the court finds that USAA has failed to provide any legitimate justification for delaying its identification of these witnesses until the close of discovery, or for failing to make, in substance, any Rule 26 disclosure as to these witnesses. The court also rejects USAA's argument that its non-compliance was harmless. USAA's argument, that it should be permitted to use its non-disclosed witnesses because its disclosed witnesses could have provided the same information if deposed, is a non sequitur and a thinly-veiled attempt to again assign the responsibility to Plaintiff for its own violations of Rule 26. The court also finds little support for USAA's questionable assertion that these witnesses are so readily replaceable. Luebke and Wilhoite were the underwriters that personally reviewed the insurance application in this case; and Morris is USAA's principal underwriter and personally reviewed Plaintiff's claim and determined that the insured's misrepresentations and omissions were material to USAA's issuance of the policy. In any event, if the disclosed witnesses identified by USAA are indeed adequate substitutes, then USAA should have no difficulty proceeding without Morris, Luebke and Wilhoite.

The court therefore concludes that, based on USAA's failure to comply with its Rule 26 obligations as to Morris, Luebke and Wilhoite, USAA "is not allowed to use [these witnesses] to supply evidence on a motion, at a hearing, or at a trial." Fed. R. Civ. P. 37(c)(1). Plaintiff's Motion in Limine #1 to exclude these witnesses shall be granted accordingly. In recognition of the severity of such a sanction, Plaintiff's further request for attorney's fees related to the presentation of this motion is denied.

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