State Farm Mutual Automobile Insurance v. Schlossberg

FISCHER, Judge. Appellant, State Farm Mutual Automobile Insurance Company (State Farm), appeals from a default judgment ⁴⁸ entered in the Circuit Court for Prince George’s County and the assessment of damages in the amount of $1,163,534.36. 1 The instant litigation arose from a prior suit in which State Farm’s insured, Jorgen L. Larsen (Larsen), was sued along with David W. Watkins (Watkins) for the wrongful death of a fifteen year old boy, Thomas J. Sexton, III. That case was tried in the the Circuit Court for Prince George’s County from July 27, 1982 through August 5, 1982. The jury found for the plaintiffs against both defendants in the amount of $502,412.11.

Watkins was insured in the amount of $20,000 and Larsen $50,000. Unable to pay the balance of the judgment, Larsen filed for protection of the United States Bankruptcy Court, and on May 31, 1985, Roger Schlossberg (trustee), trustee of Larsen’s bankrupt estate, filed suit against Larsen’s attorney Phillip E. Epstein (Epstein). On August 1, 1985, an amended complaint was filed joining State Farm’s attorney, Marvin B. Miller (Miller), and State Farm as defendants. The latter case is the subject of this appeal.

Both Epstein and Miller were dismissed as defendants prior to the appeal now under consideration and are no longer involved in this case. Before us is the second appeal in the course of this litigation. Pursuant to motions filed by the defendants, summary judgment was entered on February 27, 1987 in favor of Epstein, Miller and State Farm. On January 6, 1988, this Court reversed the judgments and remanded the case to the Circuit Court for Prince George’s County for further proceedings.

Schlossberg v. Epstein, 73 Md.App. 415 , 534 A.2d 1003 (1988). ⁴⁹ The trustee continued with discovery efforts and, on October 18, 1988, filed a notice and a subpoena duces tecum requesting that State Farm’s corporate designee produce certain documents on Monday and Tuesday, November 14 and 15, 1988 in Bloomington, Illinois. Since the magnitude of the request materially affected what subsequently transpired, we will reproduce it in its entirety. DESIGNATED AREAS OF TESTIMONY 1. to identify the persons and describe fully the activities of all personnel [located at the home office] who were involved in any aspect of the claims arising from the accident. This request includes both the Sexton lawsuit and the current Schlossberg claim. 2. to identify the persons and describe fully the activities of all personnel [located at the home office] who were involved in the establishment or execution of policies or procedures respecting claims for damages which exceed the policy coverage.

This includes the policies/procedures in effect in 1980 and all changes to the present date. 3. to identify the persons and describe fully the activities of all personnel [located at the home office] who were involved in the establishment or execution of policies or procedures designed to prevent judgments against State Farm for negligent or bad faith handling of claims against its insureds. This includes the policies/procedures in place in 1980 and all changes to the present time. 4. to identify and describe fully any legal action in court or administrative action before a governmental body brought against State Farm for negligence or bad faith in handling any claim against its insured. This includes actions styled as for fraud or misrepresentation in the failure to pay benefits or in settling claims. 5. The witness or witnesses should be prepared to testify fully concerning the identity, and present location of every document reflecting any of the persons or activities identified in the above paragraphs. ⁵⁰ 6. to identify the General Claims Consultant to the Divisional Claims Superintendent responsible for the Sexton case after the verdict was received, and to describe fully his activities undertaken in accordance with General Claims Memo #315 (R-2) dated 9/15/78 and any other applicable General Claims Memoranda. 7. to identify the members of the General Claims Committee (and to describe fully their activities) undertaken pursuant to General Claims Memo dated 12/17/79 and any other applicable General Claims Memoranda. 8. to identify the person in the Corporate Law Department assigned to be responsible for the direct supervision of the Schlossberg lawsuit against State Farm pursuant to General Executive Memo # 132 dated 4/10/85.

DOCUMENTS AND TANGIBLE THINGS TO BE PRODUCED 1. Every document, tape or video recording reflecting policies and procedures in place for the handling of automobile liability claims from July 12, 1980, to present which should include but not be limited to: a. policies and procedures for cases in which a policy limits demand or demand in excess of the policy has been made by counsel suing the insured; b. policies and procedures for cases in which independent counsel representing the insured had demanded that State Farm make an effort to settle the case by offering the limits of the coverage under the policy. 2. Every document, video or tape recording in any way involved in the handling of the accident investigation on July 12, 1980, involving State Farm’s insured, Jorgen L. Larsen. 3. Every document, video or tape recording in any way involved in the handling of the litigation resulting from the accident on July 12, 1980, involving State Farm’s insured, Jorgen L. Larsen. ⁵¹ 4.

Every document, video or tape recording in any way involved in the handling of the bad faith litigation against State Farm Mutual Insurance Company, Inc., and State Farm’s insured, Jorgen L. Larsen. 5. Every document, video or tape recording reflecting the date, time, place, and nature of the work performed by each person who was in any way involved in the handling of the matters described in the preceding paragraphs. 6. The State Farm procedures and systems manual used as of July 12, 1980, and including all changes to the present. 7. The State Farm general claims manual used as of July 12, 1980, and including all changes to the present. 8.

The State Farm automobile claims manual used as of July 12, 1980, and including all changes to the present. 9. The State Farm claims superintendent manual used as of July 12, 1980, and including changes to the present. 10. All documents reflecting the policies and procedures of the State Farm Mutual Automobile Insurance Company, Inc., pertaining to the retention and management of claims files such as the one maintained in the case of Sexton v. Larsen. * If the precise name of a manual is different from that used in the above request, please produce the manual most closely resembling the name used in the request. 11. A copy of the complete file sent to the General Claims Committee pursuant to General Claims Memorandum #300 dated 12/17/79 or other applicable GCM. 12.

A copy of the complete file sent to the General Claims Consultant to the Divisional Claims Superintendent pursuant to GCM# 315 (R-2) dated 9/15/78 or other applicable GCM. 13. A complete copy of the Master File on the Sexton case kept by Claims Superintendent Healey. 14. Copies of the two video tapes in V2 inch format entitled “ITS MORE THAN JUST A PHONE CALL.” ⁵² 15. Copies of the claim Video Network Catalogs as of July, 1982, and at the present time. 16.

Video tapes (believed #49) titled: “INTRODUCTION TO AUTO ACCIDENT RECONSTRUCTION” “AUTO ACCIDENT RECONSTRUCTION IN THE COURTROOM” “AUTO ACCIDENT RECONSTRUCTION FACTS AND MEASUREMENTS” 17. Video tape # 54 titled “BAD FAITH LITIGATION” 18. A complete copy of the file sent to the Corporate Law Department person responsible for direct supervision of the Schlossberg lawsuit against State Farm pursuant to General Execution Memo # 132 at 4/10/85. Following receipt of the notice, on November 7, 1988, State Farm filed a motion for protective order in which it stated that the depositions were requested on twenty eight days notice, that its lead counsel, O’Doherty, was unavailable on the dates indicated, that some of the material requested was not discoverable and asked that the depositions be scheduled in Baltimore.

On November 14, 1988, the trustee responded with an opposition to State Farm’s motion for protective order and requested that the time for production be shortened by two days. On the same date, the trustee also filed a motion to compel discovery and for sanctions. The motion for protective order was scheduled for hearing on November 14, 1988. Judge Bowling heard the matter in chambers and no record was made of the proceeding.

Exactly what transpired is a matter of conjecture, since the attorneys in this case agree on very little. In any event, it seems clear that Mr. Wheeler, O’Doherty’s associate, saw the “Plaintiff’s Motion for Order Compelling Discovery and for Sanctions” for the first time at 9:00 a.m. on Novembér 14, 1988 when he met with Mr. Shadoan and Judge Bowling in chambers. It also appears that Judge Bowling expressed reservations about presiding over the ⁵³ trial since he was friendly with Mr. Miller, the former State Farm attorney who was then a defendant in the case. Nevertheless, as Mr. Wheeler did not object, Judge Bowling proceeded to hear the motion to compel which Mr. Shadoan introduced on that morning.

After conferring with the attorneys, Judge Bowling signed an order requiring State Farm to comply with all of the comprehensive dictates of the notice filed on October 18, 1988. It is apparent that the existence of this order, imposing onerous requirements on State Farm, set the stage for the default subsequently entered. This is not intended as a criticism of Judge Bowling in signing the order. The action taken by him is understandable in view of the prior discovery problems involving loss of the State Farm claims file and concomitant inability on the part of State Farm to answer interrogatories fully.

The court was also making strenuous efforts to reach a trial date in the Spring of 1989. Nevertheless, the existence of the November 14, 1988 order gave the trustee a lever which he, assisted by State Farm’s intransigence, skillfully used to secure the default. The deposition proceeded as scheduled on November 15 and 16, 1988 in Bloomington, Indiana. State Farm produced its corporate designee, Francis X. Comella, Jr., who testified for two days in a deposition comprising 288 pages.

A fair reading of the deposition reveals that Comella testified in a forthright manner. During the course of the two days, there were a few areas of inquiry at which State Farm, through its counsel, balked. On the whole, those areas were not extensive and primarily involved matters to which State Farm had reasonable objections deserving of judicial review. Parenthetically, the need of State Farm to object, seemingly in the face of a court order, was a direct result of the order of November 14, 1988 which, clearly, should not have been entered without adequate notice to State Farm and a reasonable opportunity to contest.

On December 2, 1988, the trustee sought sanctions against State Farm for failure to obey the discovery order ⁵⁴ of November 14, 1988. Subsequently, on December 29, 1988, the trustee filed a supplemental memorandum in support of his motion for default, for sanctions, to compel discovery, and for other relief. In his motion and supplemental memorandum, the trustee alleged that State Farm had refused to obey the court order of November 14, 1988, had refused to designate any witness to testify concerning the corporate policies respecting claims which exceeded the policy limits, had refused to designate any witness to testify respecting its policies concerning claims against the company for bad faith or negligent handling of claims, had refused to allow plaintiffs counsel to inspect or copy certain video tapes, and had refused to produce a claim manual. In this posture, the matter came before Judge Nalley for hearing on January 19, 1989.

At the hearing, the trustee avered that State Farm failed to produce certain manuals. State Farm had, however, produced numerous manuals and had offered to produce the disputed manuals to a judge who could rule on their admissibility. The trustee further alleged that State Farm refused to produce and permit copying of certain videotapes. The record shows, however, that State Farm had offered to produce the videos to the court so that a ruling could be made on their admissibility.

After a lengthy hearing, Judge Nalley found that there had been a wholesale failure to comply with discovery. He granted the motion for default 2 , and gave State Farm an opportunity to cure the default by producing, in Maryland, Mr. G. Robert Mecherle to testify fully concerning items numbered 1 through 5 of the court order of November 14, 1988 and to provide State Farm's “Excess Liability Handbook”, copies of its manuals and copies of its videotapes. Unfortunately, the court gave little attention to State Farm’s legitimate discovery questions and proceeded as if ⁵⁵ Judge Bowling’s order of November 14,1988 resolved them all. The trustee then deposed Mr. Mecherle in Baltimore.

While it appears that the previous deponent, Mr. Comella, testified forthrightly and cooperatively, the same cannot be said of Mr. Mecherle. Mr. Mecherle, seemingly oblivious to the extreme peril faced by State Farm in view of the default and Judge Nalley’s clear instructions, refused to answer numerous questions. Considering the position in which State Farm found itself, prudence would have suggested that Mecherle answer the questions propounded and that counsel interpose appropriate objections at the time the evidence was offered at trial. Niemeyer & Richards, Md. Rules Commentary, p. 212.

Faced with Mecherle’s lack of cooperation, Judge Nalley refused to strike the default. The matter was subsequently scheduled for trial; Judge Nalley received testimony on inquisition for damages and entered judgment in favor of the trustee in the amount of $1,163,534.36. Appellant raises a number of issues which we shall consider in order. 1. Did the trial court abuse its discretion in denying the defendant’s, State Farm Mutual Automobile Insurance Company, motion for protective order? 2.

Did the trial court abuse its discretion in granting plaintiff’s motion for order compelling discovery and for sanctions? 3. Did the trial judge commit reversible error in issuing an order granting the plaintiff’s motion to compel discovery and deferring consideration of sanctions pending compliance with the order where immediate recusal was mandated? 4. Did the trial court abuse its discretion in entering a conditional default judgment? 5. Did the trial court abuse its discretion in granting the plaintiff’s motion for a default judgment with sanctions? ⁵⁶ 6.

Did the trial court commit reversible error in denying the defendant, State Farm, a right to a jury trial on the issue of damages or, in the alternative, is Rule 2-433(a)(3) constitutional? 7. Did the trial court commit reversible error in awarding attorney’s fees and trial preparation expenses? 8. Did the. trial court commit prejudicial error in refusing to consider evidence in mitigation of damages? 1. Did the trial court abuse its discretion in denying State Farm’s motion for Protective Order?

The record indicates that the trustee cleared the deposition dates with appellant’s designee. The court had authority to shorten the time for notice to take the deposition, and the reduction of two days is not of itself onerous. The fact that State Farm’s lead counsel was unavailable is not sufficient ground to require a postponement of the deposition, and the location in Bloomington, Indiana, where the home office of State Farm is located, was not an inconvenient forum for State Farm. While we concede that, in the interests of a more deliberate and orderly procedure, it might have been desirable for the court to grant the motion for protective order, we do not believe that the failure to do so amounted to an abuse of discretion. 2.

Did the trial court abuse its discretion in granting trustee’s motion for an order compelling discovery? On November 14, 1988, Judge Bowling denied State Farm’s motion for protective order and took the additional step of signing an order requiring State Farm to comply with extremely detailed, comprehensive discovery requirements. State Farm insists that this action amounted to an abuse of