Zogenix, Inc. v. Federal Insurance Company

Background

Zogenix, Inc. manufactured, marketed, and sold hydrocodone bitartrate, an opioid medication. Various entities sued Zogenix in different courts, alleging that its actions or omissions contributed to the national opioid crisis. Zogenix had purchased insurance policies under which it expected Federal Insurance Company to defend it in those underlying lawsuits. After Federal refused, Zogenix filed this lawsuit.

Zogenix asserted claims for breach of the contractual duty to defend, declaratory relief concerning Federal’s alleged duties under two policies, and breach of the contractual covenant of good faith and fair dealing. The court described the case as involving two declaratory causes of action and two causes of action for breach of contractual duties and covenants.

Zogenix had proposed bifurcating or phasing discovery so that the parties could seek an early ruling on Federal’s alleged duty to defend. Judge Yvonne Gonzalez Rogers instead entered a case schedule with one fact-discovery cutoff and one deadline for summary-judgment motions. Zogenix did not move Judge Gonzalez Rogers to stay the entire case, stay part of discovery, or extend the discovery deadline.

Discovery disputes

The parties jointly filed letter briefs concerning requests to compel discovery. At an August 18, 2021 hearing, Judge Illman issued preliminary rulings granting Federal’s motion to compel and denying Zogenix’s motion to compel, subject to the final written order.

Zogenix relied on California cases involving discovery and stays in insurance declaratory actions, including the line of cases commonly known as Montrose. Zogenix argued that discovery about its knowledge and conduct related to the underlying opioid litigation could prejudice it by forcing it to fight simultaneously with the underlying plaintiffs and its insurer. Zogenix also raised concerns about possible use of adverse findings in the underlying lawsuits and about the recoverability of its discovery costs.

Judge Illman rejected Zogenix’s request for a discovery stay. He concluded that the cited California decisions addressed procedural matters and therefore did not control federal discovery procedure. He also concluded that those cases did not justify limiting Federal’s ability to defend this breach-of-contract lawsuit. The order further stated that Judge Illman could not effectively modify or nullify the case schedule or an earlier decision rejecting phased discovery by Judge Gonzalez Rogers. Zogenix’s objections based on the Montrose line of cases were overruled, and its request to stay Federal’s discovery was denied.

Rulings

The order stated that Zogenix’s objections to producing the discovery described in Disputes 2 through 12 were overruled, and that Federal’s requests to compel the materials described in Disputes 2 through 13 were granted. Zogenix was ordered to provide that discovery promptly.

The order separately addressed Dispute 13 and stated that it was not currently justiciable because the parties had agreed to add an “attorneys’ eyes only” provision and other changes to a stipulated protective order. Because Dispute 13 merely repeated Zogenix’s already-rejected objections, the order denied Dispute 13 as moot.

For Zogenix’s requests to compel, the order denied Dispute 1 because the requested communications and documents involving Federal, its reinsurers, and retrocessionaries were irrelevant, overly broad, and disproportionate to the needs of the case. For Dispute 2, which involved policy drafting histories and related materials, the order directed Federal to provide a verified response stating that it was not aware of responsive drafting-history documents for two specified requests. It denied Zogenix’s request to compel the materials because Zogenix had not shown relevance, the requests were overly broad or vague, and the burden was grossly disproportionate. The order also denied Dispute 3, concerning Federal’s handling of other insureds’ requests for a defense of opioid-related claims, because the burden substantially outweighed any shown relevance.

Judge Illman entered the order on September 3, 2021.