Bryce Corporation v. XL Insurance America, Inc.

Background

Bryce Corporation, a Tennessee corporation with its principal place of business in Memphis, held an all-risk commercial property policy issued by XL Insurance America, Inc. The policy covered June 15, 2021, through June 15, 2022. Fires at Bryce’s locations in Searcy, Arkansas, and Memphis, Tennessee, damaged specialized printing presses. Bryce submitted claims, and XL made several payments, including advances of $5 million and $4 million and a later payment of $7,427,477.

Bryce alleged that XL breached the policy by refusing to cover the full cost of replacement presses and by delaying approvals for expenses related to recovery and business-interruption losses. Bryce also asserted a bad-faith claim under Section 56-7-105 of the Tennessee Insurance Code, alleging that XL delayed negotiations and represented that its indemnity reserves were lower than the amounts it actually maintained.

Before the lawsuit was filed, Stephens Insurance, LLC, Bryce’s insurance broker and agent, requested a loss-history report for the policy during renewal discussions. An XL underwriting assistant sent Stephens a report containing claim information, payments, reserves, expenses, and a loss ratio. XL later sent a replacement report that omitted the reserve information. After Bryce’s counsel used the original report’s reserve information in settlement communications, XL asserted that the information was confidential and protected and requested its return or destruction. Bryce then attached the report to its First Amended Complaint and relied on it to support the bad-faith allegations.

Motions and Arguments

XL filed two motions. First, it sought dismissal of Count Three under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. XL argued that the policy’s choice-of-law provision required New York law to govern all disputes connected to the policy and that New York had no statutory equivalent to the Tennessee bad-faith claim. Bryce argued that the provision applied only to interpretation, application, and meaning of the policy, not to claims outside the policy’s contract terms.

Second, XL moved under Rule 12(f) to strike the loss report and the complaint allegations based on it. A motion to strike asks the court to remove material that is redundant, immaterial, improper, or prejudicial. XL argued that the reserve information was attorney work product—material prepared by or for a party in anticipation of litigation—and that the report was irrelevant and prejudicial.

Court’s Analysis

The court held that the policy’s choice-of-law provision did not reach Bryce’s bad-faith claim. The provision stated that New York law would control the “interpretation, application and meaning” of the contract. Applying New York law, the court explained that provisions governing or interpreting a contract generally are narrower than provisions covering disputes “arising out of” or “relating to” the contract. The court also compared the choice-of-law provision with the neighboring forum-selection provision, which applied to “any disagreement” between the parties. The different wording supported treating the choice-of-law clause as limited to the contract itself.

Because XL’s dismissal argument depended on its contrary interpretation of the policy, the court denied the motion to dismiss. The court also stated that XL had not addressed whether New York’s choice-of-law analysis independently required dismissal or adequately responded to Bryce’s argument that Tennessee law applied, and therefore had waived those arguments for purposes of the motion.

The court separately concluded that XL had not shown that the loss report was protected work product. The report stated reserve figures but did not show the method used to calculate them, the person who calculated them, or legal analysis. The report was prepared by XL’s underwriting department and sent to Stephens during insurance-renewal discussions, which suggested it was created in the ordinary course of business rather than specifically for litigation. The court found XL’s assertions about counsel’s involvement too conclusory to meet XL’s burden of establishing work-product protection.

Alternatively, the court held that XL waived any work-product protection by sending the report to Stephens, Bryce’s insurance broker and agent. XL did not formally assert protection until more than five months after sending the report, after Bryce indicated it would use the report in the litigation. The court found that delay supported waiver.

The court also found the report relevant because Bryce’s bad-faith claim concerned XL’s handling and valuation of the insurance claims. At the pleading stage, the court could not conclude that the reserve information had no possible relevance. Finally, the court found no undue prejudice to XL, noting that XL’s claimed prejudice largely challenged the sufficiency of Bryce’s allegations and that XL had not promptly demanded the report’s return after sending it.

Disposition

The court denied XL’s motion to dismiss and denied XL’s motion to strike. The loss report remained attached to the First Amended Complaint, and Bryce’s allegations relying on the report remained in the pleading. Judge Katherine Polk Failla directed the Clerk of Court to terminate the two pending motions.