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Williston Basin Interstate Pipeline Co. v. Factory Mutual Insurance Co.

August 20, 2010


The opinion of the court was delivered by: Charles S. Miller, Jr., Magistrate Judge United States District Court


Before the court are motions to compel discovery by plaintiff Williston Basin Interstate Pipeline Company ("WBI") and defendant Factory Mutual Insurance Company ("Factory Mutual").


WBI is a producer and transporter of natural gas. It maintains its principal place of business in Bismarck, North Dakota and is an affiliate of MDU Resource Group, Inc. ("MDU"), which is also headquartered in Bismarck. Since approximately the late 1940's, WBI has been storing natural gas in the Elk Basin Storage Reservoir ("EBSR"), a federally-certificated underground natural gas storage reservoir that straddles the Wyoming-Montana border near Powell, Wyoming.

WBI contends that, in January 2006, it obtained information which lead it to believe that four natural gas wells drilled in the vicinity of the EBSR by an entity referred to by the parties as "Howell/Andarko" were producing and converting gas from the EBSR. The four wells were drilled on various dates from 2002 through 2004. WBI sued Howell/Andarko in Wyoming state court to recover the converted gas and settled that litigation in July 2009, recovering approximately 8.3 Bcf of the approximately 13.3 Bcf that WBI claims it lost.

During the period from 2002 through 2006, MDU purchased property and casualty coverage from Factory Mutual on a yearly basis with WBI being an additional insured. For the years 2003-2006, there was coverage for the loss of stored gas at the EBSR on a "per occurrence" basis subject to certain limits and deductibles. There was also coverage in 2002, but Factory Mutual claims that an exclusion for "cushion gas" bars recovery for any of WBI's claimed losses that occurred beginning in 2002.*fn1

WBI claims that its insurance broker, Marsh USA, Inc. ("Marsh"), gave notice to Factory Mutual in August 2006 of the occurrence of gas loss from the EBSR as a result of production from the Howell/Andarko wells. Beginning in August 2007, WBI and Factory Mutual entered into a tolling agreement, which was subsequently modified and extended, but the terms and scope of which are now disputed.

In June 2009, WBI submitted a proof of loss to Factory Mutual for the claimed loss of gas from the EBSR, which was later amended to reflect the results of the settlement with Howell/Andarko. Factory Mutual denied coverage, asserting a number of policy defenses, including that any loss of gas from EBSR caused by the Howell/Andarko wells was a single occurrence that began in 2002 before WBI had property coverage for the gas that Factory Mutual claims is at issue.

In is complaint in this case, WBI seeks a declaration and order that Factory Mutual is obligated to reimburse it for (1) the loss of approximately 5 Bcf of natural gas from the EBSR that it claims was produced and converted by the four Howell/Andarko wells and for which it was not compensated by its settlement with Howell/Andarko and (2) certain costs and expenses that it incurred as result of the claimed losses to continue normal operations at the EBSR. In addition, WBI claims that Factory Mutual committed a number of breaches of its duty of good faith and fair dealing, including that its denial of coverage was made in bad faith.


A. Redactions from the Diaries and Project Summaries of Mark Baerlocher

Factory Mutual complains about the redactions made by WBI to the project diaries and summaries of Mark Baerlocher, a WBI engineer who had supervisory responsibility for the EBSR. Factory Mutual contends that discoverable information likely has been redacted and that the redactions were improper given the protective order that is in place.

WBI counters that the material it redacted is not discoverable because it relates to other confidential business matters and also, in the case of the diaries, contains information personal to Baerlocher. WBI also claims that Factory Mutual similarly redacted material it claimed was irrelevant in some of the documents it produced. WBI claims it has reviewed the material twice to make sure that none of the redacted information is discoverable.

The protective order entered by the court provides a vehicle for the production of confidential information by the parties; it does not compel the production of material that is not discoverable. That being said, the court does not welcome the unilateral editing of documents produced in discovery, particularly when there is a protective order in place, given the suspicion and distrust that it generates, which, in turn, leads to unnecessary discovery disputes and burdensome in camera inspections. When a party has failed to provide adequate justification for redactions to documents containing discoverable information, the court is empowered to order the documents produced sans the redactions. See, e.g., Medtronic Sofamor Danek, Inc. v. Michelson, 2002 WL 33003691, **4-5 (W.D. Tenn. Jan. 30, 2002) (citing other cases).

Without deciding whether the justifications proffered by WBI are sufficient here, the court, elects to review the unredacted documents first in camera and reserve ruling on whether it will require production of all, or any portions of, the documents in their unredacted form. Consequently, the court ORDERS WBI to produce copies of both the unredacted and the redacted project diaries and summaries to the chambers of the undersigned within seven calendar days for in camera inspection.

B. Marsh Documents

Factory Mutual claims that WBI has improperly claimed attorney-client privilege to parts or all of certain documents that were created, reviewed, or received by employees of Marsh, WBI's insurance broker. Factory Mutual contends there is nothing in Marsh's written contract indicating it was hired to provide assistance to WBI's counsel. Factory Mutual also claims that the privilege logs prepared by WBI do not reflect the involvement of an attorney for a number of the withheld documents, which it claims is necessary for asserting the privilege. Finally, as to other Marsh documents, Factory Mutual claims WBI's privilege logs do not provide sufficient information to enable it to make a judgment about whether there was a good faith basis for assertion of the privilege.

In response, WBI states that the documents in question contain confidential communications made for the purpose of facilitating the rendition of professional legal services and that MDU's in-house counsel requested Marsh's expert assistance in evaluating relevant policy language and WBI's claims against Factory Mutual.

The mere fact that Marsh's contract does not cover providing assistance to MDU's counsel does not mean it was not provided. Further, the cases that Factory Mutual relies upon as requiring that an attorney be involved in a communication before it can be claimed as confidential are inapposite since they are based upon an attorney-client privilege that is narrower in scope than the one that governs here.

During the telephonic hearing, both parties agreed that North Dakota's attorney-client privilege applies, given that this is a diversity action involving state-law claims. See Fed. R. Evid. 501. North Dakota's attorney-client privilege is an expansive one. It includes communications "between representatives of the client or between the client and a representative of the client" if made for the purpose of facilitating the rendition of professional legal services. N.D. R. Evid. 502(b)(4).

While it appears Marsh's employees did provide assistance to MDU's counsel to facilitate the rendition of legal advice in some cases, the concern here is that Marsh had other involvement in this case, including brokering coverages and putting Factory Mutual on notice of the continuing losses at the EBSR in 2006. Also, Factory Mutual does have a point with respect to the difficulty of determining from the privilege logs whether a basis exists for the claiming of the privilege for some of the material. Consequently, the court will exercise its discretion and review in camera the Marsh documents claimed as privileged.

In anticipation of the court's ruling, WBI has already forwarded to chambers a number of documents, which the court has not yet had the opportunity to review. To the extent WBI has not already done so, it is ORDERED to produce copies of the privileged documents to the chambers of the undersigned for review.


A. Requests for Production 30 & 31

1. Introduction

The Factory Mutual policies issued to WBI from 2002 through 2006 did not contain a definition of the term "occurrence." In Requests for Production 30 & 31, WBI seeks to discover documents relating to a decision by Factory Mutual to include a definition of "occurrence" in the policies issued to WBI beginning in 2007.

While WBI is not claiming coverage under the 2007 policy, it believes the requested discovery may produce evidence bearing upon Factory Mutual's construction and application of the term "occurrence" under its earlier policies as well as evidence acknowledging that the term was susceptible to multiple interpretations. WBI also believes the requested discovery will show that Factory Mutual has failed to consistently apply the term "occurrence" and has claimed whatever interpretation favors its ...

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