Opinion
C.A. No. 99C-09-055-JOH.
Submitted: May 22, 2000.
Decided: June 9, 2000.
Unisys Corporation's Exception to the Special Discovery Master's Report of April 10, 2000 on Unisys Corporation's Motion for Protective Order — DENIED.
Richard L. Horwitz, Esq., and William R. Denny, Esq., of Potter, Anderson Corroon LLP, attorneys for Unisys Corporation.
Francis J. Murphy, Esq., and John S. Spadaro, Esq., of Murphy, Spadaro Landon, attorneys for Royal Indemnity company and Sun Insurance Office of America, Inc.
MEMORANDUM OPINION
Unisys Corporation has filed an exception to and seeks review of the Special Discovery Master's ruling on its motion for a discovery protective order. This case is a declaratory judgment action in which Unisys seeks coverage from four of its insurers for Y2K-related remediation costs, expenses and damages.
Two of the insurers, Royal Indemnity Company and Sun Insurance Office of America, Inc. ["Royal"] served 106 interrogatories on Unisys in December. Unisys says, with subparts, there are really 3,500 interrogatories and, in March, it moved for a protective order. The SDM deferred ruling on the motion. Instead, he directed Unisys to file specific objections within ten days. Thereafter, Royal and Unisys were to meet and confer in an effort to resolve the objections and the proposed protective order. Where the parties were unable to resolve their differences, they were to return to the SDM.
Rather than follow that route, Unisys has renewed its request for a protective order and filed an exception to the SDM's decision. Review of that decision is de novo and on the record. In taking its exception to the SDM's ruling, Unisys asks this Court to (1) grant its motion for a protective order, and (2) limit Royal to a maximum of 100 interrogatories.
Order of Reference ¶ 7; DiGiacobbe v. Sestak, Del.Supr., 743 A.2d 180 (1999). The standard of review established in DiGiacobbe, however, overturned the standard of review established in In re Asbestos Litigation, Del.Super. 623 A.2d 546 (1992) and other, unreported, decisions of this Court. Regrettably, there was no mention of or citation in DiGiacobbe to any of this Court's prior decisions and even a careful researcher could easily miss this change in the standard of review.
With but one change, the Court adopts the approach taken by the SDM. The change is that Unisys will be given thirty days in which to itemize its objections to Royal's interrogatories. The parties will promptly thereafter meet and confer concerning the objections and possible reduction in the number of interrogatories and return to the SDM for any unresolved matters.
DISCUSSION
Unisys asks this Court to declare that the four defendant insurers must provide coverage for Y2K loss or damage or costs incurred to prevent or minimize Y2K loss or damage. Its current estimate of such costs and damages or expenses is just over $35 million. Unisys is a global corporation whose 1998 revenues exceeded $7 billion. It is a worldwide supplier of information services and computer technology.
Those services and technology relied upon a two-digit dating system in a number of their functions. Because of that system, Unisys' hardware and/or software would have failed in a number of functions after December 31, 1999. To prevent this, apparently starting in 1997, it began to undertake a number of remediation efforts. Unisys now seeks to have these four insurers pay for a portion of those efforts.
These four insurers provided property insurance for the period 1988-2000. They have raised a number of factual and legal defenses. While this case is less than a year old, discovery has started. One insurer, Allendale Insurance Company, served interrogatories on Unisys, which, among other things, asked for names of witnesses who had knowledge of the events. Unisys has supplied 1,500 names in response to Allendale's interrogatories.
In addition to these names, Unisys sent a confidential document to the defendants in November 1999 entitled "Unisys Year 2000 Cost Submission." In that document Unisys itemized its $35 million costs/claims reserving the right to change or update them. There were 35 separate categories of Y2K costs ranging from $11,000 to $6,213,000. Unisys stated in the same document that it was voluntarily giving the information in it. It asserted that for various reasons, it did not have to disclose any of the information. It is unnecessary for the Court to pass on those reasons at this time, especially since some relate to ultimate issues in the case.
Royal, on the other hand, says it broke down many of its interrogatories into the 35 categories which Unisys used in the Cost Submission. Indeed, many of the interrogatories are so directed. Royal argues that with 35 categories of expenses and costs and so many witnesses, initial discovery by so many interrogatories is necessary. Unisys states it has already supplied answers to interrogatories in Royal's second set of interrogatories and has made available for inspection between 3,000 and 4,000 boxes of documents.
Unisys is entitled to a protective order where, for good cause shown, Royal's interrogatories subject it to an undue burden or expense. In determining whether that test is met, the Court takes into account the needs of the case, the amount in controversy, limitations on the parties' resources and the importance of the issues at stake in this case.
Superior Court Civil Rule 26(c).
Superior Court Civil Rule 26(b)(1)(a)(iii).
Needs of the Case
One concern, which the SDM expressed and which the Court shares, is that this litigation has just begun. It is difficult to fully appreciate the needs of the case at such an early stage. One of the defenses raised by the insurer defendants is lack of notice. Unisys' Cost Submission states it started to examine the Y2K problem in 1997. While far from clear at this stage, the Court senses the insurers may not have known about this claim until late in the process.More importantly, however, Unisys has identified 1,500 witnesses in support of its current $35 million claim. It has made available 3,000 to 4,000 boxes of documents. At this early stage, therefore, extensive interrogatories may be a more efficient way to proceed. As discovery unfolds, however, the number of interrogatories may be unduly burdensome or expensive, but that is not now the case.
Amount in Controversy
Unisys' claim is currently slightly over $35 million. That figure is represented in its Cost Submission which also preserves the right to amend that figure. Royal equates its volume of interrogatories to those used in other "coverage" cases in this Court. In those cases, however, the amount in controversy was substantially higher. And, there were many more insurers.
Even though substantially less than other coverage cases, the amount here is significant. Weighing against that, of course, is the possible cost to Unisys of its time and effort to answer 3,500 interrogatories. It asserts it would need two years to answer, the equivalent of one person working eight hours per day five days per week. This representation of course, enters into the factor parties' resources, too. But, the Court deems this representation as germane to weighing the factor of the amount in controversy.
While admittedly a substantial period of time, it is unlikely one person would be answering all of the interrogatories. That being said, however, there will be a substantial investment of time, translation: cost. As with the needs-of-the-case factor, the Court cannot say this factor means at the moment that an initial effort should not be undertaken and a meet and confer occur. Somewhere along the line, Unisys may have to prove the $35 million in expenses, costs and damages. An effort to answer these interrogatories may help the winnowing out process in this case.
Parties' Resources
This factor does not help Unisys obtain a protective order. First, it is a global company with multi-billions in gross revenues. Second, Unisys has already identified 1,500 potential witnesses. This reflects the resources Unisys devoted to making the Y2K corrections, the cost of which it now seeks coverage.
Undoubtedly answering Royal's interrogatories will put a strain on Unisys' resources. Again, however, with the Court's disposition of Unisys' motion, including the follow-up meet and confer, how much of a strain in the long run is hard to gauge now. The Court is not yet convinced that there is such a degree of strain on Unisys' resources that an undue burden is imposed. The Court is mindful that Royal is not without resources and is a sophisticated carrier providing insurance to global companies. The shift of the burden to Royal to utilize its resources has not yet occurred, but it is out there.
Importance of Issues
Royal's interrogatories appear to go to the heart of Unisys' claim for coverage. That statement, of course, seems and does state the obvious. But, there are some key coverage issues involved in this case. They include "sue and labor" clauses, various exclusion clauses, late notice and other issues such as "known losses." Royal mentions that there is a Y2K exclusion in the 1999-2000 policy which will be the subject matter of a dispute.
The whole premise of seeking reimbursement for Y2K remediation costs has a novel ring to it. There are apparently other cases with Y2K cost issues, although the Court is unfamiliar with whether they involve the same issues as here. In short, there are important and substantive issues to which these interrogatories appear to be directed.
CONCLUSION
For the reasons stated herein, the Unisys' Exception to the Special Discovery Master's decision of April 10, 2000 is DENIED. Unisys shall have thirty days from the date of this decision to itemize its objections to Royal Indemnity Co.'s first set of interrogatories. After it has done so, the parties will promptly meet and confer concerning those objections and to discuss whether and how the interrogatories could be narrowed. The parties will notify the Special Discovery Master of their meeting date so he can insure the meet and confer is prompt. After the meet and confer, the parties will return to the Special Discovery Master to attempt to resolve any objections and/or narrowing.
IT IS SO ORDERED.