Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

The order involved a lengthy discussion and analysis into a discovery dispute between the parties. The simple theme being that the insurer attempted to “jump the gun” by askimg the Court to dismiss the case and preclude the policyholder from ever being able to bring the case again as a sanction for incomplete discovery responses the policyholder filed. Kendall Lakes Towers Condo. Association, Inc. v. Pacific Ins. Co., Ltd., 2011 WL 6190160 (S.D. Fla. December 2, 2011).

The purpose of discovery in litigation is generally to exchange information each party claims supports its case. Professional conduct and courtesy are a couple of underlying themes in the procedural rules in guiding the discovery process. Discovery disputes do occur in cases, and the procedural rules provide a mechanism for the parties to deal with disputes that might arise over incomplete answers, objections and refusals to provide information and responses. The insurer asked the Court dismiss the case.

The case involved an insurance coverage dispute arising out of damages to the condominium association’s property caused by Hurricane Wilma. Discovery closed as of October 14, 2011, and one week later, the insurer filed the motion asking the Court to dismiss the case as a result of the policyholder’s alleged discovery violations. Before filing that motion seeking the harshest of sanctions, the insurer never sought Court intervention in the discovery process. The insurer did not file a motion to compel or otherwise bring the alleged discovery failures to the Court’s attention before filing the motion to dismiss. The Court called this an “unusual strategy” to first bring the alleged discovery violation to “by requesting the most extreme sanction available.” The Court noted that such practice “may run afoul of the Local Rules” in the Southern District, and stated that “[a]s a matter of general practice, [ ] it is generally inadvisable to request the most extreme relief available even if it is technically permitted by the governing procedural rules.”

According to the Court, when the parties follow the established avenues for obtaining discovery relief, it often prevents the need to later file a sanctions motion. Under the Rules, the parties are required to confer in good faith about any disputes in the discovery process. If they cannot agree after their conference, then a court may intervene and enter an order resolving the dispute. If the offending party still refuses to comply, then a court can determine whether the party has acted in bad faith and whether more severe sanctions are necessary.

Since the insurer in this case did not follow this approach, in the Court’s view, the defense strategy behind this motion to dismiss “put the cart before the horse and short-circuited the discovery and sanctions process.” All in all, the Court described the dispute between the parties a “comparatively modest discovery failure.”

Parties and their counsel will not always agree on every point, but it is clear using the facts of this case as an example, that simple communication before seeking judicial involvement in discovery disputes is encouraged and may prevent the need for judicial involvement in those tangential issues. While I enjoyed reading such a creatively written discovery order, it may not have been necessary had counsel for the parties followed the procedural approach in the Rules. The order nonetheless is inspiring, and it also reveals that there is a place for creative writing in the law, even in discussion of civil procedural rules.

Heaven blesses those who wait, patience is a virtue, son
Keep your toe on the line, keep your foot on the brake
No sense jumpin’ the gun

As promised, this week’s post contains additional legal arguments policyholders should consider. When courts are on the fence regarding this kind of discovery battle, it is wise to provide alternative or additional arguments based on Federal Rule of Civil Procedure 26(b)(3)(A)(ii), or the equivalent state court rule, which discusses discovery of work product prepared in anticipation of litigation.

Even if a court determines attorney work product was or may have been prepared in anticipation of litigation, the documents may still be discoverable if the policyholder shows a substantial need to prepare its case and cannot, without undue hardship, obtain the substantial equivalent by other means. This is often the case in bad faith litigation. A policyholder cannot replicate the materials withheld from the attorney’s file because there are no equivalent documents that evidence the attorney’s investigation of the claim or the attorney’s determination of what additional amounts may be owed to the insured under the policy.

In Stillwell v. Executive Fund Life Ins. Co., No. 89-A-245, 1989 WL 78159 at *4 (D. Colo. July 12, 1989) (unpublished), the U.S. District Court of Colorado noted,

[B]ad-faith actions against an insurer, like actions by client against attorney, patient against doctor, can only be proved by showing exactly how the company processed the claim, how thoroughly it was considered and why the company took the action it did. The claims file is a unique, contemporaneously prepared history of the company's handling of the claim; in an action such as this the need for the information in the file is not only substantial, but overwhelming. . . . The ‘substantial equivalent’ of this material cannot be obtained through other means of discovery. (Emphasis added)

Senior District Judge Arraj also quoted Silva v. Fire Insurance Exchange, 112 F.R.D. 699 (D. Mont. 1986):

The time-worn claims of work product and attorney-client privilege cannot be invoked to the insurance company's benefit where the only issue in the case is whether the company breached its duty of good faith in processing the insured's claim.

Stillwell at *5.

Judge Arraj determined that even though the documents at issue in Stillwell were prepared in anticipation of litigation and were work-product, the documents must still be produced because plaintiff demonstrated substantial need and undue hardship. Although the Stillwell case is unpublished, it was recently cited and relied on by U.S. District Court Magistrate Judge Watanabe. See Sterling Const. Mgmt., LLC v. Steadfast Ins. Co., No. 09cv02224-MSK-MJW, 2010 WL 2822620 at *1 (D. Colo. July 16, 2010).

Policyholders cannot properly prosecute their claims unless they obtain the attorney’s contemporaneously prepared history of how the insurer processed the claim, how thoroughly the claim was considered and why the insurer took the action it did.

TIPS that may assist in winning a discovery battle over attorneys’ claims files:

1. Determine during initial discovery the date when the attorney first began work on the claim or was initially brought in by the insurer. This is helpful to show the court the attorney was working on the file while the claim was still pending or being adjusted.
2. Carefully review all correspondence sent from the attorney to the insured, the contractor, or other third parties. This helps to show the court that the attorney participated in other activities which adjusters often handle.
3. Request correspondence between the attorney and any independent adjuster and/or consultants hired by the insurer. Again, this may help show the attorney is investigating the claim.
4. Determine all insurance benefits paid after the date the attorney first began working on the claim. The court should recognize that the timing indicates the attorney was working on the claim while the claim was still being adjusted and the insurer was determining amounts owed under the policy.
5. Determine how long the attorney was involved in the case prior to any litigation or the filing of any bad faith claim against the insurer. The longer the period the less likely it is possible the insurer could have been anticipating litigation.
6. If the attorney representing the insurer in litigation is the same attorney that investigated the claim and acted as an adjuster, consider whether the attorney may be a witness in the case—in most cases, attorneys cannot act as both an advocate and a witness and the attorney and his or her firm may be disqualified from representing the insurer in the litigation.

For further discussion and related Florida case law on this topic, please see Chip Merlin’s post: Insurer's Attorney Client Communications Not Discoverable in First Party Bad Faith Actions.

I am pretty certain these attorneys need some cheering up about having to repeat kindergarten. Maybe this will help:

An adjuster is commonly known as the person who investigates a claim and assists the insurer in determining amounts owed to the insured. In addition, the definition of “adjuster” is usually contained in the insurer’s claims handling practices manual. Prior to litigation, insurance companies may attempt to have an attorney wear two hats: investigator AND counselor. To the extent an attorney was giving legal advice or creating legal work product for specific litigation, those portions of the attorneys file are privileged and the objections are appropriate. However, some insurers also redact adjusters’ and attorneys’ files—even when the communications contain evidence as to how the insurer processed the claim, how thoroughly it was considered, and why the company took the action it did, as well as amounts the insurer may believe it still owes under the policy. This information, even if communicated by or to an attorney, is not privileged and is essential to policyholders’ ability to prosecute bad faith and statutory claims.

A. Work Product

Where an attorney performs adjustment or investigation activities, the attorney files are not protected from disclosure because insurance carriers investigate and compile records and statements in the ordinary course of business. Hawkins v. Dist. Court In & For Fourth Judicial Dist., 638 P.2d 1372, 1379 (Colo. 1982) (“a showing that a claims adjuster, or even a lawyer not acting as a legal counselor for the insurer, conducted an investigation of a claim, during which he compiled various reports and statements, would not be sufficient by itself to overcome the presumption of an ordinary business activity.”).

In Hawkins the Colorado Supreme Court determined that the insurance company has the burden of demonstrating that a document was prepared or obtained in order to defend a specific claim which already had arisen and, when the documents were prepared or obtained, there was a substantial probability of imminent litigation over the claim or a lawsuit had already been filed. Thus, the party asserting work product as a bar to discovery must prove the doctrine is applicable. A mere allegation that the protection applies is insufficient. RTC v. Dabney, 73 F.3d 262 (10th Cir. 1995) (construing identical federal rule 26(b)(3)).

B. Attorney-Client Privilege

No attorney-client privilege applies when a lawyer performs the activities of an adjuster, or participates in the investigation or adjustment of the claims. National Farmers Union Property and Cas. Co. v. District Court for City and County of Denver, 718 P.2d 1044, 1047 (Colo. 1986) (insurer may not avail itself of the protection “simply because it hired attorneys to perform the factual investigation into whether the claim should be paid. The attorneys were performing the same function a claims adjuster would perform, and the resulting report is an ordinary business record of the insurance company.”). The National Farmers Union Court specifically noted,

Because a substantial part of an insurance company’s business is to investigate claims it must be presumed that [an insurer’s] investigations are part of the normal business activity of the company.

(Emphasis added).

When attorneys act “more in the role of claims investigators than legal counsel” for an insurer, the attorney-client privilege does not apply.

Policyholders prevented from obtaining discovery of these adjustment activities should, at a minimum, ask the court to review the file in camera to determine which portions of the attorney’s file are business records or reflect any information that is relevant to the policyholder’s bad faith and statutory claims, including all documents that indicate how thoroughly the claim was considered and why the company took the action it did.

Next week, I will discuss additional legal arguments to assist policyholders in obtaining this essential litigation discovery and provide tips that may help insureds win this discovery battle.

For further discussion and related Florida case law on this topic, please see Chip Merlin's post: Insurer's Attorney Client Communications Not Discoverable in First Party Bad Faith Actions.

The bottom line holding is the following:

[A]lthough we held in Ruiz that attorney work product in first-party bad faith actions was discoverable, this holding does not extend to attorney-client privileged communications. Consequently, when an insured party brings a bad faith claim against its insurer, the insured may not discover those privileged communications that occurred between the insurer and its counsel during the underlying action.

Although we conclude that the attorney-client privilege applies, we recognize that cases may arise where an insurer has hired an attorney to both investigate the underlying claim and render legal advice. Thus, the materials requested by the opposing party may implicate both the work product doctrine and the attorney-client privilege. Where a claim of privilege is asserted, the trial court should conduct an in-camera inspection to determine whether the sought-after materials are truly protected by the attorney-client privilege. If the trial court determines that the investigation performed by the attorney resulted in the preparation of materials that are required to be disclosed pursuant to Ruiz and did not involve the rendering of legal advice, then that material is discoverable.

...we note that under the “at issue” doctrine, the discovery of attorney-client privileged communications between an insurer and its counsel is permitted where the insurer raises the advice of its counsel as a defense in the action and the communication is necessary to establish the defense. See Coates v. Akerman, Senterfitt & Eidson, P.A., 940 So.2d 504, 510 (Fla. 2d DCA 2006); see also Savino v. Luciano, 92 So.2d 817, 819 (Fla.1957) (“[W]hen a party has filed a claim, based upon a matter ordinarily privileged, the proof of which will necessarily require that the privileged matter be offered in evidence, we think that he has waived his right to insist, in pretrial discovery proceedings, that the matter is privileged.”). Thus, we acknowledge that the attorney-client privilege may also be overcome in first-party bad faith actions in limited circumstances, although we emphasize that attorney-client privileged communications are not the discoverable materials discussed by our opinion in Ruiz. (emphasis added)

The decision seems proper and in line with most jurisdictions ruling on this issue. Insurers and policyholders should have their private legal communications with counsel preserved as confidential. The privilege can be waived if the information is used as a defense. Insurance company attorneys acting as adjusters or making non-confidential communications will be subject to discovery regarding those activities and communications.

Sometimes, a preferred vendor is selected by the insured to conduct repairs. For one reason or another, the insured subsequently files a bad faith law suit against the insurer and might include additional claims against the vendor that conducted the repairs at issue. Frequently, insurers will seek to defend a bad faith suit by arguing that the dispute was reasonably debatable. I recently discussed this defense that might be asserted by a carrier in my post titled, Insurer Is Not Absolved of Its Duty to Fairly Adjust Claim Just Because the Claim is a "Fairly Debatable Loss". In this post, I will address the defense in the context of how it might apply to a lawsuit involving a preferred contractor program.

Under this theory, if the issue between the insurer and insured is reasonably debatable, then the insurer may not have acted in bad faith by taking a position on the issue that is contrary or different that the insured. In these cases an insurer may argue that it relied on its preferred contractor to determine the cost of repairing the insured’s home. The insurer, on the other hand, may contend that the house cannot be repaired per the preferred contractor’s repair bid. In a bad faith lawsuit over this issue, the insurer will commonly argue that even though there was a difference between the repair costs the insurer’s conduct was not unreasonable because it was based on the bid of a qualified contractor.
Discovery in Insurance Bad Faith Cases, Part II, Charles M. Miller

It might appear to be a valid defense for the carrier. However, there are many, many factors that play a role and often there are arrangements that an insured might not be aware of and which may have a tremendous impact on the claim.

One way to respond to this defense is to show that the insurer and contractor have had a long term relationship that has been financially beneficial to the contractor. This evidence can be the basis for arguing that the contractor has a financial incentive to provide the lowest possible bids in order to keep getting the insurer’s business. Such evidence may cast doubt on the reasonableness of the insurer’s reliance on the contractor’s bid, particularly where it can also be shown that there had been similar disputes with other insureds. Development of thee fact begins with requesting documents concerning how much the insurer has paid its preferred contractor.
Discovery in Insurance Bad Faith Cases, Part II, Charles M. Miller.

For those who follow my blog, discovery is a common issue that I address. As indicated above, a policyholder’s attorney should carefully craft discovery requests that seek the information regarding the relationship and/or contract between the vendor and insurer. Work performed by the same vendor for other insureds regarding the same type of damage might be helpful to determine whether there is a pattern of poor repairs, failure to honor guarantees or failure of the insurer to pay the insured for the rest of the repairs in the event that the preferred contractor does not finish the job properly. These are all important factors that should be taken into consideration in a bad faith lawsuit involving the use of a preferred contractor.

Please tune in next week for another bad faith discussion.

Just like an employee’s personnel information might be kept in a few different places, an insurance company might not keep all of the information that comprises the claims file in a single place. In last week’s post titled How an Organization Chart Can be Useful in Bad Faith Cases, I wrote about how there is a hierarchy of employees within an insurance company. Similarly, many insurance companies have several offices. There are usually a few different physical locations for any single carrier. For example, an insurer could have a home office, regional offices and, possibly, branch offices as well. It is possible that each type of office handles a particular aspect of a claim and that each office has its own file for each claim:

Although the documents in each of these files may be substantially the same, the practitioner [policyholder’s attorney] should never accept the insurer’s representation that they are identical. They are probably not. In each office where there is a separate claim file there are likely to be entries in that office’s files that are unique to that office.

Discovery in Insurance Bad Faith Cases Part I, Charles Miller, Insurance Law Center.

This is particularly true if different offices handle different aspects of a claim. One office might keep part of the claims file regarding reserves. Another office might keep part of the claims file regarding reinsurance. Yet another office might keep part of the claims file regarding the referral of the claim to a “Special Investigations Unit,” so on and so forth.

There may also be separate claim files for separate components of the claim. For example, in a claim arising from an automobile accident there may be a claim file for the damage to the car and a separate claim file for the bodily injury claims. Similarly, in the homeowners’ first party context, there may be separate claim files (and claims handlers) for damage to the dwelling, contents and additional living expenses…

Discovery in Insurance Bad Faith Cases Part I, Charles Miller, Insurance Law Center.

Additionally, the claims adjuster assigned to a particular claim may keep his/her own file which might be referred to as a "field file." The field file may contain documents or information that the insurer’s adjuster believes are of particular importance in handling the claim, as well as the claim handler's notes that might not be found in the carrier’s hard copy or electronic file. Finally, the claim file for any independent claim representative hired by the insurance company should also be obtained. 

For the reasons stated above, it is important to consider drafting discovery responses to the insurer in a bad faith case that are broad enough to encompass information contained in an insurance company’s claims file, regardless of where the information might be located, how many different files it can be found in, and what the file might actually be called.

Please check in next week for another bad faith discussion.

Like claims adjusters, supervisors and other personnel employed by an insurance company, agents also need instruction from the carrier. Agents sometimes sell different types of policies for a single insurance company. Other times, agents sell various policies for a number of different and unrelated insurers. As a result, it would make sense that a carrier would want to ensure its agents understand the company’s policies and standards and the “ins and outs” of the policies the agents are selling to the public.

Agency manuals can be useful in cases involving interpretation of insurance policy provisions, requirements for underwriting new risks, or an agent’s responsibilities in the underwriting process. For example, an agency manual may specify when an agent is to personally inspect a new home for homeowner’s insurance, what that inspection is to consist of, and how the agent should determine the amount of insurance on the home.

Discovery in Insurance Bad Faith Cases, Part I, Charles Miller, Esq., Insurance Law Center.

An insurer, presumably, also wants to make sure that its agents are following its protocols for marketing the company and meeting business goals. Many agents are responsible for reaching out to existing customers to renew existing polices, increasing coverage on existing polices, and applying for other types of coverage offered by the carrier. Although these responsibilities are quite different from those of a claims adjuster, an insurer would likely be just as interested in providing proper training to its agents. For this reason, many insurance companies publish manuals, guidelines and other materials to assist their insurance agents in handling the carrier’s clients and policies.

These manuals, which are provided to agents, provide guidance on the criteria for obtaining new business, renewing old business and a number of other matters.

Discovery in Insurance Bad Faith Cases, Part I, Charles Miller, Esq., Insurance Law Center.

A claims handling expert in the insurance industry also explains the following:

The insurer may also have its own exposure for failure to provide sufficient insurance. In some homeowner’s policies, the insurer may assume a responsibility to inspect the home and/or to determine the amount of the policy limits. In such cases, the insurer’s liability for an alleged failure to provide sufficient policy limits should not be overlooked.

Discovery in Insurance Bad Faith Cases, Part I, Charles Miller, Esq., Insurance Law Center.

Policyholders’ attorneys should carefully evaluate all aspects of a bad faith case. An investigation of whether an insured’s claim was properly handled should not be limited to the date of loss and after. Just like insurance companies are frequently trying to void policies in their entirety due to a “material misrepresentation” on the insurance application, policyholders’ attorneys should investigate whether the insurer’s actions were proper from the very beginning. Taking that into consideration, discovery requests should be carefully tailored to seek information which could be relevant to the claim and affect the insurer’s liability.

In Owens-Corning, the insured and liability insurer filed cross-motions to compel discovery in an insurance coverage dispute over asbestos products liability claims. The Court began its evaluation with the well established principle that parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action. At issue, was the following request to the insurer for:

[M]aterial from any lawsuits or arbitrations that defendants have had concerning asbestos coverage.

As expected, the insurer objected on grounds of relevancy, confidentiality and burden. The Court overruled all of the insurer’s objections. With regard to relevancy, the Court explained that the information is relevant as to the insurer’s intentions with regard to asbestos coverage because it will shed light on how the insurer has approached other asbestos issues and applied exclusionary clauses. The insurer’s objection on grounds of confidentiality was moot because there was already a protective order in place which addressed any concerns that the insurer had with regard to confidentiality. Finally, the Court found the insurer’s burden argument unpersuasive and ordered a production of the materials requested.

Another discovery request at issue was:

All reinsurance-related material that bears in any way upon OCD [insurer].

Again, the carrier objected on grounds of relevancy. The Court determined that the information requested was discoverable because it is relevant to whether the insurer believed that the policies at issue covered asbestos claims against the insured. The Court also ordered the production of the following:

[C]omprehensive discovery of [the defendants’] asbestos underwriting procedures and their knowledge of the alleged hazards of asbestos.

The insurer objected to the foregoing request on grounds of relevancy, burden, confidentiality and vagueness. The Court adopted the rationale of another court when ordering production, but limited the scope: “Research into other companies’ operations might have tangential relevance, but would lead to an inordinate expansion of discovery.” As discussed a few weeks ago in How to Overcome a "Burdensome" Objection When Seeking Information on Similar or Prior Claims, sometimes tweaking a discovery request so that it is limited in time, type of claim, or type of policy can make all the difference. In Owens-Corning, the Court ordered the production of the information sought by the insured, but simply limited the scope of production.

The Ohio Court’s analysis in Owens-Corning provides good examples of discovery requests to insurers that were supported by the Court. Evaluating the specific requests in Owens-Corning and other Ohio cases like it wherein a court compels production might shed some light on how to word discovery requests in an effort to overcome objections from an insurer in an Ohio court.

Please tune in next week for another bad faith discussion.

A few months ago in "Going through the Motions" Is Usually Not Enough to Compel Bad Faith Discovery From an Insurer, I referred to a plaintiff’s attorney who took extra time and patience in carefully preparing discovery requests. The attorney conducted legal research when planning his discovery and modeled his requests after the requests in another case -- requests that had been found to be reasonable by a Court when challenged by the insurer. Similarly, when drafting discovery that seeks information on an insured’s prior claims or other insureds’ similar claims, very careful attention must be given to each request. If a plaintiff’s attorney is faced with an objection by the carrier that the discovery request is burdensome, that extra effort in drafting the requests can go a long way later.

[C]ounsel may mitigate the burdensome objection by requesting similar files for only a particular time period, within a particular jurisdiction, or files with reserves over a certain amount.

Discovery in Insurance Bad Faith Cases, Part II, Charles Miller, Insurance Law Center.

For example, limiting the time frame for the information sought will reflect that careful consideration was given to either a more recent time frame or to a time frame that has particular significance for the issues presented in the case at hand. It might also be appropriate to limit the types of claims files requested.

…[I]n a residential fire case the request may only be for claims arising out of residential fires under similar policies…

Discovery in Insurance Bad Faith Cases, Part II, Charles Miller, Insurance Law Center.

It is important to determine whether the insurer is consolidating certain categories of claims into groups. For example, a carrier might separate claims into environmental claims, construction defect claims or claims for the special investigations unit. If so, then it will be important to find out how those claims are categorized so that the request can be narrowed or broadened to include groups of claims that are similar to the one at hand. If a request is limited, the limitation must be carefully tailored to the type of information sought and the legal and factual issues that are important in the case.

I am not implying that all discovery requests should be limited in some fashion or that requests which do not include some sort of restriction are not reasonable. I am proposing that these types of adjustments to discovery requests might help a policyholder’s attorney overcome an objection that the request is burdensome. I am also suggesting that drafting specifically tailored discovery requests at the outset can help keep the parties focused on the legal and factual issues at hand and could possibly bolster credibility in the courtroom. Furthermore, putting this much thought into the manner in which requests are worded forces an attorney to think ahead and to give due consideration to all aspects and strategy of the case.

Please check in with me next week for another bad faith discussion.

In The Fantasy of "the Good Ole Days" When Insurance Companies Adjusted Claims Fairly and Paid on Time, I wrote about how software programs have virtually taken over the adjustment of claims within and insurance company’s claims department. Computers and software programs pretty much run claims adjusting. As a result, carriers are no longer using just paper files to keep track of information on each claim. So, when a policyholder’s attorney receives an objection that a request for prior similar claims information is burdensome, this objection must be challenged.

This can be done by obtaining the computer manuals and/or claims processing manuals for the claims department to determine if other similar claim files can be identified.

Discovery in Insurance Bad Faith Cases, Part II, Charles Miller, Insurance Law Center.

The Superior Court of Arizona in Maricopa County addressed this very issue in Stephen T. Russell v. UNUM Life Ins. Co. of America, et al. In Russell, one of the interrogatories to UNUM, the insurer, sought information regarding UNUM’s handling of other insureds’ claims that were similar to Russell’s (the insured plaintiff) claim. UNUM objected as follows:

The information is not easily and readily available through the computer system…and that it [UNUM] did not have a central filing system of all lawsuits filed against it of computerized records containing the information requested.

UNUM added that in order to comply with the request, it would have to have someone manually review the files pertaining to each lawsuit in order to pull together the information requested. The Court appointed a special master who exercised his authority to retain a computer expert to access the insurer’s computer database and evaluate its capabilities. The special master and computer expert reported to the Court that UNUM had misled the Court with regard to UNUM’s computer system’s ability to provide the information at issue – information regarding other insureds’ similar claims.

UNUM argues that its computer systems could not have accurately and completely answered the interrogatory and all its subparts in 1996 (or even now); that its employees made “inartful” but not intentionally misleading statements to the Court and Discovery Master; that the Discovery Master and his computer expert should have tested UNUM’s system in situ; and that the “functional equivalents” analysis used by the Discovery Master was flawed. The Court rejects all such arguments for reasons which were developed and/or stated on the record at the hearing. UNUM’s conduct is and should be sanctionable.

Minute Entry, Judge Pendleton Gaines, Superior Court of Arizona, Maricopa County, December 17, 2001.

The trial court ordered UNUM to produce the requested information and sanctioned UNUM for its conduct. When challenged by UNUM, the sanctions were upheld by an appellate court.

Based on the Superior Court of Arizona’s Minute Entry in Russell, Maricopa County, there are few things to keep in mind:

• Policyholders’ attorneys should not be discouraged by carefully crafted objections asserted by insurers to discovery requests;
• Information regarding other insureds’ claims was determined to be discoverable; and
• The Court can and will impose sanctions against a carrier that improperly asserts meritless objections and misrepresents its ability to produce responsive, relevant and non-privileged information and/or documents.

Please tune in next week for an extended post on obtaining information on other insureds’ similar claims and an insured’s prior claims.

When serving these types of requests, an insured’s attorney can usually anticipate several objections from the carrier, including: the request is burdensome; the information is not relevant or is private; the information cannot possibly be produced. Discovery in Insurance Bad Faith Cases, Part II, Charles Miller, Insurance Law Center. The Supreme Court of California, in Colonial, examined a case where the insurer argued against discovery requests seeking information on how it handled other insureds’ similar claims:

Colonial also argues for a writ barring all discovery of the names and records of such claimants on ground, inter alia, that evidence of a “pattern of unfair practices” is irrelevant as a matter of law in private actions against insurers…

The court, however, disagreed with Colonial and began its analysis with the well established principle that any party may request another party to produce documents that are relevant to the subject matter of the action or that are reasonably calculated to lead to the discovery of admissible evidence.

[Courts] may appropriately give the applicant [for discovery] substantial leeway, especially when the precise issue of the litigation of the governing legal standards are not clearly established [citation]; a decision of relevance for purposes of discovery is in no sense a determination of relevance for purposes of trial.

For those who follow this weekly series, I think this principle has become my mantra, and policyholder attorneys should never underestimate the power of this very basic rule. The court continued its analysis of the facts before it and addressed the applicable insurance code section in California:

Insurance Code section 790.03, subdivision (h) prohibits insurers from “knowingly committing or performing with such frequency as to indicate a general business practice” a variety of “unfair claim settlement practices”

The analysis continued with the very critical explanation that:

A plaintiff may establish a claim by showing either that the acts that harmed him were knowingly committed or were engaged in with such frequency as to indicate a general business practice. While proof of a knowing violation will make plaintiff’s job that much easier, in cases where a knowing violation is difficult to establish, knowledge can be proved circumstantially. [citation omitted] Discovery aimed at determining the frequency of alleged unfair settlement practices is therefore likely to produce evidence relevant to the action.

The foregoing analysis was the basis for the California Supreme Court’s ruling in the policyholder’s favor and ordering the discovery of the information sought. The Court held that discovery aimed at determining the frequency of alleged unfair settlement practices was likely to produce evidence directly relevant to the policyholder’s action, since the policyholder could establish her claim by showing either that the alleged harmful acts were knowingly committed or were engaged in with such frequency as to indicate a general business practice.

Based on the decision in Colonial, the California Supreme Court evaluated the following four general rules of discovery that policyholder attorneys must remember:

1. Information relevant to the subject matter is discoverable
2. Information that may lead to the discovery of admissible evidence is discoverable
3. Information on how an insurance company handled other insureds’ similar claims is discoverable
4. Information on determining the frequency of alleged unfair settlement practices is discoverable

Please tune in next week for an extended post on obtaining information on unfair practices in other insureds’ similar claims and obtaining information on an insured’s prior claims.

Emails
While the claims file is probably filled with emails between the insurance adjuster and the insurer’s claims management, there is another type of “email” full of discoverable information that should be pursued.

…[T]he modern claims operation is highly computerized. The claims department will use a special claims computer program to create electronic claims files. This program may also allow for communications between members of the claims department.

Discovery in Insurance Bad Faith Cases, Part I, Charles Miller, Esquire, Insurance Law Center.

These emails may or may not be included as part of the electronic or physical claims file for a particular matter. For that reason, it is important to know what type of program an insurer uses and to draft discovery requests to include all emails/communications within the company regarding the claim, regardless of how they are generated.

Likewise, it is essential to know whether an insurer has a policy for email destruction. If the insurer does destroy emails, it is essential to learn the insurer’s method for destruction: how emails are selected for destruction, how they are purged, how often they are destroyed, and whether there is any way to retrieve them after they have been purged.

Information in Personnel Files
In The Big Picture in Discovery of Insurer Claims Practices, I focused on a case that provided an analysis regarding the production of personnel files for claims employees who worked on a particular claim. In that case, the insurer produced the personnel files for three different claims employees, but the personnel files lacked information pertinent to the request for production. Requests for “personnel files” might be too narrow to discover information relevant to a bad faith claim. Requests should be phrased to include the personnel file and all documents relating to an employee’s work conduct, including performance evaluations, reprimands, and awards, regardless of the type of file in which it is maintained. Discovery in Insurance Bad Faith Cases, Part II, Charles Miller, Esquire, Insurance Law Center.

Folder for Claims File
A few weeks ago, in The Fantasy of "the Good Ole Days" When Insurance Companies Adjusted Claims Fairly and Paid on Time, I addressed a few things that used to happen when adjusters handled claims files before email, blackberries, and iphones. Expanding a little bit on that, adjusters at some insurance companies don’t just write claims information in the file, they write on the claims file -- the outside cover, jacket or folder of the claims file itself. Discovery in Insurance Bad Faith Cases, Part I, Charles Miller, Esquire, Insurance Law Center. The outside of the file constitutes part of the claims file, and it should not be overlooked. You might find a gem you were not expecting.

Cell Phones, Home Computers and Other Electronic Gadgets
Another source of information that attorneys might overlook is electronic equipment which is not located onsite at the insurance company. As technology expands, the distinction between home and work is often lost. People use cell phones, blackberries, personal laptops and personal desktop computers to work anywhere and at any time. In fact, it has come to my attention that one insurance company requires certain personnel and independent contractors purchase an iPhone, so that all communications, photos, and videos obtained on a claim can be immediately downloaded or transferred into a larger database with the insurance company.

Faced with a bad faith claim, insurers are not likely to provide claims information over and above what is requested. Indeed, some insurers might store information in unconventional manners just to avoid disclosure. Even though discovery should not feel like a game of hide-and-seek, it often does. To effectively advocate for a client, attorneys should presume that form requests for production will not include all relevant information and take care in drafting requests so that unconventional sources cannot be ignored.

The Court, naturally, began its analysis with the established principle that relevant evidence is admissible, including facts tending to disprove a defense – such as the bias of a witness:

As a primary responsibility of a jury is to determine the weight of evidence and the credibility of witnesses…declares that the rule does not limit the right of a party to introduce evidence relevant to weight or credibility ‘including evidence of bias, interest or prejudice’.

The Court noted that relevance of evidence is a determination that falls within the discretion of the trial court. The Court then focused on the issue at hand and explained as follows:

In modern litigation, however, it would be difficult to overstate the importance of expert witnesses. Some of the most important decisions of the Supreme Court of the United States in recent years have dealt with the admissibility of expert opinion in an effort to assure its reliability, and this Court has devoted considerable attention to issues relating to expert witnesses. As demonstrated by the facts presented here, expert witnesses are often compensated handsomely and it is widely believed that they may be expected to express opinions that favor the party who engaged them and who pays their fees.

As in Hangarter, the Tuttle Court thought it was important to permit discovery regarding any information that might show the bias of an expert witness.

Exposure of potential bias based on self-interest is often attempted through cross-examination directed at how much the witness is being paid for his or her services in the case at bar, the frequency with which the witness testified in similar kinds of cases, whether the witness customarily appears for a particular type of party (usually plaintiff or defendant), whether the witness is frequently employed by a particular party of attorney and, if so, how much income the witness derives from that employment, and, as in this case, the amount or the percentage of the witness’ total income that is derived from lawyer referrals or testimony in lawsuits. Some forms of inquiry seek to uncover specific and enduring relationship between the witness and the party or attorney, from which a direct bias may be inferred. Others are directed at exposing the more subtle problem of the professional ‘hired gun,’ who earns a significant portion of his or her livelihood from testifying and, rather than having a tie to a specific party or attorney, may have a general economic interest in producing favorable results for the employer of the moment.

The Court ruled that the amount of money a witness is paid for testifying in a case is “unquestionably discoverable.” Now, this is not the only Court that has evaluated this issue and ruled in favor of permitting the discovery of information regarding the retention of an expert witness. As mentioned the last two weeks, the foregoing analysis should not be limited to medical experts. Counsel need to be creative and need to develop arguments for why similar information should be disclosed by other types of insurers. It is also important to ask for the written instructions regarding the terms of hire and scope of work of experts.

Please join me next Friday for more discussion of bad faith litigation issues.

The Question: When does an insurance company actually anticipate litigation?

The Answer: It depends.

In Royal Bahamian Ass’n, Inc. v. QBE Ins. Corp., No. 10-21511, 2010 WL 3452368 (S.D. Fla. September 3, 2010), the court ordered QBE Insurance Company to produce all documents previously withheld under the work-product privilege that were prepared before it anticipated litigation. The Court also specifically indicated when it determined the insurer, QBE, could claim certain documents were protected by the work-product privilege.

In this particular case, Royal Bahamian Association Inc. filed suit against itsr property insurance carrier, QBE, for damage to the property caused by Hurricane Wilma. The policyholders asked the insurance company for documents in a formal discovery request and QBE filed objections. QBE argued the documents were protected by the work-product doctrine because they were prepared in anticipation of litigation,which QBE anticipated as early as June, 2006.

According to the order, QBE anticipated litigation in June, 2006,for two reasons. First, QBE argued that prior to June 24, 2006, a board member of the roof committee for Royal Bahamian allegedly threatened litigation to the adjuster assigned to the claim by QBE. Dodd filed a report with QBE which said “some members feel they are not being treated fairly and at least one of them has recommended filing suit.” The second reason was because of Royal Bahamian’s alleged failure to respond to information requests, which QBE argued was a breach of the contract.

The Court held that because QBE routinely offers insureds the opportunity to cure technical breaches of contracts by complying with their obligations to produce claim related information, it could not rely on the alleged breach as a basis to anticipate litigation.

With respect to the threat of litigation, the Court held that a single threat of litigation “on an unknown date by an unidentified roof committee member…does not constitute specific proof that QBE reasonably anticipated litigation as of that date.”

The judge explained that the threat was not enough to meet the standard because the report relaying the threat was not written until nearly a month after the adjuster's meeting with the roof committee. Further, the report did not pinpoint the date of the threat, specifically identity the person who made it, or identity the person as a member of Royal Bahamian’s board. The judge also explained that decision to file a lawsuit would have likely have required a consensus of the association board, so legal action could not be truly anticipated at the point of the alleged threat.

The basis of the Court’s decision seems to be extensively fact driven. Because QBE continued to actively evaluate Royal Bahamian’s claim and suit was not filed until almost four years after the single threat of litigation, QBE could not claim the work-product privilege for documents prepared prior to April 2, 2010 (the date suit was filed).

The decision of this case is a good result for the policyholders; they are now entitled to four years' of documents that the insurance company had not previously provided.

I decided to share this case during my Saturday series of posts because I think is important to see how carefully the pre-suit actions of the parties were evaluated by the judge. The policyholders were successful in their quest for documents related to the insurance company’s investigation of the claim because the insurance company could not reasonably have anticipated litigation based on a vague threat nearly four years before suit was filed. Had the insureds sent a letter or held a vote in 2006 regarding potential litigation, however, the judge might have agreed with the QBE and allowed documents to be withheld.

For example, Grange Mutual Ins. Co. v. Trude, 151 S.W. 3d 803 (KY 2004), is a bad faith case arising from a car accident. The bad faith claim alleged that Erica Barnes, the adjuster for Grange Mutual Insurance Company (“Grange”), undervalued the claim during negotiations and that she repeatedly delayed communicating with the plaintiff’s attorney. The plaintiff served forty-two discovery requests. Grange objected to sixteen of them on the following grounds: relevancy, privacy, improper motive, trade secret, and burdensome. The trial court overruled Grange’s objections and granted the plaintiff’s motion to compel. Grange sought a protective order and the trial court denied the request. Grange again requested a protective order, this time, requesting an in camera inspection of the materials to be produced. The request was denied. Grange then filed a petition with the Court of Appeals. The Court of Appeals denied the petition because it determined that Grange failed to prove irreparable harm. For those of you that are enjoying this already, the really good part is next…

When analyzing the discovery dispute, the Court started with this very basic principle:

…[P]arties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action…It is not grounds for objection that the information sought will be inadmissible at the trial if the discovery sought appears to be reasonably calculated to lead to the discovery of admissible evidence.

At issue first, were interrogatories and requests for production focused on obtaining information regarding bad faith claims brought against Grange by private plaintiffs or the Kentucky Insurance Commission. Grange argued the information was not relevant because it covered claims against adjusters other than the one who handled the plaintiff’s claim. The Kentucky Supreme Court disagreed with Grange, explaining:

It is enough for us to note that discovery of information and documents related to similar claims involving other adjusters could reveal a pattern of bad faith conduct on the part of Grange. This would certainly be relevant to Wilder’s [Plaintiff’s] bad faith claim, regardless of whether such information was admissible at trial.

Additional requests sought manuals containing Grange’s internal policies and procedures for evaluating and adjusting claims. Sound familiar? Grange again objected to this production based on trade secret concerns and that they were irrelevant. The court explained that the question was whether Grange’s own policies embody or encourage bad faith practices and compelled the production of the training and policy manuals. The Court went on to explain that Grange’s methodologies for setting reserves on claims were also discoverable, stating that their relevancy was “obvious.” Evidence of Grange’s procedures for establishing reserves could help show whether Grange was complying with statutory and regulatory requirements and whether Grange’s process for setting reserves was aimed at achieving unfairly low values.

Grange also argued that the plaintiff was seeking certain information for improper purposes, such as use in other litigation. Many of you are familiar with the insurer’s motto of “divide and conquer.” Insurers really don’t want plaintiff’s attorneys working together and sharing information. That’s why many carriers will seek protective orders and/or ask plaintiff’s counsel to enter into a confidentiality agreement at the outset of discovery. They don’t want the information produced in one lawsuit to be used against them in another. Fortunately, the Supreme Court of Kentucky saw right through this:

That discovery might be useful in other litigation or other proceedings is actually a good thing because it furthers one of the driving forces behind the Civil Rules by allowing the cost of repeating the discovery process to be avoided and thereby encouraging the efficient administration of justice.

That’s the last thing carriers want as law in discovery.

The insurers also objected to production of personnel files, but the Court held they were discoverable:

Job performance and disciplinary information can help show that the adjusters and their superiors had engaged in bad faith practices in adjuster Wilder’s [Plaintiff’s] initial claim or that they had engaged in bad faith practices at other times.

The Court ordered Grange to produce those portions of the personnel files regarding job performance, bonuses, wage, salary data and disciplinary matters. The Supreme Court of Kentucky also stated that internal company newsletters that relate to claims handling could contain evidence that Grange knew of or encouraged bad faith claims handling by its adjusters. Those documents were relevant and discoverable as well.

The “trade secret” objection is often raised. Again, the trial judge ruled against Grange on this objection for many of the discovery requests at issue. There were several bases for the Kentucky Supreme Court’s ultimate decision requiring the production: Grange did not introduce specific evidence for each document or category of documents for which it asserted the trade secret privilege; Grange never submitted nor sufficiently described the documents in question; and Grange did not provide a privilege log. But it doesn’t stop there. The party asserting the privilege has the burden of proving that it applies.

The big picture is that courts will require production of internal claims management documents, but policyholders have to be ready for repetitive objections and willing to file motions to compel. You can’t just sit back and expect the Court to hand you the ruling you want.

Happy Friday!

We all know that an insurer’s claims file will typically contain the following:

• Correspondence between the insurer and the insured or any representative of the insured
• A copy of the policy at issue
• A list of any payments made on the claim to date
• The adjuster’s log or a listing of entries for the adjuster’s notes
• For those claims where the insured retained a public adjuster, the estimate prepared by the public adjuster on behalf of the insured
• Receipts, canceled checks, invoices, credit card statements or any other documentation provided by the insured to support expenses incurred in connection with the loss
• Any estimate of damages prepared by the insurer’s adjuster regarding the loss
•  Reports by engineers, roofers or other tradesmen who inspected the insured property and prepared a report for the insurer regarding the loss
• Claims summary
• Whether the file was reported to the Special Investigation Unit

A claims file can also contain other information that can be helpful to you in developing your bad faith case against a carrier. Claims files usually identify all personnel who were involved in the claim. Charles Miller, Insurance Law Center, Discovery in Insurance Bad Faith Cases, Part I. You should be able to identify the adjuster(s), supervisor(s), or any other type or level of employee that was involved in the file and the level of each person’s participation. Once you obtain this information, you can decide whether it is necessary to depose one or more individuals regarding their involvement in the handling of the claim. If you decide that it is necessary to depose particular employees, you may want to serve additional discovery seeking the personnel files for each employee that you want to depose. Why would you want to do that? Wouldn’t you want to know how much experience the adjuster had and what training he/she received? It could be important to find out whether any employee was financially rewarded for reducing payments on claims. When handling your client’s claim, was the employee in compliance with industry standards? Was the employee following the insurer’s standards? These are all questions that you should ask yourself when you get the claims file. Based on the facts of your case, it may be crucial for you to delve into these additional areas in order to properly develop your case.

The carrier’s claims file will likely also identify the claims programs, procedures and/or software that were used in the handling of the claim. Charles Miller, Insurance Law Center, Discovery in Insurance Bad Faith Cases, Part I. The policies and procedures in place at the time your insured sustained the loss will help you understand what measures were implemented by the carrier to decrease payments in claims. The experts in the field provide examples of programs that have been used by insurers such as the following: “CCPR” (Claim Core Processing Re-Design) for Allstate; Quantum Leap for Safeco and State Farm; and “ACE” (Advancing Claims Excellence or Accelerating Claims Excellence - depending on who you ask) for Nationwide. Based on the carrier’s specifics, your expert can help you understand how the program the insurer implemented affected the handling of your client’s claim.

An insurer’s claim file might also include reserve information. Last week’s blog titled Reserves Are Important in Insurance Coverage and Bad Faith Claim Disputes discussed what reserves are and why they are important to a bad faith claim.

So why are we talking about what’s in a claims file? Because in many jurisdictions you are entitled to the claims file in a bad faith lawsuit. Of course, you can expect the usual work product and attorney client objections. That’s when you bring in your expert, do your homework and file a motion to compel, because the case law in many jurisdictions is on your side.

Courts must distinguish between reports prepared in response to an unfortunate event that might well lead to litigation, and materials prepared as an aid to litigation. The work product doctrine is not an umbrella that shades all materials prepared by the lawyer, the doctrine focuses on material assembled and brought into being in anticipation of litigation.

Clover Staffing, LLC and Johnson Controls World Services, Inc., et al., 238 F.R.D. 576, 579 (S.D. Tex. 2006); Citing U.S. v. El Paso Co., 682 F.2d 530 (5th Cir. 1982); See also, Electronic Data Systems Corp. v. Steingraber, No. 4-02-CV-225, 2003 WL 21653414 (E.D. Tex. July 9, 2003). Additionally, the work product privilege does not extend to the underlying facts relevant to the litigation. Furthermore, if the insurer assembled the materials in the ordinary course of business or pursuant to public or insurance requirements unrelated to the litigation with its insured, then the documents are typically not shielded by the work product privilege. Navigant Consulting, Inc. v. Wilkinson, 220 F.R.D. 467, 473 (N.D. Tex. 2004). In the insurance context, courts have routinely recognized that the investigation and evaluation of claims is part of the regular, ordinary and principal business of insurance companies. Lanelogic Inc. v. Great American Spirit Ins. Co., No. 3-08-CV-1164, 2010 WL 1839294 (N.D. Tex. May 6, 2010); Douga v. D & B Boat Rentals, Inc., No. 04-1642, 2007 WL 1428678 (W.D. La. May 10, 2007).

Even though litigation is pending or may eventually ensue does not cloak such routinely generated documents with work product protection.

Piatkowski v. Abdon Callais Offshore, L.L.C., No. 99-3759, 2000 WL 1145825 (E.D. La. August 11, 2000).

If the document would have been created without regard to whether litigation was expected to ensue, it was made in the ordinary course of business and not in anticipation of litigation.

Additionally, courts have explained that insurers cannot reasonably argue that the entirety of its claims files are accumulated in anticipation of litigation when the insurer already has an inherent duty to investigate, evaluate and make a decision regarding claims made by its insureds. Harper v. Auto-Owners, Inc. Co., 138 F.R.D. 655, 662 (S.D. Ind.1991); Pete Rinaldi’s Fast Foods v. Great American Ins. Co., 123 F.R.D. 198, 202 (M.D. N.C. 1988).

It is presumed that a document or thing prepared before a final decision was reached on an insured’s claim, and which constitutes part of the factual inquiry into or evaluation of that claim, was prepared in the ordinary and routine course of the insurer’s business of claim determination and is not work product. Likewise, anticipation of litigation is presumed unreasonable under [Federal Rule of Civil Procedure 26(b)(3)] before a final decision is reached on the claim. The converse, of course, is presumed for documents produced after claims denial.

Simply put, the work product privilege usually does not apply unless and until the carrier has denied coverage. In most jurisdictions the way to overcome the foregoing presumptions is for the insurer to demonstrate, by specific evidentiary proof or objective facts, that a reasonable anticipation of litigation existed when the document was produced, and that the document was prepared and used solely to prepare for that litigation, and not to arrive at a claim decision.

I hope you tune in next week for more bad faith discussions.

Happy Friday!

Let’s start with what we mean by “reserves.” Well, of course, there is lots of room for argument there, too, but let’s try to keep it simple for purposes of this week’s blog. In the insurance context, a reserve for a claim is basically an estimation of the money that will eventually be paid for the costs associated with that claim. Charles Miller, Insurance Law Center, Discovery in Insurance Bad Faith Cases, Part I.

Modern statutes, including Colorado statutes, require insurers to maintain reserves to assure the insurer’s ability to satisfy its potential obligations under its policies…The insurer must reasonably estimate the amount necessary to provide for the payment of all losses and claims for which the insurer may be liable [citation omitted]. The reserves must also reflect all potential claim expenses and any claim the insurer undertakes to defend since the insurer will have claim handling expenses, including attorney fees and court costs [citation omitted]. The reserve requirement therefore reflects a desire on the part of the states and the insurance companies themselves to ensure that resources are available to cover the insurer’s future liabilities…

Silva v. Basin Western, Inc., 47 P.3d 1184, 1189 (Col. 2002).

The amount of the reserve established for a particular claim can change throughout the life of that claim. Lipton, et al., v. Superior Court of Los Angeles County, et al., 48 Cal.App.4th 1599 (2d DCA Cal. 1996). The insurer can increase or decrease the amount of a reserve as new information is revealed. As a result, a particular reserve amount may be substantially more or less than the amount ultimately paid on a particular claim.

You are probably thinking to yourself, “Ok, so I can think of a reserve as a safety net – a savings account set up by the insurer to make sure there’s enough money to pay on a claim.” It sounds like a good idea. Statutory and regulatory reserves are probably set up in an acceptable fashion. So where does the problem lie? How can reserves can play a critical role in a bad faith claim against an insurer? How is it that insurers have used this as a way to pinch pennies? I’m going to let the courts explain this one to you…

Evidence of an insurer’s reserve setting procedures can show whether the insurer was following statutory and regulatory requirements. Grange Mutual Ins. Co., v. Trude, et al., 151 S.W.3d 803, (Ky. 2005). If an insurer is not complying with applicable statutory and regulatory requirements, the failure to comply can constitute bad faith per se. Past blogs have discussed performance based incentive plans for adjusters and software implemented by insurers, all of which are designed to cut payments on claims across the board. An insurer’s reserve setting procedures can also demonstrate whether the specific system for setting reserves is aimed at achieving unfairly low values. Like the incentive programs and cost-cutting software, this type of information is relevant to a bad faith claim.

It is important to remember that an insurer owes its insureds a common law duty of good faith and fair dealing. At first blush, it might not be obvious why reserves are important to a determination of bad faith against an insurer. The Supreme Court of Colorado explained that the establishment of reserves can be relevant and reasonably calculated to lead to admissible evidence regarding whether the insurance company adjusted the claim in good faith or made a prompt investigation, assessment or settlement of a claim. Silva v. Basin Western, Inc., 47 P. 3d 1184 (Col. 2002).

…[E]xamination with respect to the reserve may develop evidence on the issue of defendant’s [insurer’s] bad faith. Bad faith is a state of mind which must be established by circumstantial evidence. The actions of defendant [insurer] in respect to the reserve are relevant. Negligent investigation and uninformed evaluation of the worth of the Rosen [insured’s] claims go to the heart of the case since serious and recurring negligence can be indicative of bad faith.

Groben v. Travelers Indemnity Co., 266 N.Y.S. 2d 616, 17 (N.Y. 1965).

In cases where there is an excess judgment in the amount of the reserve, this may serve as an indicator of what the company thought the claim was worth. Charles Miller, Insurance Law Center, Discovery in Insurance Bad Faith Cases, Part I. This is even more important in those instances where the insurer never offered an amount equal to the reserve. In a case where the insurer denied coverage or took the position that a claim was not covered, a substantial reserve may indicate that, despite the insurer’s arguments otherwise, the insurer actually considered the claim covered.

So, if many insurers are required to establish reserves on certain claims, then why don’t they just pay the claim? Clearly, they have the money-- not to mention the fact that they statutorily obligated to follow specific guidelines for reserves. But why don’t they pay? Your guess is as good as mine. I think it goes back to the unfortunate perception that claims handling should be a profit center for insurance companies. Harsh, but unfortunately true for many insurers.

In your bad faith cases, please don’t overlook reserves. Ask for this information in discovery and find cases in your jurisdiction to support your requests. You are entitled to it. So go get it!

Happy Friday!

Last week, the federal District Court ruled that discovery would continue in the litigation and while the appraisal was still pending:

The abatement sought here would be contrary to the cardinal principle of the Federal Rules of Civil Procedure that cases be administered "to secure the just, speedy, and inexpensive determination of every action." FED. R. CIV. P. 1; see 5C, WRIGHT & MILLER, FEDERAL PRACTICE AND PROCEDURE § 1360, at 78 (3d ed. 2004) ("[A]lthough a given motion might raise a valid point, unless its determination would have the effect of promoting 'the just, speedy, and inexpensive determination' of the action as mandated by Rule 1, the district court should probably deny the application and thereby avoid any delay."). Because the parties have until March 1, 2011 to complete discovery, this case need not be held hostage while the parties engage in the appraisal process.. (emphasis added)

You can bet that the policyholder attorneys in Tran will have the benefit of internal Safeco claims directives we obtained as a result of my large case against Safeco.
 

In what proved to be a successful effort to flesh everything out for the judge, the attorney provided detailed information about the type of programs that likely affected the manner in which the client’s claim was handled:

During the time period when the underlying claims were at issue and being handled by Safeco, it [Safeco] developed institutional policies aimed an increasing profits through their claims handling practices. This includes development and implementation of various ‘new’ programs created in consultation with Accenture. These various programs, called ‘Safeco Way’, ‘Quantum Leap’, ‘Calibration Program’ and more have been the subject of discovery in other cases.

What is the first thought that comes to mind?

• “This attorney sounds like he knows he’s talking about”?
• Are you wondering “What is ‘Safeco Way’? Or
• “What is ‘Quantum Leap’ about?

Yes, this attorney does, in fact, know what he’s talking about, so does Safeco, and now the judge does as well. This attorney did his homework and learned about the various programs that were implemented in the insurer’s business. Then he educated the judge about programs and how their implementation directly affected the way his client’s claim was handled. He showed the judge why these documents were directly relevant to the issues before the court and demonstrated the client’s right to see them.

For those of you who are first learning about these programs by way of this blog, these are the types of programs and policies that the right expert can help you with. My June 18, 2010, blog titled “Getting the Inside Scoop on Insurance Company Claims Practices,” discussed the type of expert that you should consider retaining in a bad faith case. This kind of expert can tell you about these programs and explain in careful detail how your client’s claim was affected by each. It is only when you understand the intricate and strategic workings of the insurer and the goals set for the adjuster who handled your client’s claim that you will understand exactly what you need to obtain through discovery and how to get it. When you understand that there were multiple programs very carefully crafted, each with its own very effective manner of chipping away at the amount paid on your client’s claim, then you will understand that your client was very likely fighting a losing battle from very beginning. That is, of course, until someone like our plaintiff’s attorney came to the rescue.

Getting back to our attorney, the judge entered an order compelling discovery. The Order states:

Safeco shall supplement production in compliance with this Court’s prior order compelling, without protection, all responsive documents, including but not limited to documents related to Accenture, Quantum Leap Initiative, Caliber, Safeco Way, LEO, best practices, PDFR etc…

But the court did not stop there.

Safeco shall submit declarations in 30 days explaining why these documents were not previously produced pursuant to this Court’s September 2005 order.

For this judge, it wasn’t enough for Safeco to produce the documents. The judge wanted an explanation for Safeco’s failure to produce the documents pursuant to the court’s previous order. No, courts don’t take kindly to parties who do not comply with their orders. Again folks, judges are taking notice and they are not always pleased with what they see insurers doing or trying to pull off.

So don’t let the insurer or its attorneys intimidate you. Defense counsel is human, just like you. And the insurer is a business that has rules to follow just like all the others. Help your judge see through the insurer’s unfounded objections, its plethora of meaningless production and defense counsel’s circular arguments.

Had enough of motions to compel for now? Me too.

Tune in next week for another discussion of bad faith litigation.

Happy Friday!

More and more courts are realizing that insurers have gone too far for too long. Those same courts are applying laws that hold insurance companies responsible for their improper claims handling procedures. How? Courts are granting plaintiffs’ motions to compel and ordering insurers to turn over their top secret “attorney-client” “work product” “confidential” and, sometimes, “trade secret” materials. So how do you get your hands on the goods? Remember the “time, extra effort and investment” from last week’s blog? Well, we here are a few more examples of how that works.

Our first insightful plaintiff’s attorney started planning his Motion to Compel against Safeco before he even drafted his discovery requests. This attorney researched extensively until he found a case compelling an insurer to produce the kind of materials he needed in his case. The opinion he found included details of the specific discovery requests at issue, and he modeled his own discovery requests after those in the opinion. After serving his discovery requests, he got the usual “work product” and “attorney client” objections, along with a few others that you can expect to see when insurers respond to discovery. Our colleague then filed his Motion to Compel citing, as persuasive authority (and among other things), the case upon which he had modeled his discovery requests. His “merely persuasive” authority consisted of facts and issues so similar to those in his case and presented an analysis so precise that the Judge ordered Safeco to produce a complete and unredacted portion of its claims file. 

The Court’s Order compelling production from Safeco explained that in a bad faith case, an insured is entitled to the insurer’s work product and attorney-client material containing information relevant to how the insured’s claim was handled. This information that is discoverable includes the insurer’s internal determination to deny benefits, its evaluation as to how a jury may value the insured’s claim and the insurer’s approach to settlement. The Order also ruled that the materials within the claims file that were generated before the date of Safeco’s denial letter are not protected by either the attorney-client or work product privileges because those materials bear directly on how and why Safeco handled the insured’s claim the way that it did. As such, the Court ordered Safeco to produce, in their entirety, any and all materials from the claims file that are dated up to and including the date of Safeco’s denial letter.

The Judge in our colleague’s case also ordered the production of certain materials after the date of Safeco’s denial letter because they were relevant to the plaintiff's bad faith claim and were not protected by the attorney-client and work product privileges. This ruling, however, is not one of a kind.

A few weeks ago, Chip mentioned in his blog post, Liberty Mutual Claims Documents Ordered Produced, the similar success of a second plaintiff’s attorney in West Virginia who has a case against Liberty Mutual. The Court Order in that case compelled Liberty Mutual to produce the following: the insurer’s employees’ performance evaluations; the manuals containing explanations and abbreviations and other claims handling procedures; the personnel files of employees who worked on the case, no matter how small their role, including, bonuses, job descriptions, work responsibilities, training, experience on the job, work qualifications/history and any discipline relating to work. Great progress, right?

It gets better.

The Court also ordered Liberty Mutual to:

…disclose the McKenzie [sic] documents, upon which defendant bases its claims handling procedures…and other documents relevant to defendant’s business model of claims handling…

Courts are now forcing insurers to divulge documents and information regarding consulting services that they received for their claims handling practices. Remember, in a bad faith case, how the insurer handled the claim is at the heart of the lawsuit. It only makes sense for the plaintiff to obtain any and all materials regarding the manner in which the adjuster(s) handled the claim. It makes even more sense to obtain information regarding how the company, as a whole, evaluates, implements and provides training for claims handling practices and what consulting services, if any, were used in doing so. If a plaintiff’s attorney is not entitled to such critical discovery, then what’s the point of allowing a plaintiff to file a lawsuit for bad faith? It’s like putting a chef in a kitchen with a stove that doesn’t boil water and an oven with a maximum temperature of 200 degrees.

These attorneys are only two examples of colleagues across the country who are putting their nose to the grindstone and making discovery work in their cases. Keep in mind, though, that these motions are not your “form” motions. Remember that our first plaintiff’s attorney started strategizing and preparing his case to win on a motion to compel discovery from day one. For our colleague in West Virginia, it took five (5) motions to compel to get the order compelling the production of discovery that he was entitled to.

Strategic planning and perseverance were the secret to these attorneys’ success and there is no reason why you can’t succeed in a similar situation. (By the way, wouldn’t you like to know which one of these brilliant attorneys also worked closely with one of the experts we talked about in last week’s blog?)

Bottom line folks: it works, and it can work really well for you too.

Tune in next week for a continued discussion of rulings across the country regarding information that is discoverable in a bad faith lawsuit.

Happy Friday!

So how do you battle devious discovery tactics? First, do you have an expert? Let me guess - you’re thinking “sure, I have a great roof engineer who put together a detailed report with pictures and a thorough calculation of damage to the property….” Well, that’s not the kind of expert I’m thinking about. Get yourself someone who knows the insurance business – someone who knows the tricks of the trade - someone that is going to stump those smart and cunning defense attorneys. Find an expert who has some particular knowledge about the insurer you are up against. If it’s State Farm, you might want to give Steve Strzelec a call. If it’s Safeco or Liberty Mutual, consider Charles Miller.

Now, what can folks like the masterful Mr. Strzelec and the very capable Mr. Miller do for you? First, they can educate you on what you can and should be looking for and why it is critical to your case. You must first become educated about your client’s insurer and its internal policies that affect the way your insured’s claim was handled. Let your expert teach you about the types of policies and procedures that the insurer implemented to decrease payments on claims in general and to provide incentives to employees for paying less. Is each adjuster required to turn over a certain percentage of his/her claims to SIU? Is each adjuster required to turn over a certain percentage of his/her claims to the subrogation department? What type of monetary bonus does an adjuster get for meeting the SIU referral goals? How much does an adjuster get for each claim referred to subrogation? These types of internal policies will almost certainly reflect the menial amount paid on your insured’s claim, and whether your insured’s claim was turned over to SIU or subrogation merely for the purpose of meeting the adjuster’s quota. Once you learn about the specific procedures for the insurance adjuster or claims handler, work with your expert to draft specific discovery requests which target the policies and programs (by name, no less) that will help you demonstrate to the judge and jury how your insured’s claim was improperly and unfairly handled by the insurer.

Once you have served your carefully tailored discovery requests, get ready for the “overbroad, unduly burdensome and not likely to lead to the discovery of admissible evidence” objections. And prepare yourself for the production of a plethora of useless documents, as discussed in last week’s blog. But never fear - this is where your expert comes to the rescue, again.

In a number of cases across the country, expert affidavits have been instrumental in the discovery battle against insurers, including Safeco and Liberty Mutual. Charles Miller, for example, has provided both deposition and affidavit testimony regarding claims practices for insurers, including but not limited to, Safeco and Liberty Mutual. The overriding theme in his affidavits is how the insurer intentionally and brazenly implemented practices and policies to cheat insureds.

In one of his affidavits in a case against Safeco, Mr. Miller’s affidavit reflects, in part, as follows:

Based on my thirty plus years of knowledge and experience regarding insurance company claims handling it is my opinion that the documents and information requested…are highly relevant to the operations of a claims department including the handling of individual claims such as this one…The documents and information that I reviewed with regard to several other insurers describe their respective programs to reduce claim payments in order [to] improve corporate profitability. Such programs are improper when it comes to the handling of insurance claims [footnote omitted]. Programs which emphasize profit in the handling of claims put the claims handler in a conflict of interest, wherein the claims handler can either fulfill the insurer’s full obligation to its insured or act in the insurance company’s interest because the claims handler will be financially or otherwise rewarded if he/she does so. In my opinion, and based on my experience in reviewing handling thousands of claims files, when placed in such a conflict claims handlers will handle a claim in a manner that benefits the insurance company to the detriment of the policyholder.

In a case against Liberty Mutual, Mr. Miller’s affidavit reflected, in part, the following:

Through consultation with consultants like McKinsey and Accenture, insurers have sought to turn their claims operation into profit centers by seeking to reduce claims payment through artificial measurements such as leakage coupled with goals to reduce average paid claims and/or the combined ratio.

Mr. Miller artfully creates a very real and accurate picture for the judge and jury. What picture is that? The reality of the situation – the insurer will stop at nothing, will spend as much as it takes and will consider any opportunity to devise unprincipled, cost-cutting methods aimed at giving its insureds the shaft. So once your expert has taught you the particulars of the insurer’s internal procedures, and once you’ve applied what you learned to drafting carefully constructed discovery, don’t stop there. Take it to the next level. Work with your expert to prepare an expert affidavit that will provide the court with a thorough, precise and undeniable explanation for why the internal documents you seek are directly relevant to the claim(s) at issue.

So, what’s your “take away” from today’s blog? Your expert is your friend. Allow your expert to enlighten you and maximize the skills he has to offer. Be like the insurer – be creative and stop at nothing to get your hands on the discovery to which you are entitled and that may very well prove your case.

Your expert is one of many effective and powerful weapons at your disposal. Next week, I will write about how discovery motions and perseverance can win the case.

Happy Friday!

For example, have you ever seen a Safeco "Round Table," where your insured’s claim was discussed or evaluated? What about internal training materials suggestive of steering insureds away from retaining counsel? Have you ever seen documents regarding compensation programs that are set up to reward claims management who, on average, have their departments pay less on their claims? Have you ever seen the Safeco Accenture Consulting documents that changed the profitability of Safeco? Has any discovery made you aware of Safeco's PDRF or Lost Economic Opportunity claims management programs? No, you probably haven’t.

What you can expect NOT to see are the insurer’s internal claims handling procedures, internal claims department goals, discussions on how the claims department is performing, and items specifically explaining how an insured’s claim was handled. Many policyholders, policyholder counsel, and judges are not even aware that insurance companies have internal documents that reveal how claims decisions and actions impact the insurer's management goals.

What most policyholders and their counsel probably have seen in response to discovery requests are wordy, lengthy and completely useless privilege logs reflecting vague descriptions of otherwise relevant documents. Is the document about the amount of loss? Does it discuss an independent estimate/report such as an engineering report on a roof? Does the document contemplate the need for an expert? Is the document related to compliance with post-loss obligations? Does it address the expected outcome of a potential claims decision or action?

If you find yourself nodding your head thinking – “gosh, I know exactly what you’re talking about” – then it’s time to exchange some ideas and techniques to change this litigation gamesmanship. Tune in for weekly fun Fridays, when I will share about what I have learned from others on these matters. My weekly discussion will be about combating evasive discovery tactics, explaining what is found in these internal documents and how they impact good faith obligations and duties of insurers.

My job is to network around the country with other attorneys involved with Safeco and Liberty Mutual claims practice cases. In doing this, I have learned there are legions of practical examples of how others have successfully obtained important discovery which proves that claims actions and decisions were not done in good faith attempts to fully and promptly pay a claim. Also, internal insurance company documents reflect that insurers acknowledge broad duties of good faith conduct. Obtaining this information and evidence is crucial if policyholders are to be protected from wrongful claims handling.

In this battle against very bright insurance attorneys who are doing their best to protect their clients, it is important to remember that you are never going to get every piece of evidence which will prove your case. However, the wisdom of the Rolling Stones gives some optimism:

"You can't always get what you want,
You can't always get what you want,
You can't always get what you want,
But if you try sometimes, you might find,
You get what you need."

Have a great weekend.

Vivian Persand has been busy in our efforts to obtain information about how Safeco and Liberty Mutual operate their claims departments and make decisions on claims. I recently noted and published some of her efforts in Liberty Mutual Claims Documents Ordered Produced. As soon as we learned of the last minute deposition cancellations, we flew her from our Coral Gables office to review the discovery and documents produced by Safeco in Houston.

While not counsel to Safeco or Liberty Mutual, Vivian represented other insurance companies before coming to work with us. She is familiar with the practice of many insurance counsel to object to, rather than turn over, discovery that could otherwise help prove the policyholder's case. This discovery abuse is a significant problem in civil insurance coverage litigation, and there is usually no consequence. Despite the obviousness of the potentially important evidence, many insurance company coverage and claims counsel base objections on  trade secret or work product privileges.

After spending a day with Vivian and coming across three other cases where attorneys obtained affidavits from a claims expert supporting motions to compel the production of evidence against Safeco or Liberty Mutual, we decided that Vivian will post every Friday on the Property Insurance Coverage Law Blog regarding lessons and experiences gleaned from Safeco and Liberty Mutual claims practice cases.

Many of the insurance coverage litigation techniques and practices in these cases are just as applicable to other insurance carriers and insurance coverage cases. Vivian's weekly posts will also provide some recognition to the efforts and creativity of other insurance coverage and claims practice attorneys with whom we have the privilege of collegial discussion and learning.

An example of an insurance discovery technique which leads to evidence is a discovery declaration by insurance claims practice analyst Charles M. Miller of California. Policyholder attorneys should obtain these affidavits as a normal part of their insurance discovery practice. This type of affidavit can help courts understand why requested discovery is relevant and important in insurance coverage litigation. Regarding Safeco, Miller noted the following:

...the documents sought in Plaintiff’s First Request encompass documents which describe Safeco’s programs and policies, such as Quantum Leap, which are directed at reducing Safeco’s claims payments in order to improve Safeco’s profits. Programs which emphasize profit in the handling of claims put the claims handler in a conflict of interest, wherein the claims handler can either fulfill the insurer’s full obligation to its insured or act in the insurance company’s interest because the claims handler will be financially or other wise rewarded if he/she does so. In my opinion, and based on my experience in reviewing handling thousands of claims files, when placed in such a conflict claims handlers will handle a claim in a manner that benefits the insurance company to the detriment of the policyholder. Such conduct is directly contrary to any claims handling standard and practice that I am aware of, and would be, in my opinion, bad faith. This information would be relevant to evaluating Safeco’s claims handling in this case.
...

Plaintiffs also seek information concerning Safeco’s bonus and compensation programs...Bonuses are available to Safeco claims department employees depending on how the company as a whole does in reaching its corporate goals...Bonuses play an important role at Safeco in providing motivation to claims department employees to improve Safeco’s profits. As pointed out in Respondent’s and Cross-Appellant’s Brief in the matter of Parks v. Safeco, “[Safeco] claim representatives were instructed that they could increase profitability as well as increase their retirement benefits and personal bonuses by reducing claims payments.

The financial incentives and motivations of insurance claims managers and employees can be extremely important when explaining claims behavior. This discovery tool teaches what to look for and why the evidence impacts good faith claims conduct. Sharing these lessons, helping colleagues, and promoting justice, is why Vivian Persand's posts will be important to read every week.

Unfortunately for the policyholder, no such privilege exists for their documents. Unlike an insurer, a condominium association cannot make broad claims that everything created as a result of a claim is protected. As I mentioned last week in The Cooperation Clause and Document Production: A Condominium Association's Difficult Task, document production is a very intensive process, especially for an association with hundreds of thousands of pages of information to sort through. Even a small and innocent mistake could lead to an insurer screaming from the rooftops and attempting to void an otherwise valid claim.

For condominium associations in particular, many times attorneys become involved in an insurance claim from the very beginning. In many instances, the independent or insurance adjuster is moved to the side early in the process and replaced by the insurer’s attorney, who ends up directing the adjustment and making the final determination of coverage.

For many years, insurers have claimed that all of the work that these attorneys performed in the adjustment of the claim was privileged because of the work product and attorney-client privilege. When insurers acted in bad faith by denying valid claims, the insurer could refuse to produce relevant documents which reflected this improper behavior during the bad faith litigation.

Fortunately, Florida courts caught on to this tactic and have stopped the insurer’s attempts to improperly hide its bad faith conduct by invoking attorney-client and work product privilege on materials in the claim file.

The Florida Supreme Court’s ruling in Allstate Indemnity Co. v. Ruiz, 899 So. 2d 1121 (Fla. 2005) set the precedent in preventing insurer’s from concealing bad faith activities with claims of privilege. Specifically, Ruiz overruled previous case law and found that work product documents created in the breach of contract action were part of the claim file and must be turned over in subsequent bad faith litigation.

There has been some debate over whether the Court’s ruling in Ruiz prevented insurers from relying on attorney-client privilege to keep from producing documents related to the underlying breach of contract action or adjustment process.

This was the exact question which Sandalwood Estates Homeowner’s Association recently faced in the Southern District Court of Florida. After Hurricanes Frances and Wilma, Sandalwood suffered significant damages. When the insurer did not promptly pay the full amounts due under the policy, the parties proceeded to appraisal. The result of the appraisal was an award of around $5,000,000 more than was originally offered by the insurer.

Sandalwood filed suit alleging that the insurer had acted in bad faith in handling the insurance claims. During the discovery phase of the lawsuit, the insurer claimed that many of the documents requested did not have to be produced because they were protected by the attorney-client privilege.

The District Court disagreed, holding that while the documents may have privileges attached to them in a breach of contract action, documents dealing with the handling of the claim were part of the claim file and discoverable in a bad faith action. As the court stated, “…courts in Florida have consistently held that the Florida Supreme Court intended Ruiz to extend to claim file materials that would otherwise be protected by attorney-client privilege.” Sandalwood Estates Homeowner’s Assn’s Inc. v. Empire Indemnity Insurance Company, No. 09-80787, 2010 WL 411088 (S.D. Fla. January 28, 2010)

With the complexity and amount of money involved in condominium claims, there is a growing trend of insurers bringing in attorneys very early in the process. When acting in this capacity, the materials in the claims file should not be privileged simply because the attorney is involved. While this is obviously not the first time a court has found that these documents should be produced, the Sandalwood case is an important victory for condominium associations and other policyholders who are at the mercy of the insurer after a devastating loss.

The order is necessary to avoid overlapping questions and motions filed by the plaintiff and defense attorneys. If there is no set method of noticing, scheduling, and taking of these depositions, there would be thousands of depositions scheduled and, in almost all of them, the same questions would be asked over and over again. In my opinion, the manner in which these depositions have been organized thus requires the Plaintiff attorneys to cooperate with each other and use each other’s strengths to gather the best testimony from each of the TWIA representatives.

The first set of depositions scheduled deal with the issues of the 11.2% that TWIA originally determined was the damage caused by wind. The individuals involved in the calculation of the 11.2% are Dr. Schroeder and Dr. Spelman. How did TWIA arrive at the 11.2% figure? What factors were used by these “experts?” Who directed this type of analysis? These are just some of the questions that will soon be answered. These depositions will assist each and every one of us in the pursuit of a fair and equitable resolution of each case.

Yesterday, the Court in Galveston County entered an order directing the parties as to who, where, and how the depositions would take place. The depositions of Jim Oliver, Bill Knarr, and Reggie Warren, along with a host of other TWIA claims supervisors whose names are also listed on the order, will be governed by the Court's order.

Although TWIA argued to have these depositions take place in another County, Judge Susan Criss quickly denied their request and ordered the depositions take place in Galveston County.

The depositions will be taken by members of the plaintiff's Ike Steering Committee. The depositions of Jim Oliver, Bill Knarr, and Reggie Warren will each take place over five days, and all others listed in the order will each take place over three days. The number of days allowed for these depositions can change by agreement of the parties or the Court's order.

How does this order affect cases pending in other counties? The order does not at all affect cases pending in other counties.

How does this order affect my individual case? The purpose of the depositions is to learn all of the information necessary to prosecute each client's case with respect to the issues of the institution (TWIA) and TWIA's pattern and practice of handling claims. This means that the topics covered with respect to the institution and institutional practices cannot be discussed again in subsequent depositions. The plaintiff can, however, ask questions specific to each individual case. This process blurs the line of what can and cannot be asked in depositions because a lot of what is asked in a deposition is dependent upon how it is asked. I expect there will be a number of hearings in the near future with respect to what can and cannot be covered in individual depositions.

When are these depositions scheduled to take place? The depositions of the top three (Jim Oliver, Bill Knarr, and Reggie Warren) are scheduled to begin in the middle of February. A February date is necessary because there are more documents due to come in that TWIA has not yet produced.

In any regular first party insurance contract case whether the damages are $1,000 or $10 million dollars, the discovery process is generally the same. In discovery, interrogatories (written questions), Requests for Production (written request for copies of documents or production of evidence), and Requests for Admissions (written assertions asking opponent to admit or deny) are all sent to the opposing side. We determine the witnesses that are necessary to prove our case for breach of contract, fraud, unfair claims handling, etc., and schedule those depositions in a certain fashion to best suit our case.

This sounds easy but it is actually very complicated even in a singular case. Now, how much more complicated does it become when there are approximately ten thousand cases or more against the same insurance company, namely TWIA? In order to keep the judicial process from coming to a halt and to more efficiently litigate all of these cases, it was necessary for both the Plaintiffs Bar and TWIA to make some concessions. These concessions with regard to discovery are in the form of an agreed protective order for the exchange of documents between the Plaintiff’s Bar and TWIA.

The following is a general explanation of the discovery being conducted at the present time between the Plaintiff’s Bar and TWIA. In addition, I will briefly explain some of the limitations imposed during the discovery process.

Our law firm has received over twenty thousand (20,000) pages of documents from TWIA and will continue to receive documents on a regular basis. We anticipate receiving another twenty thousand plus more documents. As a result, we have dedicated attorneys, and numerous full time staff to do nothing other than read through the documents, sorting, indexing, and identifying key information contained within them. Having this information so early in the litigation process is an excellent way to begin the evaluation of each case individually and will allow both the Plaintiffs and TWIA to consider the early settlement value more accurately, especially in regards to the issue of unfair claims handling. This information however, is not obtained without some concessions to the party producing the documents.

In accordance with an agreed Protective Order between the Plaintiff’s Bar and TWIA, documents marked by TWIA attorneys as confidential shall be deemed confidential and shall not be disclosed to any person except in accordance with the terms of the protective order. The information is to be used solely for the purpose of the preparation and trial of Ike cases and other related litigation against TWIA, TWIA employees, third party adjusting firms and their employees. The only persons entitled to learn of the confidential information are the named parties, their counsel, and any experts hired in the case.

Even if you are entitled to learn of this information, you cannot share it with others and must first sign a written acknowledgement to be bound by the protective order. Any violation of the protective order and the violator will be subject to contempt of court. The order requires that the party producing the documents (TWIA for example) be notified of any inadvertent disclosure of documents and provide the name and address of such persons that inadvertently received the confidential information. The protective order also addresses depositions and, as one might expect, deposition testimony is considered to be confidential information protected by the order. Like everything else in our legal system, there is almost always a legal loophole, and here is the loophole for this set of cases: at any time after the delivery of confidential documents, and after making a good-faith effort to resolve any disputes regarding whether the information should be confidential, counsel can send a written challenge to the party producing the information, and eventually a hearing before the court will determine the outcome.

So we can’t gossip about the information, we can’t share it with family and friends, we cant blog about it, and we can’t even consider it a source of information if planning to write a book about this tragic event. Are these concessions necessary? Absolutely; sometimes it can take two months to get a hearing before a court to determine whether or not the insurance company must turn over emails about just one topic, or even just one document. There is a two year statute of limitations in Texas on Ike claims and time is of the essence. The key here is to keep one’s eye on the ball and achieve the goal. The goal as policyholder attorneys is to gather as much information as possible regarding the adversary and use that information to prove each element of the case and ensure that each one of our clients receives the maximum amount of recovery allowed under the law.

SOME SIMPLE STEPS ON HOW TO MAKE MORE MONEY BY PROVING PATTERN and PRACTICE

1. List the insurer and all their subsidiaries.
    
2. Do a Lexis or Westlaw search on all their Active Cases and Bad Faith Cases.
    
3. Contact the other attorneys, experts, etc. Travel to meet them to exchange information.
    
4. After getting a Core Group, have seminar/information sharing session regarding that insurer.
    
5. Join the Bad Faith Litigation Group of the AAJ.
    
6. Visit and retain multiple insurance claim experts early.
    
7. Advertise for information.
    
8. Hire Investigators to seek whistleblowers--from secretaries to claims executives.
    
9. Push on formal discovery with affidavits and other cases showing need and relevance.
    
10. Bold and Creative Wins--Example--Closed Claim File Review.

Below is an exchange between a Mississippi Justice and Nationwide’s lawyer during the Corban oral argument. Justice Pierce stretches a hypothetical position to show the illogic of Nationwide’s argument. I found it most recently at the end of Slabbbed’s post, Have we seen the end of rational economics? Behavioral Economics explains the Scheme:

“Justice Pierce:…. if 95 percent of the home was destroyed (by wind), and then we have the event of the storm surge, then you would not pay a dime?

MR. LANDAU: Your Honor, if we prove that the storm surge was sufficient to cause – we have that burden, again, and that is absolutely crystal clear.

If we can prove that the storm surge was sufficient to cause all of this, it is no answer then to say, ‘Yeah, but I’m going to show it — I’m going to have somebody come in and say, “Look, guess what, the window was broken before the storm surge came and then wiped away the whole house.

But you don’t get into those kinds of issues precisely because of the sequencing of the damage.

JUSTICE PIERCE: So you wouldn’t pay a dime?

MR. LANDAU: If – again, we wouldn’t pay a dime for things where we can carry our burden, which is right there in the policy, of showing that the loss was caused concurrently –

JUSTICE PIERCE: I’m giving you — the example is 95 percent of the home is destroyed, the flood comes in and gets the other five percent, and you know that.

Does your interpretation of the word “sequence” mean you pay zero?

MR. LANDAU: Yes, your Honor.”

If this is Nationwide’s position, they should make it clear to every policyholder. Then policyholders and potential customers would have fair warning that Nationwide is not on any policyholder’s side. Some may suggest that insurance policies need warning labels that there is no peace of mind because that position clearly contemplates illusory coverage. To be fair, I have found that Nationwide adjusters in the field do not adjust claims using this interpretation. Why Nationwide allows its attorneys to do so in court is beyond me. Slabbed is to be congratulated for publishing this absurd legal argument and for publicizing the problems resulting from Nationwide’s anti-concurrent causation clauses.

Slabbed highlighted Nationwide’s argument in Breaking: Gene Taylor sends letter to DHS Secretary Napolitano on Nationwide’s stunning admissions in Corban. Representative Gene Taylor has repeatedly tried to prove that insurance products available cannot adequately protect policyholders when a hurricane is accompanied by storm surge. Slabbed has reported in depth on Taylor’s efforts to pass legislation correcting this problem.

Discovery in Mississippi Katrina litigation has proven difficult. There is little downside for an insurer to refuse to turn over information and either objecting for a myriad of reasons or requesting a Protective Order which prevents policyholder attorneys from checking the veracity of the discovery the insurer did turn over. Early in litigation, State Farm would answer the same requests with different responses and far different documents. This did not last long. Now, State Farm objects to disclosure of internal information regarding the claims decisions impacting Mississippi claims. This evidence is crucial to reveal the true story of what, why and how the insurer created its wind/water protocol.

Slabbed reported on this recurrent issue recently in Keeping score #3 – Who has the balls?. The post quoted Mississppi attorney Judy Guice’s brief argument that a federal magistrate was not following longstanding discovery precedent. Her rhetoric shows that she has the guts to pointedly stand up to a federal judge:

“For no good reason expressed, State Farm unilaterally rewrote Plaintiff’s discovery and produced only limited documents relating to claims…This arbitrary restriction was approved by the Magistrate Judge. Given that such discovery is not only allowed within the broad parameters of the Federal Rules of Civil Procedure but more specifically by the same Magistrate’s own orders in similar cases, the restriction in this case is clearly “contrary to law.

…

Plaintiff has sought discovery of documents relating to meetings conducted by State Farm concerning the handling of Hurricane Katrina claims. Acting in a manner contrary to law, the Magistrate Judge protected State Farm from this discovery. Indeed, State Farm has not even been required in this case to produce documents it has produced in other cases.”

I feel for Judy Guice because we have experienced the same frustration. Possibly, this type of pointed argument will be more successful. For a non-lawyer social media web site, Slabbed has done an excellent job portraying the emotional frustrations advocates and policyholders are living through in the Katrina litigation. I will reenergize my efforts in our remaining cases and become more active in coordinating efforts among policyholder attorneys along the Mississippi Gulf Coast to do my best to ensure that those lingering matters also achieve justice and consideration.

I simply do not have time to read Slabbed everyday. Yet, I have no hesitation in suggesting that many can learn a great deal from the posts. The ideas are exceedingly original. I am certain that those in the insurance industry dislike Slabbed because it does have a tendency to demonize the industry and those supporting their status quo. Imagine if all your best friends, neighbors, and family had to endure financial ruin caused by insurance not paying following a devastating catastrophe like Hurricane Katrina. I imagine your rhetoric towards insurers and their agents would not be very complimentory either.

One legal treatise noted the value of sharing information:

“The value of information sharing among plaintiffs in similar cases has been broadly recognized in a growing body of case law in state and federal courts and in the legal literature. A review of the authorities makes clear that a consensus of legal opinion, from a wide variety of perspectives, strongly advocates the practice. Judges and scholars agree that sharing of discovery among plaintiffs is necessary to promote full, fair, and efficient access to information, to deter and detect stonewalling, and to advance the truth-finding function of the judicial system. A restrictive confidentiality order that precludes information sharing among counsel with similar cases.”

Francis H. Hare, Jr., et al, Full Disclosure: Combating Stonewalling and Other Discovery Abuses, 161-62 (AAJ Press 1994).

One reason I wrote Insurance Settlement Preparation, and very publicly posted the information about our case against Lexington Insurance Company, is because we are trying to find out from others if they are having any better luck at figuring out why Lexington seems to be taking such a hard line on claims in Louisiana. We have already learned of other cases with similar problems which we have encountered. It saves a lot of time and money to not have to make a trail that another has already laid. We try to return the favor.

Even the media has picked up on Lexington's claims litigation. The Times-Picayune published a story in Sunday's paper, Court Issues String of Policyholder-Friendly Rulings in Insurance Cases. The article noted how many cases Lexington is involved and losing:

"Another explanation, of course, is that the trend is simply a consistent set of decisions on one company's behavior, since three of the four cases dealt with Lexington, a unit of AIG. Lexington did not respond to phone and e-mail requests for comment."

Examples of how sharing information helps everybody (except the insurers) are plentiful. Much of the discovery concerning State Farm’s claims practices following Hurricane Katrina came about as a result of information coming to light in other lawsuits. For example, we published as exhibits to a complaint a client’s original engineering report which would have provided coverage and also the altered report with the forged signature. Before that, spokesmen for the insurance industry asked Dickie Scruggs to "back up" his allegations with proof. As a result, everybody knew to ask for an original report and not accept what the insurer was providing as the absolute truth.

Any attorney that represents policyholders and is interested in sharing information regarding claims practices of insurers should contact our law firm. We will provide information for joining the American Association of Justice's Litigation Group dedicated to this. And, for any others that might have information that may provide me a better understanding of Lexington and AIG, I am only an email or call away from you.