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

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.

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.

Harper is a first party bad faith claim arising out of an arson that destroyed Harry Harper’s auto-body shop. Auto-Owners Insurance Company (“Auto-Owners”) was the insurer and denied the claim. Harper filed suit, alleging that Auto-Owners’ denial of coverage constituted a breach of contract in bad faith because it had insufficient evidence that Harper was responsible for the arson. During litigation, Harper sought all of Auto-Owners’ claims files. Auto-Owners argued that because it routinely anticipates litigation with an insured when a fire is reported as incendiary, all documents that were produced after it received notice -- the day of the fire -- that the cause was arson are immune from discovery under the attorney/party work product rule, the expert work product rule, and the attorney-client privilege. The Court noted the classic issue of work product protections and the insurer's obligation to investigate claims in good faith:

Because insurance companies investigate claims as part of their regular business, but with an eye to litigation at the same time, the court saw the work product rule as creating a dilemma for the courts: protect all insurance company investigatory reports, thus unduly increasing the costs of litigation, or open all claims files for inspection, thus inhibiting the candor and reliability of investigatory/adjuster evaluations and allowing plaintiffs to acquire the litigation strategy of the insurance company.

The court began with the general principle that the party asserting the privilege has the burden of proving that it applies. The analysis started with the concept that work product protection is not absolute and is more accurately described as a “limited immunity” rather than a privilege. There are two components that must be met: reasonable anticipation and causation. For reasonable anticipation, the Court looked to whether the documents at issue were prepared in “anticipation of litigation.” But what does that mean? Does that mean that just because an insurer might get sued then the work product privilege applies? Does that mean that because the insurer and insured cannot agree upon the amount of the loss, litigation is anticipated? No, it does not. There is a higher threshold that must be met in order for a document to be considered to have been prepared in “anticipation of litigation.”

…[A] party must demonstrate that ‘at the very least some articulable claim, likely to lead to litigation’ has arisen [citation omitted], that the probability of litigation is ‘substantial and imminent’ [citation omitted], objective facts establishing an identifiable resolve to litigate [citation omitted], or ‘ an identifiable specific claim or impending litigation when the materials were prepared’ [citation omitted]…that a party has consulted or retained an attorney [citation omitted]…

Assuming that the party asserting the privilege satisfies the first component, the next step is that the material sought to be protected must have been produced because of that prospect of litigation and for no other purpose. As discussed a few weeks ago in Plaintiffs are Entitled to the Claims File in a Bad Faith Lawsuit, the mere preparation of a document in connection with the investigation of the claim does not entitle that document to protection by the work product privilege.

If documents and materials are produced in the ordinary and regular course of a party’s business, and not to prepare for litigation, they are outside the scope of work product.

The Court continued its analysis, stating that while a court’s identification of a point in time after which litigation is reasonably anticipated is a legitimate and useful exercise, the protection afforded by the work product rule does not depend solely on the fact that a document was produced after that point in time, but depends primarily on the reason or purpose for the documents’ production.

Even after litigation is justifiably anticipated, routine or ordinary investigations or reports are not work product and may be obtained as normal discovery without a special showing of need.

Furthermore, it is important to consider that insurers have an inherent duty to investigate and evaluate a claim and make a decision with respect to claims submitted by its insureds. As such, it does not make sense that an insurer’s entire file is protected by the work product privilege because it was prepared in “anticipation of litigation.” For those of you who have been following this blog, you’ve heard this before:

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.

So there you have it – there are Courts that find that unless and until the insurer denies coverage, the work product privilege does not apply. A carrier that wants to overcome these presumptions must 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.

Based on the application of the foregoing analyses, the Harper court ordered the production of a number of documents for which Auto-Owners had asserted the work production, attorney-client and or expert immunities, including: invoices and statements from outside experts for investigations performed; reports of investigation results provided to attorneys; memorandum documenting Auto-Owners’ decision to deny the claim; and correspondence between the carrier and an attorney wherein the attorney was merely serving as a claims process supervisor.

When insurers assert the work product privilege, policyholder counsel should not simply accept the objection. Motions to compel should be the standard procedure after a close analysis of what it is and why it is the carrier is asserting certain information is work product. In this claims practice arena of litigation, the work product privilege is often asserted broadly and undeservedly. Motions to compel that are properly prepared often pleasantly lead to surprising evidence that usually shows that the damage of truth was what the opposition was attempting to protect. The general rule is that when in doubt, use the rules and law to your advantage - ask for an in camera inspection of the documents so that the court can see for itself that the privileges do not apply.

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!