Over the last few weeks, the Friday blog post has addressed the different approaches that can be used by plaintiff’s attorneys when battling evasive discovery tactics used by insurers in bad faith cases. We discussed the fact that, in a bad faith lawsuit, an insured is entitled to a plethora of information that might not otherwise be discoverable. We’ve also mentioned claims files quite a bit, but I realized that we had not really discussed in detail what should be in an insurer’s claims file, how it can help you in your bad faith lawsuit, and why you may be entitled to it. So, here goes…
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.