Archive for the 'NJ – Attorney Client Privilege' Category

NOVEMBER 2018 BAD FAITH CASES: COMMON INTEREST DOCTRINE BARS DISCOVERY OF POST-VERDICT COMMUNICATIONS BETWEEN INSURED’S COUNSEL AND UNDERLYING PLAINTIFF’S COUNSEL IN SUBSEQUENT BAD FAITH ACTION (New Jersey Superior Court Appellate Division) (Unpublished)

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The insured doctor sued his medical malpractice carrier in bad faith for not settling a malpractice case within policy limits. The eventual verdict far exceeded policy limits. The doctor’s counsel and patient’s counsel communicated after the excess verdict, and the injured patient intervened in the bad faith action.

The insurer issued a subpoena on the patient’s counsel, seeking any post-verdict communications between them and any documents they exchanged post-verdict. They agreed pre-verdict communications and documents were discoverable.

The trial court ruled there was no common interest privilege and ordered compliance. The appellate court reversed.

The court recognized that communications to third parties are usually outside the attorney client privilege, but courts have fashioned a common sense exception when those third parties share the client’s interest. This “common interest doctrine permits ‘the free flow of information between or among counsel who represent clients with a commonality of purpose,’ and ‘offers all parties to the exchange the real possibility for better representation by making more information available to craft a position and inform decision-making in anticipation of or in the course of litigation.’”

The court laid out the common interest test: “(1) the parties must share a common purpose, though it is not necessary for their interests to be identical: (2) it is ‘not necessary for actual litigation to have [been] commenced’; (3) the common interest may arise during civil proceedings; and (4) there is no requirement for ‘the common interest [to] be legal rather than purely commercial.’”

The common interest doctrine applied here because “[t]he communications were made in the course of anticipated and actual litigation and [the doctor and patient] share the common purpose of seeking an order for [the insurer] to pay the outstanding [excess verdict]. The disclosures were intended to be confidential and were not made to a third party ‘in a way inconsistent with keeping it from an adversary.’”

The court refused the insurer’s effort to pierce the privilege, on the basis the information was needed to defend the bad faith case. It found the relevant issue was pre-verdict settlement discussions, and the parties agreed to produce those communications; however, post-verdict discussions were not relevant to that issue and need not be produced.

Finally, simply brining the bad faith action did not waive the privilege.
Date of Decision: October 26, 2018

Dipaolo v. New Jersey Physicians United Reciprocal Exchange, Superior Court of New Jersey Appellate Division DOCKET NO. A-3097-17T2, 2018 N.J. Super. Unpub. LEXIS 2369 (New Jersey App. Div. Oct. 26, 2018) (Ostrer and Currier, JJ.)

 

APRIL 2018 BAD FAITH CASES: INSURER FAILS TO (1) MEET ITS BURDEN OF SHOWING THAT PRIVILEGED INFORMATION SOUGHT IS MATERIAL AND (2) THAT BIFURCATION OF BAD FAITH CLAIM WOULD SERVE JUDICIAL ECONOMY (New Jersey Federal)

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In this complex coverage dispute, the insurer appealed two magistrate judge’s decisions to the district judge: (1) a 2017 opinion and order denying insurer’s motion to compel the insured’s production of privileged documents concerning the underlying lawsuits and settlements; and (2) a 2018 opinion and order denying the insurer’s motion to bifurcate and stay discovery regarding the insured’s bad faith counterclaim. The underlying litigation concerned occurrence-based policies that provided coverage for over two decades, and whether insurer has a duty of coverage regarding several class-actions and anti-trust actions brought against the insured after the policy period.

In affirming the magistrate’s 2017 order, the court held that the insurer failed to show how the privileged information was both relevant and material, and failed to show how it could not obtain this information through less intrusive means.

Regarding the 2018 bifurcation order, the insurer argued that “under New Jersey law ‘a policyholder should not be permitted to engage in discovery related to a bad faith claim until such time as it has established as a matter of law that it was entitled to coverage.’” The court rejected this argument, under Federal Rule 42 which governed in this federal action. The district judge held that the insurer failed to meet its burden of showing that bifurcating the bad faith claim would serve judicial economy and not prejudice the parties.

Date of Decision: April 12, 2018

Travelers Casualty & Surery Co. v. Becton Dickinson & Co., United States District Court, District of New Jersey, Civil Action No. 14-4410 (JMV), 2018 U.S. Dist. LEXIS 61853 (D.N.J. Apr. 12, 2018) (Vazquez, J.)

 

FEBRUARY 2018 BAD FAITH CASES: COURT REVERSES ITS DECISION TO BIFURCATE BAD FAITH DISCOVERY BECAUSE OF LENGTH OF DISCOVERY PROCESS; ALLOWS BAD FAITH QUESTIONS AT 30(b)(6) DEPOSITION; AND QUASHES SUBPOENA ON INSURED’S LAWYER IN UNDERLYING ACTION (New Jersey Federal)

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This case involves a discovery dispute regarding coverage litigation between the parties, and the court’s reversing its decision to bifurcate bad faith discovery.

The insurer was seeking a declaration there was no obligation to defend or indemnify in connection with two antitrust lawsuits the insured settled for $100,000,000. The insured brought claims for bad faith, alleging the insurer failed to conduct a reasonable investigation of the underlying actions and the claim for coverage. The insurer argued the insured breached various policy conditions, specifically when it failed to notify the insurer of the underlying action until ten years after the settlement, with the insured arguing no appreciable prejudice from the late notice.

The Court previously bifurcated the bad faith discovery in the interests of judicial economy.

The insurer sought a protective order prohibiting the insured from inquiring into certain topics related to the bad faith claim during a Rule 30(b)(6) deposition of the insurer’s corporate representative. On the other hand, the insured moved to quash the insurer’s subpoena upon its attorney in the underlying action.

First, the Court vacated its earlier order bifurcating the bad faith discovery, reasoning that years later discovery does not appear to be nearing the finish line. The Court explained that further bifurcation would just lead to two protracted discovery battles. As such, the Court denied the insurer’s motion for a protective order.

Regarding the insured’s motion to quash, the Court found that the insurer “failed to establish that [the insured] placed . . . privileged information sought at issue in this matter or that such information is material to the issues before th[e] Court . . . .” and consequently granted the insured’s motion to quash the subpoena.

Date of Decision: January 30, 2018

National Union Fire Insurance Co. of Pittsburgh, P.A. v. Becton, No. 14-4318, 2018 U.S. Dist. LEXIS 14558 (D.N.J. Jan. 30, 2018) (Clark, III, MJ.)

 

SEPTMEBER 2017 BAD FAITH CASES: COURT ANALYZES ATTORNEY-CLIENT PRIVILEGE AND WORK PRODUCT AS TO BOTH INSURER’S AND INSURED’S COUNSEL; DISCOVERY OF REGULATORY COMPLAINT DEPENDENT ON WHETHER THERE IS A PENDING INVESTIGATION (New Jersey Federal)

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Following in today’s discovery theme, this opinion addresses application of the attorney-client privilege and the work product doctrine in the context of making or investigating an insurance claim. It has the unusual aspect that it includes not only an analysis of the insurer’s attorney, but the conduct and communications of the insured’s attorney.

The court found that the insurer’s communications with its counsel were in the nature of legal advice. Thus, virtually all communications were subject to the attorney client privilege. However, as to the insured’s counsel, the court concluded that some of the attorney’s functions did not include rendering legal advice. Thus, some communications between the insured’s counsel and the insured were not protected by attorney client privilege.

As to the work-product doctrine, the key issue is when litigation was reasonably anticipated. As to the insurer’s counsel, litigation was not reasonably anticipated until approximately one month from retention, so the doctrine did not apply to counsel’s work prior to that time. Certain investigative reports had to be produced.

Similarly, the court found that the insureds could not have reasonably anticipated litigation until over one year after they hired counsel. The court found that there were documents “prepared in the ordinary course of [counsel’s] claims investigation … and cannot now be protected as work product because they are useful in this case. While they may contain [counsel’s] mental impressions and opinions, they were not created in anticipation of litigation, and the work product doctrine does not apply.”

Finally, the insureds sought “production of a letter and claim fraud referral forms [the insurer] submitted to New Jersey’s Office of Insurance Fraud Prosecutor (‘OIFP’).” The insurer was withholding these documents “pursuant to statutory authority, N.J.S.A. 17:33A-11; regulatory authority, N.J.A.C. 11:16-6.11, and the State Deputy Attorney Gener[al]’s non-disclosure request applicable to insurance companies.” Whether production could be required depended upon the existence of a pending investigation. If OIFP “is conducting an investigation … ordering disclosure via [the insurer] would ‘circumvent and nullify the statute’ and could further taint or prejudice the investigation.” Thus, the court ordered the insurer to “submit an affidavit from the OFIP as to whether an investigation is open or not….”

Subsequent to the Court’s original August 22, 2017 opinion, there was a supplemental decision issued on September 22, 2017.  This opinion does not materially alter the points discussed above.

Subsequent to the September 22, 2017 opinion, the Court issued two additional opinions.  The first (issued on September 26, 2017) severed and stayed the bad faith claim. Next, on October 13, 2017, the Court issued another opinion on discovery, which did not address the bad faith discovery because that had been stayed, but went on to address more definitively issues concerning the attorney-client privilege and work product doctrine.

Of additional note is the Court’s October 13th ruling that the insurer did not have to produce its attorney invoices at this time during litigation on its insurance fraud claim against the insured.  The Court concluded that such documentation would only have to be produced if and after the insurer prevailed on this claim, as the invoices themselves are not necessary to resolve the issue of whether the insured caused any damages through insurance fraud.

Date of Decision: August 22, 2017, September 22, 2017, October 13, 2017.

Legends Management Co., LLC v. Affiliated Insurance Co., Civil Action No. 2:16-CV-01608-SDW-SCM, 2017 U.S. Dist. LEXIS 134020 (D.N.J. Aug. 22, 2017) (Mannion, M.J.)

Legends Management Co. v. Affiliated Insurance Co., Civil Action No. 2:16-CV-01608-SDW-SCM, 2017 U.S. Dist. LEXIS 154773 (D.N.J. Sept. 22, 2017) (Mannion, M.J.)

Legends Mgmt. Co., LLC v. Affiliated Ins. Co., Civil Action No. 2:16-CV-01608-SDW-SCM, 2017 U.S. Dist. LEXIS 170326 (D.N.J. Oct. 13, 2017) (Mannion, J.)

NOVEMBER 2013 BAD FAITH CASES: PLAINTIFF’S BAD FAITH CLAIM POTENTIALLY GAVE AN INSURER THE ABILITY TO PIERCE ATTORNEY-CLIENT PRIVILEGE WHERE IT CAN ESTABLISH NO LESS INTRUSIVE SOURCE EXISTS ON THE SUBJECTS OF SETTLEMENT DEMANDS, OFFERS, OR THE REJECTION OF SETTLEMENT DEMANDS OR OFFERS ON AN IMPLIED WAIVER THEORY, BUT IT FIRST HAD TO ATTEMPT DISCOVERY WITHOUT ASKING ABOUT PRIVILEGED COMMUNICATIONS (New Jersey Appellate Division)

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Plaintiff, her husband, and their minor children were involved in a car crash in which their vehicle was hit head-on by the other driver. Plaintiff and her children brought suit against the other driver. The driver carried a half-million dollar policy, which was ultimately offered to settle all claims, less the property damage payments already made.

The offer was refused and the case proceeded to trial. Prior to trial, the injured parties accepted an assignment of rights from the driver to pursue a bad faith claim against his insurer in return for releasing him from any judgment exceeding his policy limit. They were awarded a total of $17.5 million at trial.

After the minor plaintiffs filed their bad faith action, the insurer took plaintiff’s deposition. Disputes arose as to what information was protected by the attorney-client privilege since plaintiff and her children were represented by different counsel in both the underlying and bad faith suits.

On a motion by the insurer, the trial court ordered plaintiff’s continued deposition and disallowed any objection on the grounds of privilege to questions concerning settlement demands, offers, or the rejection of settlement demands or offers. Plaintiff appealed the order claiming the insurer failed to demonstrate appropriate grounds for piercing the privilege. The insurer argued that it could pierce the privilege because it had a legitimate need to reach the evidence sought to be shielded, and that the information could not be secured from any less intrusive source.

On appeal, the court affirmed, disallowing plaintiff’s ability to assert the attorney-client privilege regarding settlement demands, offers, and rejections, because, based on the transcript, it appeared the insurer had been thwarted from legitimately inquiring about non-privileged information.

The court found the insurer could only establish the “need prong” to pierce the privilege where a constitutional right is at stake, or a party has explicitly or implicitly waived the privilege. While no constitutional right is at stake in a bad faith claim, the court found “when an insured pursues a bad faith claim, the likelihood that she would have settled the case for the policy limits is “in issue,” and, therefore,… [the insured] has “implicitly waived” the privilege as to communications regarding her knowledge of the settlements offers and demands, and whether she would or would not have accepted a settlement for the full policy limits,” thereby establishing the “need prong.”

Nevertheless, the court held the insurer failed to establish questioning plaintiff about actual communications she had with counsel was the least intrusive method of obtaining the needed information. The opportunity still existed for the insurer to show plaintiff the written settlement offers and ask her questions as to what she knew about the offers, rather than inquiring into privileged communications.

Date of Decision: August 26, 2013

V.K. v. New Jersey Mfrs. Ins. Co., Docket No. A-4681-11T4, A-4682-11T4, 2013 N.J. Super. Unpub. LEXIS 2111 (N.J. Super. Ct. App. Div. August 26, 2013) (per curiam).

OCTOBER 2013 BAD FAITH CASES: COURT QUASHED SUBPOENA DIRECTED TO ATTORNEY OF THIRD PARTY AS IT SOUGHT INFORMATION IRRELEVANT TO THE CARRIER’S CLAIMS HANDLING ON AN IRRELEVANT CONTRACT, AND WOULD VIOLATE THE ATTORNEY CLIENT PRIVILEGE AND WORK PRODUCT DOCTRINE (New Jersey Federal)

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In Kull v. Arrowood Indemnity Company, the court addressed a motion to quash a subpoena issued in connection with an underlying case in federal district court in Ohio.  At the time of the subpoena, the only litigation issue in Ohio was a bad faith insurance claim by an insured corporation against one of its insurers.  That insured originally had disputes with two insurers, with which it signed releases in connection with a settlement.

The subpoena was directed at the attorney for the second insurer, not a party in the Ohio litigation, who was involved with the litigation and the release of his client, which was putatively similar or identical to the release provided to the insurer in the bad faith case.

The court quashed the subpoena.

First, the information requested was not relevant. The non-party insurer’s release did not have any relevance to the way insurer defendant handled the claim.  The other insurer’s release was not even at issue in that case.  Even  if certain provisions of the agreements are “substantively identical”, since they were two separate contracts, any information that the other insurer’s attorney could provide about the party insurer’s release is not likely to lead to relevant evidence in the Ohio matter.

Second, the information requested is protected by the attorney-client privilege and the work product doctrine.  The court agreed that the requested deposition would require the attorney to divulge his own mental impressions and opinions regarding the development and/or preparation of his client’s release and thus, violate the work product doctrine.

Date of Decision October 11, 2013

Kull v. Arrowood Indemnity Co., Civil Action No. 13-4343 (FLW), 2013 U.S. Dist. LEXIS 147271 (D.N.J. October 11, 2013) (Bongiovanni, U.S.M.J.)

 

DECEMBER 2012 BAD FAITH CASES: COURT GRANTS INSURED’S MOTION TO AMEND COMPLAINT WITH BAD FAITH COUNT, BUT GRANTS PARTIAL PROTECTIVE ORDER TO CARRIER, SHIELDING IT FROM DISCOVERY ON RELATED BAD FAITH CLAIMS (New Jersey Federal)

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In Raritan Bay Fed. Credit Union v. CUMIS Ins. Soc’y, Inc., the insured sought discovery and to amend its complaint after its bad faith claims were initially dismissed without prejudice in 2009. (See this case). The carrier objected on several grounds, seeking to: (1) preclude the insured from conducting discovery on the sales and marketing of the bond it purchased, along with “best practices” advice offered by the carrier to its customers; (2) preclude depositions of present and former employees of the carrier; (3) limit depositions and quash subpoenas seeking information from the carrier’s investigator.

First, the court found that the insured should be entitled to amend its complaint with respect to claims that the carrier engaged in a sham investigation after deciding to deny coverage, for the sole purpose of obtaining information against the insured for future litigation. The court also permitted the insured to amend its complaint with a claim that the carrier failed, in bad faith, to advise the insured as to the basis for its denial. However, the court found that the carrier did not act in bad faith by citing vagueness in the insured’s loan policies as a reason to deny coverage.

Second, the court refused to permit discovery on the carrier’s marketing of its bonds and its “best practices” advice because this information was outside the scope of the insured’s amended claims. The court also denied the insured’s request to depose the carrier’s present and former employees, as well as the subpoenas sought by the insured. The court did permit the insured to seek information relating to the carrier’s investigators, finding that such information was not privileged or attorney work product.

Date of Decision: October 21, 2010

Raritan Bay Fed. Credit Union v. CUMIS Ins. Soc’y, Inc., No. 09-1512, 2010 U.S. Dist. LEXIS 112640, U.S. District for the District of New Jersey (D.N.J. Oct. 21, 2010) (Bongiovanni, J.)