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.)

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