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Plaintiff Diana Consugar was involved in an April, 2009 car accident from which she sustained severe injuries. Her auto insurance policy with Nationwide provided for underinsured motorist (UIM) coverage—meaning that the policy would provide coverage for injuries sustained in an accident where the other driver’s insurance policy did not provide sufficient reimbursement.

The insurance policy carried by the other driver had a limit of $25,000, and while the plaintiff received this amount from the third party’s insurer, she sought additional coverage from Nationwide under her policy’s UIM provisions, which provided for coverage up to $300,000. Though plaintiff provided Nationwide with her medical records to assist in their evaluation of the claim, Nationwide never proposed a settlement offer. The insurer notified plaintiff that they would not arbitrate her UIM claim and that if she wished to recover anything under the policy, she would have to take Nationwide to court.

So she filed an action in state court, alleging that Nationwide was obligated to provide UIM coverage under the policy and that their failure to do so constituted bad faith. Nationwide removed the case to the Middle District on diversity grounds whereupon plaintiff propounded several discovery requests, most of which Nationwide objected to,  citing attorney-client privilege and the work product doctrine.

While Nationwide did provide the insured with some limited records from its claims file, it redacted most of the information that could have illustrated the thought process behind the UIM claim’s denial.

On one hand, the court noted that the withheld information could be of particular relevance in a bad faith claim, pointing to another District court decision involving Nationwide in which the Eastern District found that the claims file or claims log should be disclosed in a bad faith action against the insurance carrier. Marshall v. Nationwide Mut. Ins. Co., 1994 U.S. Dist. LEXIS 7834 (E.D. Pa. 1994).

On the other hand, the Middle District here was not prepared to engage in a wholesale denial of privilege for every document in Nationwide’s file. Thus, to the extent that plaintiff sought Nationwide’s entire claims file without any redactions for privilege, the court denied the insured’s motion for production. However, it did so without prejudice, noting that the plaintiff could, by motion, bring particular documents it sought disclosed before the court for “in camera” inspection in which the court would determine whether discovery of the document would be appropriate.

Nationwide sought more absolute protection from disclosure under the work product doctrine, arguing that any document added to the file after June 14, 2010 should be considered as created in anticipation of litigation and therefore protected work product. Nationwide pointed to June 14th because it was on this date that Nationwide discovered that the insured had a pre-existing medical condition which she was now attempting to attribute to the accident.

After learning of the insured’s medical history, it became clear that Nationwide would deny the claim and that litigation would be imminent. Thus, argued Nationwide, any contributions to the file from that point forward should be considered protected work created in anticipation of litigation.

However, the Middle District was not prepared to take an exception to discovery’s liberal disclosure rules as far as Nationwide would have liked, noting that ultimately litigation should not be a competition to see which party can manipulate legal doctrines to gain advantage.

Nationwide also sought to prevent the disclosure of its procedures for establishing “insurance reserves”—the pools of funds allocated to satisfy obligations that may arise under a claim. It argued that reserve information was not discoverable in a bad faith claim. The court disagreed, finding that reserve information—inasmuch as it is an estimation by the insurer of its potential liability on a claim—is of particular relevance in a potential bad faith situation. Thus, the court ordered that the amount of any reserve allocated to the insured’s claim be produced.  The court observed that if in fact there was a discrepancy between the reserve value assigned to the claim and Nationwide’s actions in actually processing the claim, that could shed light onto whether or not there was bad faith.

Similarly the court ordered Nationwide to produce its employee training manuals and the files of other claims similar in nature to plaintiff’s. Its reasoning was that such information could be instructive in a bad faith inquiry by revealing whether denying claims like plaintiff’s was a part of company policy as a matter of course, or whether denying the plaintiff’s claim indicated a failure to follow established policy.

Ultimately, the court ordered Nationwide to provide that which plaintiff specifically requested, with the caveat that if Nationwide wanted to designate certain information as privileged it could do so by creating a log which would inform the plaintiff what is believed to be privileged and why. Plaintiff would then be able to challenge this designation by requesting an in camera review of the specific information for which privilege was claimed.

Date of Decision: June 9, 2011

Consugar v. Nationwide Ins. Co. of America, No. 3:10cv2084, United States District Court for the Middle District of Pennsylvania, 2011 U.S. Dist LEXIS 61756 (June 9, 2011) (Munley, J.)