MAY 2015 BAD FAITH CASES: COURT ADDRESSES DISCOVERY DISPUTES OVER (1) CLAIMS MANUALS; (2) PERSONNEL FILES; AND (3) OTHER LAWSUITS, NARROWING DISCOVERY IN SOME INSTANCES TO SPECIFIC ADJUSTER WHOSE CONDUCT WAS AT ISSUE, AND NARROWING TIME PERIODS (Middle District)
In Stephens v. State Farm Fire & Casualty Company, the insured under a homeowners policy brought breach of contract and bad faith claims for failure to pay benefits, and an Unfair Trade Practices and Consumer Protection Law claim for termination of the policy.
The court addressed various discovery disputes concerning the bad faith claims involving: (1) claims manuals, guidelines and instructions materials relating to insurance claims like those made by the plaintiffs, covering a four year period; (2) access to performance reviews and performance incentive review programs for all of the defendants’ employees who played a role in insurance company decisions for a similar period; and (3) a demand that (i) the insurer compile information relating to other insurance lawsuits brought against the insurer involving theft, vandalism and water damages claims, as well as (ii) all lawsuits or complaints regarding the conduct of the particular claims adjuster whose conduct was at issue in the case at hand, again for periods ranging between four and five years.
CLAIMS MANUALS AND INSTRUCTIONS
The court stated that “it is well-settled that manuals and other training materials are relevant in bad faith insurance litigation where they contain instructions concerning procedures used by employees in processing claims.” However, “[o]nly those portions ‘relevant to processing the claim in question’ are discoverable, as they may show inter alia that agents of an insurance company recklessly disregarded standard interpretations of a particular contractual provision in denying coverage or deliberatively omitted certain investigatory steps.”
The court noted that it “has frequently granted such requests for discovery in the past, reasoning that agency claims processing policies, and non-compliance with those policies, may be relevant to a bad faith claim like the claim made by the plaintiffs in this case.” The court ruled that the insurer was “entitled to have some topical and temporal limitations set on this disclosure, narrowing its scope somewhat.” Thus, it “direct[ed] the disclosure of those portions of the claims manuals, guidelines and instructions materials relating to insurance claims like those made by the plaintiffs,” but only for the two years at issue in the complaint, not the four to five year period the insured sought.
PERSONNEL FILES AND INCENTIVE PROGRAMS
The insureds sought performance reviews and incentive review programs for all of the insurer’s employees who played a role in decision making in the case for a 5 year period. The court first stated there is a strong public policy against disclosing personnel information, and thus the insured’s demands were “far too sweeping in their scope in terms of both personnel covered, files sought, and duration of the demanded disclosure.” With one exception, these discovery requests were denied.
As to the exception, the court stated: “The conduct of the adjuster in this case is squarely at issue in this litigation[, and] [t]o the extent that the personnel files of the adjuster contain disciplinary findings or other material relevant to other claims of bad faith conduct by that adjuster, these materials should be provided to the court by the defendant for … in camera inspection to determine whether they are relevant to the issues in this litigation. If a review of the claims adjuster’s personnel file reveals no such information, the defendant shall certify that no such material exists.”
OTHER LAWSUITS
As to the demand that the insurer “compile information relating to other insurance lawsuits involving theft, vandalism and water damages claims, as well as all lawsuits or complaints regarding the conduct of this particular claims adjuster, for periods ranging between four and five years[,]”, the court found it had to balance two competing principles.
On the one hand, “it is clear that in some instances examples of similar, wrongful conduct in the processing other insurance claims may permit an inference that there is a pattern or practice of misconduct on a defendant’s part.” On the other hand, “it is equally clear that dissimilar conduct involving disparate claims would not be relevant or admissible in insurance bad faith litigation.” The court observed: “Because the relevance and admissibility of this proof often turns on the degree of similarity between the other cases and the instant lawsuit, courts have frequently rejected sweeping demands for wholesale disclosure of other litigation over the span of many years, like the discovery demands made here.”
The court denied the request “for wide-ranging disclosure of all other lawsuits involving [the insurer] over four to five year periods….” However, “the request for information pertaining to the claims adjuster in this particular case may have greater relevance to the issues in this lawsuit.” Again, the demands were denied with the one exception of the adjuster at issue. Thus, “prior lawsuits or complaints alleging bad faith by this particular claims adjuster in the two years preceding this incident [at issue …] may be relevant to this action, [and] to the extent that this information exists, these materials should be provided to the court by the defendant for our in camera inspection to determine whether the information is relevant to the issues in this litigation. If a review reveals no such information, the defendant shall certify that no such material exists.”
