OUR 1800TH POST: (1) RESERVES DISCOVERABLE; (2) COMMUNICATIONS RETAINING COUNSEL NOT DISCOVERABLE; (3) ISO CLAIM HISTORY REPORT DISCOVERABLE; (4) ASSET REPORT ON TORTFEASOR NOT DISCOVERABLE; (5) CLAIM EVALUATION REPORT ONLY HAS LIMITED WORK PRODUCT PROTECTION; (6) INTERNAL NOTES FULLY PROTECTED ON ATTORNEY COMMUNICATIONS, BUT LIMITED WORK PRODUCT PROTECTION; (7) DEPOSITIONS MAY INQUIRE INTO AREAS WITH ONLY LIMITED WORK PRODUCT PROTECTION (Philadelphia Federal)

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It has been nearly 15 years since our first bad faith blog post, summarizing an opinion by the late Judge Albert Sheppard.  Today’s summary is our 1,800th post

This Eastern District opinion addresses discovery issues in a UIM bad faith case, including document production and issues arising out of plaintiff seeking to depose the insurer’s claim adjuster and corporate designee.  Magistrate Judge Perkin had already addressed numerous discovery issues in this case in an earlier opinion, summarized here, and now addresses the remaining issues after conducting an in camera review of certain documents on the insurer’s privilege log.

Reserves discoverable in bad faith valuation dispute

Magistrate Judge Perkin observed, “District Courts within the Third Circuit are split on the question of whether reserves are discoverable in bad faith cases.”  He relied on Middle District Magistrate Judge Carlson’s Barnard decision, summarized here, holding that in bad faith cases, reserves are discoverable if the bad faith claim is based on a valuation dispute, rather than outright coverage denial.  As the present case involved a valuation dispute, reserves were discoverable.

Magistrate Judge Perkin further rejected the argument that the reserves were protected work product.  Applying the Federal Rules of Civil Procedure, he found that the insurer did “not argue that its reserves were prepared in anticipation of litigation or other than in the normal course of business.”

Internal emails regarding receipt of this lawsuit and assignment to legal counsel not discoverable

The insurer “withheld internal emails regarding receipt of the lawsuit and assignment to its legal counsel. Defendant’s privilege log indicates that these documents were withheld on the grounds that the information is ‘work product, mental impression, confidential, and post litigation.’ After in camera review, this Court finds that the documents have been appropriately withheld. These documents, dated after the lawsuit was filed, are protected by both attorney-client privilege and the work-product doctrine as the communications were made with the purpose of seeking legal advice and discuss litigation strategy.”

ISO claim search report discoverable

“[T]he ISO Claims Search Database is a nationwide database utilized by insurance companies to track claims history and detect fraud. Defendant withheld the report on Plaintiff’s claims history on the basis that it is not relevant.” The court found the information “relevant to Plaintiff’s bad faith claim to the extent that it is a factor Defendant considered in evaluating Plaintiff’s Underinsured Motorist Claim.”

Asset report for consent to settle/waiver of UIM subrogation purposes not discoverable

Defendant withheld the asset search of the tortfeasor in the underlying motor vehicle accident action, on the basis of irrelevance and confidentiality. The court agreed it was irrelevant to the bad faith claim at issue

Insurer’s evaluation report for plaintiff’s UIM claim: no attorney-client privilege protection and limited work product protection

The insurer withheld its evaluation report on the UIM claim based on “work product, mental impression, attorney-client, confidential, and post litigation.” Magistrate Judge Perkin found “these documents consist of not only the final evaluation of Plaintiff’s claim prepared by claims personnel … but also a detailed history of all updates made by claims adjusters to the report beginning on … the date Plaintiff settled with the tortfeasor.”

First, the court found these documents were not subject to the attorney-client privilege. “[T]he privilege bars discovery of confidential communications made between attorneys and clients for the purpose of obtaining or providing legal assistance to the client. …  The privilege does not apply to the ‘disclosure of the underlying facts by those who communicated with the attorney.’” “The evaluation report contains no communications between Defendant and its counsel. Rather, the report contains a series of notations regarding the claim by the claims adjuster….”

Next, Magistrate Judge Perkin dove deep into an analysis of the work product doctrine, addressing the difficult question of when the normal duty to investigate a claim turned into a period where the insurer reasonably anticipated litigation.

Thus, to determine the work-product doctrine’s applicability:

  1. A court must “first establish when Defendant reasonably anticipated litigation.”

  2. “The party asserting work product protection must demonstrate that it subjectively anticipated litigation, and that the anticipation was objectively reasonable.”

  3. “While the court must initially focus on the state of mind of the party preparing, or ordering preparation, of the document, that person’s anticipation of litigation must be objectively reasonable for the work product protection to apply.”

  4. “A party’s anticipation of litigation is objectively reasonable if ‘there existed an identifiable specific claim or impending litigation when the materials were prepared.’”

Magistrate Judge Perkin looked for guidance in Judge Sanchez’s 2014 Borgia opinion, summarized here, and Judge Leeson’s 2016 Wagner decision, summarized here.

In the present case, plaintiff’s counsel first demanded policy limits on January 12, 2018, and the insurer engaged counsel to investigate and evaluate the claim on April 19, 2018.  After being retained, the insurer’s counsel conducted a statement under oath, subpoenaed medical records and assisted in obtaining an IME.

“On July 20, 2018, after the Statement Under Oath was completed, Plaintiff’s counsel again made a demand for policy limits, though she made no threat or mention of litigation. Reviewing the e-mails between counsel, it appears that, from July 20, 2018 through February 27, 2019, the communications involved only requests for authorization of medical records and scheduling of the independent medical examination. On August 26, 2019, the independent medical examination occurred. Shortly after, on September 3, 2019, Plaintiff filed this lawsuit.”

Counsel’s communications indicated plaintiff sought full UIM limits but never threatened litigation. Further, “the communications between counsel from July 20, 2018 through February 7, 2019 concerned continued requests for medical records and authorizations to fully assess Plaintiff’s claim.”

Further, this was not a case where insurer’s claim valuation and the policy limit demand were so far apart that a reasonable insurer would believe litigation could arise, until the August 26, 2019 IME. Magistrate Judge Perkin found it was only at the time the IME concluded in August 2019 that it was “likely that Defendant had determined Plaintiff’s demand for payment in the amount of the policy limit exceeded its expected offer for settlement.” Thus, he held the insurer reasonably anticipated litigation no later than the date the IME concluded, and ordered production of unredacted claim handling entries on the evaluation reports prior to that date.

Internal file notes reflecting communications with counsel protected, but those based on work product are only partially protected

The insurer redacted all information in its internal file notes concerning communications with legal counsel, UIM strategy and evaluation, and claim handling on the basis of “work product, attorney-client, confidential, mental impression, not relevant, and post litigation.” The redactions “appear to be an account of all updates made on the handling of Plaintiff’s claim by the claims adjuster….” Based on the earlier work product analysis, “any entries made prior to August 26, 2019 redacted on the basis of the work-product doctrine are discoverable and must be produced.”

This included the adjuster’s summary of the insured’s statement under oath.

“Any redactions made due to the attorney-client privilege are appropriately redacted, and need not be produced, as they are summaries of communications between the claims adjuster, in-house counsel, and outside counsel.”

Scope of permissible subjects for inquiry at deposition of corporate designee and adjuster

As stated above, plaintiff could not direct questions to either deponent about attorney-client communications.  Plaintiff could ask about underlying facts, even if those facts were also communicated to counsel for counsel’s consideration in evaluating the matter, regarding what facts were considered in not offering policy limits.

As to work product, per the above reasoning, “Plaintiff’s counsel must limit any questions under this matter for examination to the time period before August 26, 2019.”

Date of Decision:  May 27, 2021

Sanchez v. State Farm Mutual Auto Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 19-4016, 2021 WL 2156367 (E.D. Pa. May 27, 2021) (Perkin, M.J.)

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