For The Defense, July 2010 - DRI Today

defense and settlement costs incurred in athird-party lawsuit alleging wrongful termination,breach of contract, and bad faith.In the course of the coverage dispute,the plaintiffs moved to compel productionof all claims documents created by Gulf’soutside attorneys, as well as all claims andunderwriting manuals and interpretivedocuments. The plaintiffs asserted thatGulf retained its outside attorneys to investigateand make coverage determinationsabout their D & O claim. They contendedthat this task is normally performed by aninsurance company’s claims department,and thus the claims- handling documentswere not protected by the attorney- clientprivilege. Gulf responded that its outsideattorneys served as legal advisors and,thus, their communications were entitledto attorney- client privilege protection.The court explained that the attorneyclientprivilege does not, in fact, generallyprotect all transactions that involve an attorneyand a client, nor can all the factsknown by a party have immunity from discoverysimply because the party told themto an attorney. Id. at 68 (citing ReichholdChemicals, Inc. v. Hartford Accident & IndemnityCo., 2000 Conn. Super. Lexis 2164,2000 WL 1227306 (Conn. Super. Aug. 15,2000)). The court further stated that onlycommunications between client and attorneywhen made in confidence for the purposeof seeking or giving legal advice areprivileged. Id. Finally, the court held that arequest that an attorney obtain informationfrom outside sources is not privileged. Id.In making its ultimate ruling granting theplaintiffs’ motion to compel, the court reliedon the testimony of Gulf’s own expertwitness who testified that Gulf’s outside attorneysfunctioned as claims handlers andprimarily made business decisions.Overall, courts have held that theattorney- client privilege cannot become amechanism for avoiding disclosure of documentsthrough an assertion of privilege.On similar grounds, a court will not affordwork product protection to documents in aclaim file that were prepared for an insurancecompany as part of its ordinary courseof business, even if these documents wereprepared by an attorney. Courts have recognizedthat consultations between an insurancecompany and its attorneys during aninvestigation “is an important factor whichgenerally weighs in favor of” a court findingthat the work product doctrine protects documents.Burr v. United Farm Bureau Mut.Ins. Co., 560 N.E. 2d 1250, 1254 (Ind. Ct.App. 1990). However, more often than not,courts rule that documents prepared for aninsurer prior to a coverage determination donot have work product protection becausethey have been prepared in the ordinarycourse of the insurer’s business. Pete Rinaldi’sFast Foods, Inc. v. Great American Ins.Cos., 123 F.R.D. 198, 202 (M.D.N.C. 1988).Other courts have looked at the date onwhich documents were created and whetherat that time a lawsuit was likely. Fontaine v.Sunflower Beef Carrier, Inc., 87 F.R.D. 89,93 (E.D. Mo. 1980). Still other courts haveadopted a case-by-case analysis. Schmidt v.California State Automobile Association, 127F.R.D. 182, 184 (D. Nev. 1989).To summarize, documents preparedafter an insurance company retains outsidecounsel are not necessarily protectedby the work product doctrine in cases inwhich the insurance company continuesto investigate claims without denying coverage.The retention of outside counseldoes not alone indicate a decision to litigatea claim. Accordingly, insurance companieshave a difficult time claiming, priorto denying coverage, that documents preparedin the context of investigations enjoyprotection because they were prepared inanticipation of litigation. This is becausean investigation of a claim often continueseven after outside counsel is retained.Cutrale Citrus Juices USA, Inc. v. ZurichAmerican Ins. Group, 2004 U.S. Dist. Lexis22487 (M.D. Fla. 2004), illustrates onecourt’s interpretation of the work productdoctrine in the insurance context. In thatcase, the plaintiff, Cutrale, sued Zurich forbreach of two insurance contracts. Duringthe course of the litigation, the plaintifffiled a motion to compel production ofall claim file documents, including investigativematerials. Zurich asserted that thedocuments were protected because theywere prepared in anticipation of litigatingthe plaintiff’s bad-faith claim; however,it agreed to submit the documents tothe court for an in camera inspection priorto the hearing on the plaintiff’s motion.Among other things, the plaintiff arguedat the hearing that if the documents wereprepared in the normal course of business,they were not protected under the workproduct doctrine, and the defendant mustproduce them. The court held that whileno bright line rule in the insurance contextseparated documents produced underthe work product privilege from documentsproduced in the ordinary course ofbusiness, a claim coverage denial date isthe proper date after which an insurer cananticipate litigation with relative certaintyand, thus, documents generated after thatdate would have work product protection.Id. Indeed, a number of courts have agreed.See, e.g., Ring v. Commercial Union Ins.Co., 159 F.R.D. 653, 656 (M.D.N.C. 1995)(stating that “in general, only documentsaccumulated after the claim denial will beprepared in anticipation of litigation”). Specifically,the Cutrale Citrus court found thatall documents considered responsive to theplaintiff’s production request in the claimsfile dated before November 11, 1999, thedate of Zurich’s denial, did not have workproduct protection, and Zurich must producethem. Cutrale Citrus Juices USA, Inc. v.Zurich American Ins. Group, 2004 U.S. Dist.Lexis 22487 (M.D. Fla. 2004).In rare cases, courts have held that documentsprepared by attorneys for insurancecompanies were protected by bothattorney- client privilege and the workproduct doctrine, extending those protectionsto documents prepared during thecourse of an investigation. For instance, theUnited States Court of Appeals for the FifthCircuit upheld a protective order issued fordocuments prepared by an insurance company’sattorneys during the course of theinvestigation of a claim. Dunn v. State FarmFire & Casualty Co., 927 F.2d 869 (5th Cir.1991). In Dunn, State Farm insured Mollieand Melvin Dunn’s home and it contents.The Dunns separated, and, shortlyafter, a fire burned their house. The firedepartment suspected arson, and, a fewdays after the fire, Mr. Dunn confessed tosetting the fire intentionally. Mrs. Dunnfiled a claim with State Farm based on herinterest in the house and her share of itscontents. After conducting an investigation,State Farm denied Mrs. Dunn’s claimsbased on alleged misrepresentations andsuspicions that she had been complicit inthe arson. Mrs. Dunn filed a bad-faith suit,and the trial court found in favor of StateOutside Counsel, continued on page 88For The Defense n July 2010 n 67