Discovery in Bad Faith Insurance Litigation: Key to Successfully Proving or Defending Claims Navigating Scope of Discovery, Document Production, and Joint Client Exception to and Implied Waivers of Privilege Today’s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. WEDNESDAY, JUNE 10, 2015 Presenting a live 90-minute webinar with interactive Q&A Susan E. Dinneen, King Krebs & Jurgens, New Orleans Marshall Gilinsky, Shareholder, Anderson Kill, Washington, D.C. Alan P. Jacobus, Proprietor, Law Offices of Alan Palmer Jacobus, San Francisco
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Discovery in Bad Faith Insurance Litigation:
Key to Successfully Proving or Defending Claims Navigating Scope of Discovery, Document Production,
and Joint Client Exception to and Implied Waivers of Privilege
Disclaimer The views expressed by the participants in this program are not those of the participants’ employers, their clients, or any other organization. The opinions expressed do not constitute legal advice, or risk management advice. The views discussed are for educational purposes only, and provided only for use during this session.
Policyholder must show the insurance company’s awareness or reckless disregard that position was unreasonable, but this may be inferred from lack of reasonable grounds for delay or denial.
Authority: Anderson v. Continental Ins. Co., 85 Wis. 2d 675, 271 N.W.2d 368 (1978).
• The client cannot be compelled to answer the question, “What did you say or write to the attorney?”
• The client may not refuse to disclose any relevant fact within his knowledge merely because he incorporated a statement of such fact into his communication to his attorney.
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Public Policy Supporting the
Attorney-Client Privilege
• To encourage full and frank communication
between attorneys and their clients and thereby
promote broader public interests in the observance
of law.
• Sound advocacy depends upon the lawyer’s being
fully informed by the client.
• A lawyer’s assistance can only be safely and
readily availed of when free from the
consequences or the apprehension of disclosure.
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Work Product Protections and
Discovery
• More limited in scope than the attorney-
client privilege
• Note: Not attorney work product
• Policy: encourages lawyers to put their
work in writing
• Promotes efficiency
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The Work Product Rule
• “Ordinarily, a party may not discover documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent). But, subject to Rule 26 (b) (4), those materials may be discovered if:
(i) they are otherwise discoverable under Rule 26 (b) (1); and
(ii) the party shows that it has substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means.”
Defense Perspective on Discovery in Bad Faith Suits
Discovery Typically Requested by Plaintiffs in Bad Faith Litigation
– Insured’s Claim File
– Information Regarding Similar Claims
• Other Insureds’ Claim Files
• Stats on Claims Handling
– Internal Policies, Procedures, Guides
Limiting the Scope of Plaintiff’s Discovery
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Resisting Institutional Allegations/Discovery
• Conduct Internal Investigation
• Object to Discovery on Grounds of Relevance, Breadth, Privacy, Privilege, Proprietary/Trade Secret
• Issue Discovery to Show No Basis for Allegations
• Motion to Strike Scandalous Allegations (e.g., discrimination)
• MSJ to Dismiss Bad Faith Allegations
Limiting the Scope of Plaintiff’s Discovery
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Resisting Institutional Allegations/Discovery
• Motion to Quash
• Protective Order (file documents under seal; return document after case resolved)
• Produce Redacted Version of Documents (following in camera inspection, if necessary)
• The Importance of Institutional Consistency in Responding To Discovery
Limiting the Scope of Plaintiff’s Discovery
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Production of the Insured’s Claims File
• Blanket requests for claim file generally not acceptable
• Redact all confidential/privileged portions of claim file
• Work product privilege – When does it attach?
– “…at the pivotal point ‘where the probability of litigating the claim is substantial and imminent’ or where ‘litigation was fairly foreseeable....’ ” Vinet v. Allstate Ins. Co., 1993 WL 515753 (E.D. La. 1993), citing State Farm Fire and Casualty Company v. Perrigan, 102 F.R.D. 235, 238 (W.D.Va.1984)
Limiting the Scope of Plaintiff’s Discovery
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• What if suit is first notice of the claim (e.g., UM claim)?
• A determining factor regarding the work-product doctrine is whether the document was prepared or obtained because of the prospect of litigation or in the normal course of business.
Discovery Regarding Similar Claims • Privacy concerns for other insureds • Stats are not credible evidence to prove insurer
handled this claim in a particular manner • Stats not relevant to reason for denial of claim at
issue – Other denials were made by different adjusters
• Evidence of other claims would essentially force insurer to defend multiple mini-trials
• Request is burdensome, or the requested materials are not in the insurer’s possession
Limiting the Scope of Plaintiff’s Discovery
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Production of Other Insured’s Claims Files
• Redact all confidential/privileged portions of claim file
– Fed. R. Civ. P. 5.2
• Request in camera review of documents at issue
• Limit to discovery of “similarly situated” insureds
– Weiss v. Allstate, 512 F. Supp.2d (E.D.La. 2007)
– Lambert v. State Farm, 2008 WL 2313134 (E.D.La. 2008)
– Chateau Argonne v. State Farm, 2008 WL 4411654 (E.D.La 2008)
Limiting the Scope of Plaintiff’s Discovery
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Discovery Regarding Claim Handling Stats
• Scandalous allegations are alleged to open the door to institutional discovery – Plaintiff’s Allegation: Insurer tends to treat young
African American females and males differently from their other customers.
– Plaintiff’s Discovery: Please provide statistical data regarding the number of claims that have been settled, by race and gender of the insured, in the Greater New Orleans area; please admit or deny that the plaintiff is an African American.
Limiting the Scope of Plaintiff’s Discovery
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• Tailor discovery to show no factual basis for the allegation – Please identify all facts and evidence supporting the allegations in ¶XII
of your Petition that “…the adjuster is refusing to pay the plaintiff’s claim because he believes that young African American females always make fraudulent insurance claims.”
• Conduct internal investigation to show no factual basis – Interview adjusters to determine if they knew the insured’s race
– “Where a decision is putatively race based, it naturally follows that a defendant accused of intentional racial discrimination would have to know the race of the plaintiff." Johnson v. Northwest Airlines, 839 F. Supp. 1253, 1259 (E.D. Mich. 1993);
• File Motion to Strike the Scandalous Allegations
Limiting the Scope of Plaintiff’s Discovery
Discovery Regarding Claim Handling Stats
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Production of Internal Operating Guides, Manuals and Protocols
• Tactic employed by plaintiffs to show bad faith -demonstrate an insurer violated its own internal policies while adjusting the claim at issue.
• Most insurers consider those guides to be protected trade secrets and proprietary data that is not discoverable.
• If it must be produced, redact and produce subject to Protective Order
Limiting the Scope of Plaintiff’s Discovery
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One of the goals of discovery in Bad Faith litigation is to obtain sufficient evidence to have the bad faith claim dismissed on MSJ.
Identifying Documents and Testimony to Refute Bad Faith Claims
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Plaintiff Must Show Satisfactory Proof of Loss Before Proving the Insurer Breached Its Duties • Plaintiff has the burden of proving satisfactory proof
of loss.
• “It logically follows from this burden that a plaintiff who possesses information that would suffice as satisfactory proof of loss, but does not relay that information to the insurer, is not entitled to a finding that the insurer was arbitrary or capricious” – Reed v. State Farm Mut. Auto. Ins. Co., 857 So.2d 1012,1020–21
(La 2003)
Identifying Documents and Testimony to Refute Bad Faith Claims
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Discovery to Dispute Satisfactory Proof of Loss • Affidavit/testimony from claim adjuster re: insured’s failure to
contact insurer or produce documentation after last tender
• Interrogatories seeking specific details regarding steps Plaintiff took to notify the insurer that he was unsatisfied with the adjustment of the claim
• Request for production of estimates, repair contracts, receipts, invoices to see when such documents were prepared
• Deposition/request for admission relative to satisfactory proof of loss
– e.g., admit you failed to contact the insurance company prior to the institution of the instant lawsuit
Identifying Documents and Testimony to Refute Bad Faith Claims
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Reasonable Basis to Deny Claim • Numerous courts have held insurers are not liable
for denying a claim in bad faith, even though coverage was ultimately resolved at trial in favor of the insured, so long as the insurer had a reasonable basis to deny the claim.
• While it is plaintiff’s burden to prove the insurer’s conduct was arbitrary, capricious or without probable cause, the insurer should collect evidence to prove a prima facie case that its denial of the claim was reasonable.
Identifying Documents and Testimony to Refute Bad Faith Claims
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Courts have found a reasonable basis to deny vehicle theft claims where there are inconsistencies discovered during the adjustment of the claim, making it “not a clear cut theft of loss”
– Duhon v. State Farm Mutual Automobile Insurance Co., 952 So.2d 908 (La.Ct.App.3d. Cir.2007)
– Johnson v. State Farm Mutual Automobile Insurance Company, 2012 WL 1745497 (E.D. La., May 16, 2012)
Reasonable Basis to Deny Claim – Suspicious Facts
Identifying Documents and Testimony to Refute Bad Faith Claims
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• Look to information already in the claims file – e.g. recorded statements, activity log note, EUOs, affidavit
of vehicle theft, police report
• Conduct discovery to show discrepancies in claim or other evidence of a possible fraud – Criminal background of the insured – Prior claims/suits made by the insured – Bank statements, credit reports, tax returns – Cell phone/tower records – Police department video or photographs – Social media – Medical/pharmacy records
Discovery to Show Reasonable Basis to Deny Claim – Suspicious Facts
Identifying Documents and Testimony to Refute Bad Faith Claims
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Reasonable Basis to Deny Claim – Coverage Questions
An adjuster may have reasonable basis to deny a claim or certain damage if the adjuster concluded:
– The damage/injury was preexisting
– The damage was caused by a peril not covered under the policy (e.g., flood, mold).
Identifying Documents and Testimony to Refute Bad Faith Claims
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• Affidavit/testimony of adjuster to explain why the claim decision was made
• Retain experts to opine on causation of damage • Request inspection of the property or an IME • Written discovery relative to condition of property
prior to the loss • Road Home / SBA / FEMA documents • Prior insurance claims (via claims search, SDT to
other insurers, underwriting documents)
Discovery to Show Reasonable Basis to Deny Claim – Coverage Questions
Identifying Documents and Testimony to Refute Bad Faith Claims
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• Estimates/records of current and prior repairs
• Photos of property prior to the loss
• History of property: year built/purchased, title transfers, repair/maintenance contracts
• Subpoena experts and public adjusters hired by plaintiff
• Depositions of Plaintiffs and their experts
Identifying Documents and Testimony to Refute Bad Faith Claims
Discovery to Show Reasonable Basis to Deny Claim – Coverage Questions
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Comparative Bad Faith as a Defense
• Insured’s own bad faith may preclude finding that insurer is in bad faith.
Identifying Documents and Testimony to Refute Bad Faith Claims
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Discovery to Show Insured’s Comparative Bad Faith as a Defense
• Issue discovery tailored to the insured’s actions:
– Breach of Duties After the Loss/Non-Cooperation (refusal to submit to EUO, IME, property inspection; refusal to produce records, receipts or other documents requested)
– Failure to dispute the claim decision prior to filing suit
– Material Misrepresentations/Fraud/Concealment
– Bad Faith Setup (e.g., time limited settlement demand, refusal to submit proof of loss)
Identifying Documents and Testimony to Refute Bad Faith Claims
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Advice of Counsel Defense in
Bad Faith Cases
• May be a complete defense to an insurer accused
of bad faith.
• Arguably puts the attorney’s advice at issue.
• May be discoverable.
• Limitations.
• State Farm Mut. Auto. Ins. Co. v. Superior Court
(Johnson Kinsey, Inc.), 228 Cal. App. 3d 721, 724,
279 Cal. Rptr. 116, 117-118 (1991).
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The Boone / Tackett / Lee Rules
• Policyholders will argue that the mere allegation of bad faith makes the insurer’s pre-denial file discoverable.
– Boone v. Vanliner Ins. Co., 91 Ohio St. 209, 744 N.E.2d 154 (2001)
– Tackett v. State Farm Fire & Cas. Ins. Co., 653 A.2d 254 (Del. 1995)
– State Farm Mut. Auto. Ins. Co. v. Lee, 199 Ariz. 52, 13 P.3d 1169 (2000)
• Bad policy?
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The Boone / Tackett / Lee Rule:
Strategies
• Limits use of coverage counsel before denying a claim
• Removal to federal court (arguably more favorable work product rules)
• Limitation to the facts in Boone / Tackett / Lee