Suits alleging negligence or bad faith arising from an insurer’s failure to settle or defend a claim, invariably include requests for the insurer’s claims file related to the coverage determination. Unfortunately, two recent Federal Court decisions add little clarity to determine the proper scope and extent to which these claim files are discoverable.
On December 3, 2012, the United States District Court for the Northern District of Georgia, in Camacho v. Nationwide Mut. Ins. Co., 287 F.R.D. 688 (N.D.Ga.,2012) ordered production of the claims file and permitted depositions of claims personnel, but precluded discovery of certain privileged communications and protected the mental impressions, conclusions, opinions, or legal theories of counsel and insurance representatives pursuant to the work product doctrine. The United States District Court for the Southern District took a very different approach to the issue when it issued its order in Marshall v. Safeco Ins. Co. of Indiana, CV112-113 (S.D. Ga. 5/14/13 (order not available on Westlaw)) and barred production of the claim file.
In Camacho, plaintiffs filed suit against Nationwide alleging negligent and bad faith failure to settle their claims against its insured in their underlying state court action. Id. at 691. A dispute arose over discovery of the claim file. Following submission of a “Joint Brief on Discovery,” filed by the parties, the court issued a 16-page order.
First, the court ruled that a joint defense/common interest doctrine precluded Nationwide from claiming any protection under the attorney-client privilege over its communications with the law firm retained to defend the insured in the underlying tort action, and unrelated to issues of coverage. Second, the court ruled that communications between the insurer’s in-house claims counsel and defense counsel in the underlying lawsuit were not privileged and that documents in the insurer’s claims file originating after it rejected the settlement demand were subject to discovery. However, the court held that the insurer’s own communications with its in-house claims counsel were protected by attorney-client privilege and that the mental impressions, conclusions, opinions, or legal theories of counsel and insurance representatives were protected by the work product doctrine. Third, the court granted plaintiff’s request to depose Nationwide’s insurance representatives regarding facts of which Nationwide had knowledge and considered in its investigation and handling of the Camacho wrongful death claim.
Lastly, Nationwide was permitted to re-depose plaintiffs “for the limited purpose of discovering whether plaintiffs possess[ed] facts, independent from their communications with their attorneys, surrounding the terms of the settlement demand, i.e. whether plaintiffs had any knowledge of the basis underlying the 10 day settlement deadline and whether the demand was made on behalf of the estate or only on behalf of . . . the survivor.” Id. at 698.
A far different result occurred in Marshall v. Safeco Ins. Co. of Indiana, where the insured brought a first-party claim for bad faith when his insurer denied coverage under his homeowner’s policy following a fire at his home. The insurer originally suspected arson, though an investigation of the fire produced no evidence to support the suspicion. A few days later, the insurer retained a special investigator to investigate alleged material misrepresentations made by the insured. More than a year after the loss and after the insured eventually filed suit, the insurer denied the claim on the grounds that the insured failed to disclose prior claims for minor roof damage and water intrusion at the time he applied for coverage.
Following a motion to compel production of the claim file, the court ruled that “the issue of ‘bad faith’ was one properly addressed at trial and not at the time of the insurance company’s denial of a claim or during its investigation of the claim, such that an insured’s allegations of bad faith did not compel production of the insurance company’s claim investigation file.” Accordingly, the court denied plaintiff’s motion and even awarded attorney’s fees to the defense.
As these cases illustrate, the issue of how much and what portions of a claim file are discoverable may turn on the nature of the claim (i.e. first- or third-party), the posture of the coverage issue, or perhaps just the luck of the draw with respect to the judge or court.