ATTORNEY WORK-PRODUCT: OVERCOMING INSURER OBJECTIONS
By Mike Abourezk and Marialee Neighbours
In bad faith cases, insurers often make blanket objections to plaintiff's discovery requests or proffers of evidence based on the attorney work-product doctrine. However, as this article explains, there are many arguments that can be used to rebut these objections.
South Dakota Codified Law § 15-6-26(b)(3) governs discovery of attorney-work-product. The statute provides in pertinent part:
Trial preparation: materials. Subject to the provisions of subdivision (4) of this section, a party may obtain discovery of documents and tangible things otherwise discoverable under subdivision (1) of this section and prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative (including his attorney, consultant, surety, indemnitor, insurer, or agent) only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of his case and that he is unable without undue hardship to obtain the substantial equivalent of the materials by other means. In ordering discovery of such materials when the required showing has been made, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation. (Emphasis added).
Therefore, the scope of attorney work-product is: (1) documents and intangible things; (2) prepared in anticipation of litigation or for trial; and (3) by or for another party or by or that other party's representative. Wright and Miller, 8 Federal Practice and Procedure Civ. 2d § 2024. "No single test should or could be imposed to determine what is prepared in anticipation of litigation. Courts must look to the facts in each particular case." Reavis v. Metro. Prop and Liab. Ins. Co., 117 F.R.D. 160, 163 (S.D. Cal. 1987).
Work-Product Protection Not Absolute
"Ordinary" work-product (containing facts) is not absolute. It can be overcome by showing substantial need and undue hardship. S.D.C.L. § 15-6-26 (b)(3); Gundacker v. Unisys Corp.,151 F.3d 842, 848 (8th Cir. 1998)("The doctrine allows for discovery of ordinary work product when there is a demonstrated substantial need and an inability to otherwise procure the relevant material without undue hardship.") See also Harper v. Auto Owners Ins. Co., 138 F.R.D. 655, 658-659 (S.D. Ind.1991) ("Protection for work product is not absolute, more accurately being described as "limited immunity" rather than privilege, since disclosure may be ordered on showing of substantial need for materials.")
There is a divergence of authority regarding whether "opinion" work-product (mental impressions, conclusions, opinions, or legal theories) is discoverable. A number of courts hold that "opinion" work-product is not absolute and, thus, discoverable. Reavis,117 F.R.D. at 164 (Exceptions to strict protection of Rule 26(b)(3) allowed when mental impressions and opinions are directly at issue in case); Brown v. Superior Court in and for Maricopa County, 137 Ariz. 327, 337, 670 P.2d 725, 735 (Ariz. 1983)(Protection for mental impressions and the like not absolute where strategy, theories, mental impressions and opinions of insurer's agents are directly at issue); Bio-Rad Laboratories, Inc. v. Pharmacia, Inc., 130 F.R.D. 116, 122 (N.D. Cal.1990) (Attorney's opinion work-product discoverable where work-product is directly at issue and need for production is compelling.) United States Supreme Court has "declined to rule whether opinion work product was absolutely protected." Id. at 121, citing Upjohn Co. v. United States, 449 U.S. 383, 401, 101 S.Ct. 677, 688, 66 L.Ed.2d 584 (1981).
Opinion Work-Product Discoverable When Probative of Key Issues
In a bad faith case, the mental impressions and opinions of insurer's agents, including its attorney, are directly at issue. Bad faith requires proof of: (1) the absence of a reasonable basis for denial of policy benefits; and (2) the knowledge or reckless disregard of a reasonable basis for denial. Champion v. United States Fidelity & Guaranty Co., 399 N.W.2d 320, 323-24 (S.D. 1987). In other words, bad faith is all about whether an insurance company, its employees and agents, unreasonably handled an insurance claim.
Frequently, when "opinion" work-product is probative of key issues in a case, such work-product is discoverable. Reavis v. Metropolitan Prop and Liab. Ins. Co., 117 F.R.D. 160, 164 (S.D. Cal. 1987)(Mental impressions, opinions, conclusions or legal theories of insurer's agents contained in claims files relating to underlying case were directly at issue); see also Brown, 137 Ariz. at 337, 670 P.2d at 735 (Opinion work-product discoverable in bad faith case where strategy, theories, mental impressions and opinions of insurer's agents are directly at issue); Walters v. State Farm Mut. Auto. Ins. Co., 141 F.R.D. 307, 309 (D.Mont. 1990)(Documents reflecting knowledge, opinions and conclusions of insurer's agents and representatives are discoverable and directly relevant in bad faith action); Holmgren v. State Farm Mut. Auto. Ins. Co., 976 F.2d 573, 577(9th Cir. 1992)(Rule 26 (b)(3) permits discovery of work-product where mental impressions are pivotal issue); Hartman v. Banks, 164 F.R.D. 167,170 (Claimant entitled to discover opinion work-product concerning opinions and mental impressions of insurer's officials in handling underlying injury claim, even if opinions were prepared in anticipation of litigation; file may contain crucial evidence on central issues of case--insurer's state of mind and behavior of insurer's officials); Luthman v.Geico, 1996 WL 1065625 *1-*2 (Va.Cir.Ct.)(Where opinions and impressions of insurer's agents and attorneys are directly at issue in bad faith case, opinion work-product discoverable.) See also Bio-Rad Laboratories, Inc. v. Pharmacia, Inc., 130 F.R.D. 116, 122 (N.D. 1990)(Attorney's opinion work-product discoverable where work-product is directly at issue and need for production is compelling.)
A plaintiff in a bad faith case will generally be able to show a compelling need for opinion work-product in the exclusive control of the insurer. As the Arizona Supreme Court said:"[B]ad-faith actions against an insurer, like actions by clients against an attorney, patient against doctor, can only be proved by showing exactly how the company processed the claim, how thoroughly it was considered and why the company took the action it did.") Brown, 137 Ariz. at 336, 670 P.2d at 734. Insurer documents contain crucial evidence on key issues such as the insurer's state of mind or knowledge in handling an insured's claim. Moreover, a plaintiff's litigation decisions and strategies in a bad faith case needs to be based on knowledge, not speculation.
Insurance Company Documents Prepared In Regular Course of Business Are Not Within Scope of Work-Product.
Claim File Documents Do Not Come Within Scope of Work-Product Because They are Prepared in the Regular Course of Business.
Often, insurance companies object to producing an insured's claim file on the basis of attorney work-product. However, insurers are in the business of handling claims and claims files are part of the everyday business of insurance. As the Advisory Committee Notes to Rule 26(b)(3) (work-product) indicate: "If documents and materials are produced in the ordinary and regular course of a party's business, and not to prepare for litigation, they are outside the scope of work -product." Harper v. Auto Owners Ins. Co,. 138 F.R.D. 655, 660 (S.D. Ind 1991), citing Advisory Committee Notes to Rule 26(b)(3).
The Eighth Circuit Court of Appeals has recognized that even though litigation is already in prospect, there is no work product immunity for documents prepared in the regular course of business rather than for purposes of litigation:
[T]he test should be whether, in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared in or obtained because of the prospect of litigation. But the converse of this is that even though litigation is already in prospect, there is no work product immunity for documents prepared in the regular course of business rather than for purposes of litigation.
Simon v. G.D. Searle & Co., 816 F.2d 397 (8th Cir. 1987) at 401, citing 8 C. Wright, A. Miller, Federal Practice and Procedure, § 2024, at 198-99 (1970) (footnotes omitted)(emphasis added). See also Diversified Indus., Inc. v. Meredith, 572 F.2d 596, 604 (8th Cir. 1977), on rehearing, 572 F.2d. at 606 (8th Cir.1978 en banc)(emphasis added); St. Paul Reinsurance Company Ltd. v. Commercial Financial Corp., 197 F.R.D. 620, 637 (N.D. Iowa 2000); Holton v. S&W Marine, Inc., 2000 WL 1693667 *2 (E.D. La. Nov.9, 2000); United States Fidelity & Guaranty Co., v. Braspetro Oil Servs. Co., 2000 WL 744369,*4 (S.D. N.Y.); Disifore v. Mail Contractors of Am., Inc., 196 F.R.D. 410, 413-14 (D. Kan. 2000); Harper v. Auto Owners Ins. Co. 138 F.R.D. 655, 660 (S.D. Ind 1991).
Attorney Work-Product Inapplicable When Claims Investigation Function Performed By Attorney.
Often, insurers try to shield documents from discovery by alleging that claim investigative reports are attorney work-product because prepared by attorney. However, when attorneys conduct a claim investigation, documents related to the factual investigation of the claim including non-legal opinions and thoughts about facts are discoverable. Mission National Insurance Co. v. Lilly, 112 F.R.D. 160, 164 (D. Minn. 1986).
In Mission National, the insurer hired a law firm to perform its claims investigation function. In that case, the court concluded that documents prepared by attorneys related to the factual investigation of a claim including non-legal opinions and thoughts about facts, as compared to legal or trial matters, were discoverable. The court said:
Because the documents of plaintiff include non-legal opinions and thoughts about the facts, as opposed to legal or trial matters, such "mental processes" are properly treated as part of the ordinary business of the insurer.
Id. at 164.
In another case, court found that insurer's outside counsel acted as claims adjuster rather than legal advisor, court said: "For purposes of work-product rule, fact that litigation did in fact occur, that party consulted or retained attorney and undertook an investigation or engaged in negotiations over claim is insufficient to establish reasonable anticipation of litigation." Harper,138 F.R.D. 655, 660 (S.D. Ind 1991). In Harper, the Court noted:
A report produced to prepare for litigation, but used, in fact, to assist in the investigation or evaluation of a claim in the ordinary course of business, should be treated as if its creation were actually so motivated. Such an approach best comports with the purpose of the work product rule and best reflects the realities of insurance practice while avoiding difficult and unnecessary evidentiary disputes over intangible motivations and uses, and eliminating a possible incentive for obstructionist assertions.
Id. n. 3 (emphasis added).
Claim File Documents Kept Pursuant to Public Requirements Are Not Protected.
As the Advisory Committee Notes to Rule 26(b)(3) indicate, materials assembled pursuant to public requirements unrelated to litigation, such as claim files, are not under the work product immunity. In South Dakota, insurance companies are required by law to maintain documentation about each claim that permits reconstruction of all claims handling activities. S.D.C. L. § 58-3-7.4 (2). In other words, claim files are required by law and, thus, kept pursuant to "public requirements."
Attorney-Client Privilege And Work-Product Cannot Be Used To Shield Insurer Claims Documents.
In addition, courts are reluctant to allow an insurance company to hide behind work-product when a policyholder requests discovery of internal documents relating to a claim. As one court said:
"The logical absurdity of the [insurer's] position is that, under its theory, the amendments to the discovery rules which were believed to be a liberalization of the scope of discovery would be a foreclosure of discovery of almost all internal documents of insurance companies relating to the claims of insureds. We do not believe that Rule 26 (b) (3) was designed to so insulate insurance companies merely because they always deal with potential claims. If this were true, they would be relieved of a substantial portion of the obligations of discovery imposed on parties generally that are designed to insure that the fact finding process does not become reduced to gamesmanship that rewards parties for hiding or obscuring potentially significant facts."
CIGNA-INA/Aetna v. Hagerman-Shambaugh, 473 N.E. 2d 1033,1039 (Ind. App. 3 Dist.1985), quoting Thomas Organ Company v. Jadranska Slobodna Plovidba, 54 F.R.D. 367, 373 (N.D. Ill. 1972).
Similarly, the district court for Montana concluded that insurers cannot invoke attorney-client privilege or work-product where the only issue is bad faith:
The time-worn claims of work product and attorney-client privilege cannot be invoked to the insurance company's benefit where the only issue in the case is whether the company breached its duty of good faith in processing the insured's claim.
Silva v. Fire Ins. Exchange, 112 F.R.D. 699, 700 (D. Mont. 1986).
Overcoming Attorney Work-Product By Showing Substantial Need And Undue Hardship
An insurer's work-product objection may be overcome by showing "substantial need" and " undue hardship." For instance, in Mission National, the district court held that the insured had a substantial and compelling need to overcome work-product:
Here, as in APL Corp. v. Aetna, defendant needs to know, in order to assert both its defense and counterclaim, what the insurer knew at the time of the claim denial. The issue being the state of the insurer's knowledge, it becomes apparent that plaintiff has all the relevant information under its control. For this compelling reason, then, the claim of work product is overcome.
112 F.R.D. at 164, citing APL Corp. v. Aetna Casualty & Surety Co., 91 F.R.D. 10, 14 (D.C. Md. 1980).
Continuing, the court said:
[T]here is a sufficient basis to conclude that defendant does not have ready access to much of the primary information....Such reasons are adequate for overruling an assertion of the work-product doctrine.
Id., citing In re: Murphy, 560 F2d 326, 334 (C.A.. Minn. 1977).
In addition, the Mission National court overruled the insurer's work-product objection because it would constitute an undue hardship to the insured. Internal insurance company documents are in the exclusive possession, custody, and control of the insurer. A plaintiff does not have ready access to them. The substantial equivalent of these materials cannot be obtained by any other means. Id.