CLAIMS FILES: PRIMARY SOURCE OF INFORMATION IN FIRST-PARTY BAD FAITH CASES
By Mike Abourezk and Marialee Neighbours
Insurance claim files are highly relevant in a bad faith case. A plaintiff needs access to his or her entire claim file in order to prove elements of bad faith and to prove entitlement to punitive damages. The opinions and mental impressions of the insurer, its employees, and agents in handling a claim are directly at issue. Obviously, the best way to unearth evidence of the day-to-day activities of claims personnel who handled a claim is to look at an insured's claims files. Usually, the claim file will contain crucial evidence on key issues such as an insurer's knowledge or state of mind and its unreasonable conduct in handling a claim.
However, claims files are not only important to show the activities of individual claims adjusters, they are also an important source of information about the daily activities of claims supervisors. Supervisor instructions will appear in the daily activity logs or diaries of the supervisors. Among these daily entries, evidence can be found about how supervisors instructed claims personnel to behave. This type of information can provide evidence that an insurance company is engaging in systematic efforts to improve the financial results of the company to the detriment of insurance claimants.
In pre-trial discovery, courts hearing South Dakota bad faith cases have overruled insurer objections and ordered claim files produced. For instance, Judge Andrew Bogue ordered the production of the insurer claim file in Torres v . Travelers Insurance Co., Civ. No.01-5056 (D. S.D. April 4, 2002).
Other jurisdictions have recognized the relevance of claim files and have ordered their production. In ordering production of an insurer claim file, a Montana district court recognized that the claim file is the primary source of information in a first-party bad faith case:
Under ordinary circumstances, a first-party bad faith claim can be proved only by showing the manner in which the claim was processed, and the claims file contains the sole source of much of the needed information.
Silva v. Fire Ins. Exchange, 112 F.R.D. 699 (D.Mont.1986), citing Brown v. Superior Court In and For Maricopa County, 137 Ariz. 327, 670 P.2d 725, 734 (Ariz.1983) (emphasis added).
In Brown v. Superior Court In and For Maricopa County, the Arizona Supreme Court held that portions of an insurance claim file that explained how the insurer processed and considered plaintiff's claims and why the insurer rejected the claims were relevant to the issues. 670 P.2d 725 (Ariz.1983). The Court reasoned that:
Further, bad-faith actions against an insurer, like actions by client against 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.
Id. at 734, citing APL Corporation v. AETNA Casualty & Surety Co., 91 F.R.D.10, 13-14, 29 Fed.R.Serv.2d 1067 (D. Md. 1980).
The court recognized that an insured had an "overwhelming" need for claim file:
....The claims file is a unique, contemporaneously prepared history of the company's handling of the claim; in an action such as this [bad faith] the need for the information in the file is not only substantial, but overwhelming....The "substantial equivalent" of this material cannot be obtained through other means of discovery. The claims file "diary" is not only likely to lead to evidence, but to be very important evidence on the issue of whether Continental acted reasonably.
Id., citing APL Corporation v. Aetna Casualty & Surety Co., 91 F.R.D. 10, 13-14 (D.Md. 1980)(internal citations omitted)(emphasis added). See also, Reavis v. Metro. Prop and Liab. Ins. Co., 117 F.R.D. 160, 164, 9 Fed.R.Serv.3d 258 (S.D. Cal. 1987) (insured entitled to discover documents reflecting the mental impressions, opinions, conclusions or legal theories of insurer's representatives contained in claims files relating to underlying case).
Moreover, a plaintiff in a bad faith case does not have ready access to his or her claim file. Claim file documents are in the exclusive possession, custody, and control of the insurer. Thus, it is impossible to obtain the "substantial equivalent" of the claim file by any other means.
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