Fay Avenue Properties, LLC. et al v. Travelers Property Casualty Company of America et al

Filing 98

ORDER Regarding Joint Statement for Determination of Discovery Dispute: (1)Plaintiff's Application to compel production of documents pertaining to Defendant's expense reserves is Denied; (2) Plaintiff's Application to compel produc tion of documents pertaining to Defendant's loss reserves is Granted; (3) Plaintiff's Application to compel production of documents pertaining to Defendant's Claims Handling and Employee Training Standards is Denied; and (4) Plaintiff's Application to compel production ofdocuments pertaining to the documents withheld by Defendant based on the attorney-client privilege is Denied. Signed by Magistrate Judge William V. Gallo on 4/1/2014. (srm)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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FAY AVENUE PROPERTIES,
LLC, LA JOLLA SPA MD,
INC.,
Plaintiffs,

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v.

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TRAVELERS PROPERTY AND
CASUALTY COMPANY OF
AMERICA,
Defendant.

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Civil No.11-2389-GPC(WVG)
ORDER REGARDING JOINT
STATEMENT FOR
DETERMINATION OF
DISCOVERY DISPUTE

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I

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INTRODUCTION

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On December 2, 2013, the Court ordered that by

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December 6, 2013, Defendant produce documents and serve

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answers to interrogatories to which the parties agreed,

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and file a Joint Statement For Determination of Discovery

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Dispute (“Joint Statement”) regarding interrogatories and

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Requests for Production of Documents to which the parties

28

did not agree.
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11cv2389

On December 6 and 9, 2013, the parties filed Joint

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2

Statements.1/

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Plaintiff was entitled to discover Defendant’s reserves in

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this action, Defendant’s standards and training manuals

5

regarding the administration of claims, and Defendant’s

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communications with its coverage counsel. A privilege log

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is attached to Plaintiff’s (La Jolla Spa MD, Inc.’s) Joint

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Statement. (See Plaintiff’s Index of Exhibits In Support

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of Joint Statement, filed 12/6/13, Exh. D, hereafter

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The

Joint

Statements

addressed

whether

“December 6, 2013 Privilege Log”).
Thereafter,

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the

Court

requested

from

Defendant

12

supplemental briefing on the propriety of Plaintiff’s

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requests to discover the communications noted above.

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On February 3, 2014, Defendant filed a Supplemental

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Brief. A revised privilege log is attached to Defendant’s

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Supplemental Brief. (See Declaration of Patricia A. Daza-

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Luu, Exh. 44, filed February 3, 2014, hereafter “February

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3, 2014 Privilege Log.”). On February 10, 2014, Plaintiff

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filed a Supplemental Brief.

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The Court, having reviewed the Joint Statements, the

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Supplemental Briefing, the authorities cited therein, and

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the declarations and documents attached thereto, HEREBY

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GRANTS in part and DENIES in part Plaintiff’s Application

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to compel Defendant’s reserve information, DENIES Plain-

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tiff’s Application to compel production of Defendants’

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standards and training manuals regarding the administra-

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28

1/

Counsel informed the Court that disputes regarding interrogatories were
resolved. (Joint Statement, December 6, 2013, Exh. A at 1).

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11cv2389

1

tion of claims, and DENIES Defendant’s Application to

2

compel

3

counsel.

Defendant’s

communications

with

its

4

II

5

coverage

REQUESTS FOR PRODUCTION OF DOCUMENTS

6

Plaintiff served on Defendant Requests for Produc-

7

tion of Documents. Defendant served on Plaintiff objec-

8

tions to the Requests for Production of Documents. The

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objections address Defendant’s redacted reserve informa-

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tion, Defendant’s internal claims procedures and training

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information, and communications between Defendant and its

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coverage counsel contained in Defendant’s claim file.

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A. Reserve Information

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Plaintiff seeks to compel the production of Defen-

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dant’s reserve information as noted on the December 6,

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2013 Privilege Log. Plaintiff identifies the following

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documents on the Privilege Log for which it seeks produc-

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tion: p. 86, nos. 1-5; p. 87, nos. 7, 9; pages 88-89, nos.

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15, 16, p. 98 no. 51.

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Plaintiff claims that it is entitled to discover

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Defendants’ reserve information pertaining to its claim.

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Plaintiff asserts that reserve information is discoverable

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because it might be admissible at trial or in pretrial

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motions to assist Plaintiff in proving its theories that

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Defendant intentionally delayed payments to Plaintiff for

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which it knew Plaintiff was entitled, Defendant knew from

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the inception of the claim that its payments to Plaintiff

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were likely to be large, that Defendant made unjustified
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11cv2389

1

demands for proof of loss and other documentation, and

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Defendants delayed payment to gain a settlement advantage.

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Plaintiff cites Lipton v. Superior Court, 48 Cal. App. 4th

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1519, 1614-1615 (1996) and Bernstein v. Travelers, 447 F.

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Supp. 2d 1100 (N.D. Cal. 2006) to support its position.

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Defendant argues that there are two different types

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of reserve information for the claim at issue in this

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case: expense reserves and loss reserves, and that neither

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is relevant to any claim or defense in this action.

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Therefore, it argues that the Court should not order

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Defendant to produce this information.

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Expense reserves are the amount of the insurer’s

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expected expenses likely to be incurred in the adjustment

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of claims, such as expert and consultant costs. Lipton, 48

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Cal. App. 4th at 1613.

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Loss reserves represent the amount anticipated
to be sufficient to pay all obligations for
which the insurer may be responsible under the
policy with respect to a particular claim.
That amount necessarily includes expenses that
are likely to be incurred in connection with
the settlement or adjustment of the claim, as
well as legal fees and other costs required to
defend the insured. (These) estimates... are
likely to be frequently adjusted during the
course of the litigation.
... The main purpose of a loss reserve is...
to reflect, as accurately as possible, the
insured’s potential liability.
... (I)n a case where the insurer has denied
coverage and refused a defense, the fact that
a reserve has been set by the insurer might
well be relevant to show that the insurer must
have had some knowledge that a potential for
coverage existed....
Lipton, 48 Cal. App. 4th at 1613-1614. (emphasis in original, citations omitted).

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11cv2389

1. Expense Reserves

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2

Defendant argues that its expense reserves are not

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relevant to any claim or defense in this action. Further,

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it argues that there is no authority that supports Plain-

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tiff’s argument that the amounts Defendant paid consul-

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tants and experts in adjustment of Plaintiff’s claim are

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relevant to its alleged bad faith with respect to the

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handling of Plaintiff’s claim. In fact, the contrary is

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true. The fact that Defendant paid consultants and experts

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with respect to Plaintiff’s claim shows that Defendant

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made a good faith distinct effort to analyze and evaluate

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Plaintiff’s claim. Moreover, Defendants have agreed to

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produce to Plaintiff correspondence by and with consul-

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tants used by the law firm hired by it to assist in

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administration of, and provide a coverage opinion regard-

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ing, Plaintiff’s claim.2/

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The Court agrees with Defendant regarding discovery

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of its expense reserves. Plaintiff does not offer any

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authority, and the Court has not found any authority, to

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suggest that an insurer’s expense reserves information is

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discoverable.

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consultants’

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counsel in the administration of Plaintiff’s claim, and

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the fact that Plaintiff’s claim was denied due to its

25

alleged

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alleged misrepresentations made to Defendant during the

Further,

since

correspondence

failure

to

Defendants
by

cooperate

and

with

with

produced

the

Defendant’s

Defendant

and

its

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2/

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These consultants are Chris Money, Shannon Green, Robert Underwood,
William Reid. Cynde Chaffin, Bob Jackson and Kate Humphries. (Declaration of
Patricia A. Daza-Luu, filed February 3, 2014, at paras. 2-3)

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11cv2389

1

claims administration process, the Court does not see how

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Defendant’s expense reserves information, other than what

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Defendants have agreed to produce, would be relevant to

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any claim or defense in this bad faith action. As a

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result, the Court DENIES Plaintiff’ Application to compel

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production of Defendant’s expense reserves information.

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2. Loss Reserves

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As to Defendant’s loss reserves, Defendant acknowl-

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edged that in liability cases, the fact that an insurer

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has established a loss reserve for an insured’s claim may

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be relevant to show the insurer’s awareness that a poten-

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tial for coverage existed. However, in this case, Defen-

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dant argues that loss reserves are not relevant because

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the insurer’s good faith or bad faith in investigating and

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evaluating a claim is determined by the manner in which

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the insurer conducted an investigation of the claim, the

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depth of its investigation and a determination of whether

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there was a good faith factual or legal question as to

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whether the loss was covered under the policy. American

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Protection Ins. v. Helm Concentrates, Inc., 140 F.R.D.

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448, 450 (E.D. Cal. 1991).

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Here, the Court disagrees with Defendant. In Lipton,

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the court held that information related to an insurer’s

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loss (or claim) reserves may be discoverable in a bad

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faith case. Lipton, 48 Cal. App. 4th at 1614. In this case,

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Plaintiff’s claim of bad faith is that Defendant inten-

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tionally and unjustifiably delayed making payments to

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Plaintiff for which it knew (or should have known) Plain6

11cv2389

1

tiff was entitled, in an attempt to avoid reimbursing

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Plaintiff for all the losses covered by the policy. To

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this end, Plaintiff seeks Defendant’s loss reserve infor-

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mation because it theorizes that Defendant knew from the

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outset that Plaintiff’s claim was likely to be for a large

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sum of money, that Defendant employed a strategy of making

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unjustifiable demands for proof of loss, and delayed

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payments to Plaintiff for which entitlement had been

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established, in order to induce Plaintiff to accept a low

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settlement offer. (See Bernstein, 447 F.Supp. 2d at 1108).

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Therefore, Defendant’s loss reserves information is

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relevant to Plaintiff’s inquiry into its claims of Defen-

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dant’s bad faith in this case. Consequently, Plaintiff’s

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Application to compel Defendant to produce information

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pertaining to its loss reserves is GRANTED.
On

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or

before

April

16,

2014,

Defendants

shall

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produce to Plaintiff document nos. 1-5, 7, 9, 15, 16 and

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51 as noted on the December 6, 2013 Privilege Log,3/

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subject to a protective order to be entered into by the

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parties.

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25
3/

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The Court notes that the document nos. on the December 6, 2013 Privilege
Log noted above contain descriptions such as “Claim Notes re: Reserves,” “Claim
Notes” and “SIU Report.” To the extent that any of the documents noted above
pertain to Defendant’s loss reserves information, they shall be produced. To the
extent that any of the documents noted above pertain to Defendant’s expense
reserves information, they shall not be produced.

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11cv2389

1

B. Claims Handling and Employee Traning Standards

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Plaintiff seeks to compel Defendants to produce

3

Defendant’s written standards regarding the prompt inves-

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tigation and processing of claims, training of claims

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personnel,

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suspected fraudulent claims from 2010 through 2013. These

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Requests for Production of Documents are identified as

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Requests for Production of Documents nos. 10-29.

and

the

identification

and

adjustment

of

9

Defendant objected to these Requests for Production

10

of Documents as being vague, ambiguous, compound, unintel-

11

ligible, overbroad, burdensome and oppressive because the

12

Requests for Production of Documents are unlimited in

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scope, not relevant to any claim or defense in this

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action, and any responsive documents contain trade secrets

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and proprietary information.

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Plaintiff asserts that Defendant’s objections should

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be overruled because Defendant is required by California

18

law

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contends that the Requests for Production of Documents

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seek relevant information regarding an insurer’s written

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standards and are discoverable because they can provide

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admissible evidence regarding an insurer’s initial inter-

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pretation of key policy provisions, the structure of an

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insurer’s claims process, and internal guidelines that the

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insurer requires its claims personnel to abide by with

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respect to the investigation, adjustment and management of

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insurance claims.

to

maintain

the

requested

information.

Plaintiff

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8

11cv2389

Defendant

1

argues

that

Plaintiff’s

Requests

for

2

Production of Documents fail to provide any distinguishing

3

or limiting language. Therefore, Plaintiff asks Defendant

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to produce a wide variety of documents, written standards,

5

procedures, training manuals, and internal communications

6

and documents related to any type of claim issue for four

7

calendar years. Nevertheless, Defendant agreed to produce

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to Plaintiff its claims handling manuals in effect in 2010

9

and 2011.
The Court has reviewed Plaintiff’s Requests for

10
11

Production

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Defendant that the Requests for Production of Documents

13

are vague, ambiguous, and overbroad because they are

14

unlimited in scope such that it would be burdensome and

15

oppressive for Defendants to fully respond. While some of

16

the Requests for Production of Documents may seek informa-

17

tion that is relevant to claims and defenses in this

18

action, Plaintiff has failed to limit the Requests for

19

Production of Documents to the type of insurance claim for

20

which it seeks standards, procedures, training manuals and

21

internal communications and documents. Further, Plaintiff

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vaguely seeks documents regarding any type of insurance

23

claim for a time span of four years. Plaintiff fails to

24

explain why it has not limited the types of insurance

25

claims for which it seeks information, why such a time

26

span is appropriate for the documents it seeks, and why it

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is

entitled

of

Documents

to

invade

nos.

10-29,

Defendant’s

and

trade

agrees

with

secrets

and

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9

11cv2389

1

proprietary information. Consequently, Defendant’s objec-

2

tions to Requests for Production of Documents nos. 10-29

3

are SUSTAINED.

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C. Attorney-Client Privileged Documents

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Plaintiff has requested that Defendant produce its

6

entire claim file. Defendant produced to Plaintiff all

7

relevant, non-privileged documents in the claim file, but

8

redacted and withheld from production documents it be-

9

lieved were protected by the attorney-client privilege and

10

work product doctrine. As previously noted, Defendant

11

produced to Plaintiff the December 6, 2013 Privilege Log

12

for the redacted and withheld documents. On February 3,

13

2014, Defendant produced to Plaintiff and filed a revised

14

privilege log.

15

Also,

on

February

3,

2014

Defendant

filed

the

16

Declaration of Patricia Daza-Luu (to which the February 3,

17

2014 Privilege Log is attached), which states in pertinent

18

part that Defendant “has agreed to produce all correspon-

19

dence between Steven Turner (Defendant’s coverage counsel)

20

and his retained consultants at Hagen, Streiff, Newton &

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Oshiro Accountants... Werlinger & Associates, and ACS

22

Consultants...

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following persons identified in Defendant’s (December 6,

24

2013) privilege log...” as identified in footnote 2 of

25

this Order.

This

includes

correspondence

with

the

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11cv2389

1. Factual Background

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2

Plaintiff occupied the first floor of 7630 Fay

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Avenue, La Jolla, California (“Fay Ave Property”), where

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it operated a spa and retail shop. Dianne York (“York”) is

5

the president of Plaintiff. The second floor of the Fay

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Ave Property was occupied by the medical practice of

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York’s former husband, Dr. Mitchell Goldman (“Goldman”).

8

On or about September 18, 2009, Goldman vacated the

9

Fay Ave Property, and moved his medical practice and

10

equipment to another location, in accordance with the

11

terms of York’s and Goldman’s divorce judgment. Plaintiff

12

contends

13

behalf, stole medical and office equipment from the Fay

14

Ave Property.

that

Goldman,

and/or

persons

acting

on

his

15

On or about January 26, 2010, Defendant received

16

notice of the alleged September 18, 2009 theft. [Declara-

17

tion of Erin Farley (“Farley”), February 3, 2014, Exh. 2,

18

hereafter “Farley Dec.”). On February 22, 2010, Farley,

19

Defendant’s insurance adjuster assigned to Plaintiff’s

20

claim, sent York a letter that requested documents and

21

information to substantiate Plaintiff’s claim.

22

By March 29, 2010, Plaintiff produced documentation

23

to Defendant, including the York-Goldman divorce judgment

24

and a claim spreadsheet of Plaintiff’s claimed inventory

25

that allegedly had been stolen. (Farley Dec., paras. 7-

26

10). The divorce judgment specifically stated that Goldman

27

could

“take...

the

equipment

on

the

second

floor

of

28

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11cv2389

1

Plaintiff...” (Farley Dec., paras. 7-10). However, the

2

claim spreadsheet submitted by Plaintiff included items

3

from the second floor of the Fay Ave Property. (Farley

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Dec., paras. 10-11, Exh. 5). According to the York-Goldman

5

divorce judgment, the items taken from the second floor of

6

the Fay Ave Property appeared to belong to Goldman, and if

7

so, were not wrongfully taken. (Farley Dec., para. 11).

8

The Farley Dec. also states in pertinent part:

9

(1) In late March 2010, Defendant retained the law

10

firm of Jones Turner, LLP, to assist it by taking the

11

Examinations

12

provide coverage advice. (Farley Dec., para. 12, emphasis

13

added).

Under

Oath

(“EUO”)

of

Plaintiff

and

to

14

(2) Farley intended that all communications between

15

Defendant and Jones Turner, LLP would be privileged and

16

confidential. (Farley Dec., para. 13).
(3) The attorneys at Jones Turner, LLP, Alan Jones

17
18

and

Steven

19

employees of Defendant. Throughout the course of the

20

administration of Plaintiff’s claim, Farley sought cover-

21

age

22

emphasis added).

advice

Turner

from

(“Turner”)

Turner.

were

(Farley

not,

Dec.,

and

para.

are

not,

14,

39,

23

(4) On August 25, 2010 and January 25, 2011, Farley

24

attended York’s EUO. At the August 25, 2010 and January

25

25, 2011 EUOs, York testified that she would provide many

26

of the documents requested by Turner and Defendant, but

27

that had not yet been provided, to support Plaintiff’s

28

12

11cv2389

1

claim. At the conclusion of the January 25, 2011, York

2

requested an advance payment from Defendant. (Farley Dec.,

3

para. 16).

4

(5) On January 31, 2011, Defendant made an advance

5

payment of $250,000 to Plaintiff Fay Ave Properties. The

6

payment was conditioned upon York’s representations, which

7

Defendant assumed to be true for the purposes of the

8

payment. On January 31, 2011, Farley sent York a letter

9

that

detailed

the

reasoning

and

conditions

on

which

10

Defendant’s advance payment was made. (Farley Dec., para.

11

18, Exh. 6).

12

(6) Jones Turner, LLP did not have the authority to

13

grant or deny advance payment requests made to Defendant,

14

and did not make the decision to make the $250,000 advance

15

payment. (Farley Dec., para. 19).

16

(7) On February 7, 2011, Plaintiff’s attorney sent

17

an email to Turner that requested an additional advance

18

payment

19

responded to the February 7, 2011 email by highlighting

20

that Plaintiff had failed to provide to Defendant many

21

documents to substantiate its claim that Plaintiff had

22

previously agreed to provide to Defendant. The request for

23

the additional advance payment was denied. (Farley Dec.,

24

paras. 20-21, Exh. 7).

from

Defendant.

On

February

9,

2011,

Farley

25

(8) On April 22, 2011, Farley attended another

26

session of York’s EUO. At the EUO, York produced a box of

27

documents

that

purportedly

substantiated

Plaintiff’s

28

13

11cv2389

1

claim. The EUO was suspended to allow York to produce

2

additional documents to Defendant. (Farley Dec., para.

3

23).

4

(9) After the April 22, 2011 EUO, Farley learned

5

from Turner that Plaintiff’s attorney requested an advance

6

payment from Defendant. On April 27, 2011, Farley sent a

7

letter to Plaintiff’s attorney which states, inter alia,

8

that Plaintiff had failed to provide to Defendant many

9

documents to substantiate its claim that Plaintiff had

10

previously agreed to provide, that Plaintiff had added new

11

items to its claim that had not been previously identi-

12

fied, that during the April 22, 2011 EUO, York was unable

13

to provide basic information regarding Plaintiff’s claim,

14

and that it was Plaintiff’s duty and responsibility to

15

provide correct information in support of the claim. The

16

request for an advance payment was denied. (Farley Dec.,

17

para. 24, Exh. 8).

18

(10) On April 29, 2011, Plaintiff’s attorney sent

19

Turner a revised inventory of allegedly stolen items. The

20

revised inventory increased the number of stolen items

21

from

22

increased the claim by millions of dollars. (Farley Dec.,

23

para. 25).

approximately

200

to

over

1,000

items,

and

had

24

(11) On May 23, 2011, York sent Farley and Turner an

25

email that requested another advance payment. On May 27,

26

2011, Farley sent a letter to York which provided a

27

detailed account of Plaintiff’s claim history, and noted

28

14

11cv2389

1

that Plaintiff’s failure to provide to Defendant requested

2

information about its claim had prevented Defendant from

3

completing its investigation. The request for advance

4

payment was denied. (Farley Dec., para. 28-29, Exh. 10).

5

(12) On June 2, 2011, Plaintiff’s attorney sent

6

Turner another updated claim inventory. Turner sent the

7

updated claim inventory to Farley. The updated claim

8

inventory had over 1000 line items and was valued at over

9

$13 million. (Farley Dec., para. 32).

10

(13) On July 19, 2011, Farley received an email from

11

Plaintiff’s attorney which asked for a $1 million advance

12

payment. On July 20, 2011, Farley responded that Defendant

13

could not fully respond to Plaintiff’s claim, and that it

14

would not pay another advance without completing York’s

15

EUO. (Farley Dec., para. 34, Exh. 13).

16

(14) In late October/early November 2011, Turner

17

forwarded to Farley an email from Plaintiff’s attorney

18

that requested an advance payment from Defendant. On

19

November

20

investigation of Plaintiff’s claim was still ongoing and

21

that Defendant continues to assess Plaintiff’s claim. The

22

request for the advance payment was denied. (Farley Dec.,

23

para. 37, Exh. 14).

11,

2011,

Farley

responded

that

Defendant’s

24

(15) By November 2011, it became clear to Farley,

25

based on correspondence from Plaintiff’s attorney, that

26

York was refusing to complete her EUO. For this reason,

27

inter alia, Defendant denied Plaintiff’s claim. Defendant

28

15

11cv2389

1

made the decision to deny coverage for Plaintiff’s claim.

2

(Farley Dec., para. 38)
(16)

3

Several

persons

who

appear

on

Defendant’s

4

December 6, 2013 Privilege Log, but who were not identi-

5

fied at that time, are identified as employees of Defen-

6

dant

7

Plaintiff’s claim.4/

who

involved

the

in

the

administration

of

The Declaration of Steven D. Turner (“Turner Dec.”)

8
9

were

states in pertinent part:

10

(1) Jones Turner LLP served as coverage counsel for

11

Defendant for Plaintiff’s claim from approximately March

12

2010 through early 2013. (Turner Dec., para. 1, emphasis

13

added).

14

(2) In late March 2010, Defendant gave Jones Turner

15

LLP the assignment to provide coverage advice and conduct

16

EUOs in connection with Plaintiff’s claim. In July 2010,

17

Turner took over as the principal attorney for the assign-

18

ment. Alan Jones had previously been the principal attor-

19

ney for the assignment. (Turner Dec., para. 2).

20

(3) From August 3, 2010 to November 18, 2010, Turner

21

requested that Plaintiff’s attorney provide him with the

22

documents Plaintiff contends will substantiate its claim.

23
24
25
26
27
28

4/

These persons are: Joseph Salko, Defendant’s in-house counsel; Wendy
Hansen, Defendant’s underwriter; Daniel McLaughlin, Defendant’s Director; Lisa
Melillo, Defendant’s in-house counsel; Mary Galvin, Defendant’s in-house counsel,
Verdis Skates, Defendant’s Prosecution Coordinator; and Matt Huls, Defendant’s
Investigative Services - Manager of Field Operations. Ron Burnovski, who was not
identified in Defendant’s December 6, 3013 Privilege Log, is one of Turner’s
partners at Jones Turner LLP who provided Turner with assistance in assessing the
coverage issues in this case. (Declaration of Steven D. Turner, para. 49).

16

11cv2389

1

On November 18, 2010, Turner was provided with a few

2

documents. (Turner Dec., paras. 3-8).

3

(4) On August 25, 2010, Turner conducted an EUO of

4

York. The EUO could not be completed because Plaintiff had

5

not yet provided to Turner all documents related to the

6

nature and scope of the alleged loss. At the EUO, York

7

agreed to provide additional documents in support of

8

Plaintiff’s claim. (Turner Dec., para. 4).

9

(5) On January 25, 2011, Turner conducted another

10

session of the EUO of York. At the EUO, York’s testimony

11

indicated that various documents promised to be produced

12

at the August 25, 2010 EUO had not been produced. (Turner

13

Dec., para. 10).

14

(6)

On

January

26,

2011,

Plaintiff’s

attorney

15

provided Turner with documents that partially supported

16

Plaintiff’s claim. (Turner Dec., para. 11).

17

(7) Turner had no power to authorize claim payments

18

made by Defendant. The scope and purpose of Turner’s

19

retention by Defendant was to complete the EUO and provide

20

coverage advice to Defendant. (Turner Dec., para. 13,

21

emphasis added).

22

(8) From February 9, 2011 to April 22, 2011, Turner

23

and Farley continued to ask Plaintiff to provide documents

24

to support Plaintiff’s claim and to provide documents that

25

had been promised by York, but had not yet been produced.

26

(Turner Dec., paras. 15-20).

27
28

17

11cv2389

1

(9) On April 22, 2011, Turner conducted another

2

session of York’s EUO. At the EUO, York produced to Turner

3

a new box containing documents. Turner and Plaintiff’s

4

counsel agreed to suspend the EUO to another date, due to

5

York’s production to Turner of more documents. At the EUO,

6

York identified new items for which Plaintiff sought

7

recovery. (Turner Dec., paras. 21, 23).

8

(10) On April 29, 2011, Plaintiff’s attorney sent

9

Turner a revised claim inventory spreadsheet that detailed

10

Plaintiff’s claimed losses. The spreadsheet increased the

11

claim from 238 line items to over 1,000 line items.

12

(Turner Dec., para. 23, Exh. 25).

13

(11) On April 29, 2011, Turner sent an email to

14

Plaintiff’s counsel that requested that Plaintiff produce

15

all

16

identified in the April 22, 2011 EUO. By May 4, 2011,

17

Turner had not received a response to his email. (Turner

18

Dec., para. 24).

supporting

documentation

regarding

the

new

items

19

(12) On May 5, 2011, Plaintiff’s attorney sent

20

Turner a re-revised claim inventory spreadsheet, with some

21

additional documents. The re-revised inventory increased

22

Plaintiff’s claim to approximately 1,114 line items, which

23

totaled over $13 million in value. (Turner Dec., para. 25,

24

Exh. 27).

25

(13) On May 12, 2011, Turner renewed his request to

26

Plaintiff for further documentation to support Plaintiff’s

27

claim. York responded by requesting that Defendant conduct

28

18

11cv2389

1

the next session of her EUO, but failed to provide Turner

2

with additional information regarding the May 5, 2011

3

spreadsheet. (Turner Dec., para. 27).

4

(14) On May 13, 2011, Plaintiff’s attorney informed

5

Turner that Turner “may deal with Ms. York directly.”

6

(Turner Dec., para. 28, Exh. 29).

7

(15) On May 27, 2011, Plaintiff’s attorney sent an

8

email to Turner that confirmed that Plaintiff had still

9

not produced all documents it promised to produce. (Turner

10

Dec., para. 33, Exh. 34).

11

(16) On June 2, 2011, Plaintiff’s attorney sent an

12

email to Turner which Turner understood to be the final

13

revised inventory spreadsheet of the losses sustained by

14

Plaintiff. (Turner Dec., para. 34, Exh. 35).

15

(17) On July 12, 2011, Turner conducted another

16

session of York’s EUO. The EUO could not be completed due

17

to the significant number of new items that had been added

18

to Plaintiff’s claim. (Turner Dec., para. 39).

19

(18) The parties agreed that the fifth session of

20

York’s EUO would be conducted on August 4, 2011. On August

21

3, 2011, Turner received an email from Plaintiff’s attor-

22

ney that cancelled the August 4, 2011 EUO. Turner wrote to

23

Plaintiff’s attorney to reschedule the fifth session of

24

York’s

25

Turner’s letter. No further EUO of York was scheduled.

26

(Turner Dec., paras. 42-46).

EUO.

Plaintiff’s

attorney

did

not

respond

to

27
28

19

11cv2389

1

(19) On December 20, 2011, Turner sent York and

2

Plaintiff’s attorney a letter that detailed Defendant’s

3

denial of Plaintiff’s claim. (Turner Dec., para. 47, Exh.

4

43).
2. Applicable Law

5

a. California Law Applies

6
7

The Court’s jurisdiction over this case arises from

8

the diversity of the parties. In diversity cases, the

9

Court must decide privilege issues in accordance with

10

state law. Fed. R. Evid. 501. Therefore, California law

11

applies to the determination of privilege issues in this

12

case.

14

b. Attorney-Client Privilege Under
California Law
Under California law, the attorney-client privilege,

15

affords a privilege to the client “to refuse to disclose,

16

and to prevent another from disclosing, a confidential

17

communication between a client and lawyer...” Cal Evidence

18

Code § 954. A confidential communication between a client

19

and a lawyer is defined as:

13

20
21
22
23
24
25
26

information transmitted between a client and
his or her lawyer in the course of that relationship and in confidence by a means which,
so far as the client is aware, discloses the
information to no third persons other than
those who are present to further the interest
of the client in the consultation or those to
whom disclosure is reasonably necessary for
the transmission of the information or the
accomplishment of a purpose for which the
lawyer is consulted, and includes a legal
opinion formed and the advice given by the
lawyer in the course of that relationship.
Cal. Evidence Code § 952.

27
28

20

11cv2389

1

“The privilege is absolute and disclosure may not

2

be ordered, without regard to relevance, necessity or any

3

particular circumstance peculiar to the case... The party

4

claiming the privilege has the burden of establishing the

5

preliminary facts necessary to support its exercise, i.e.

6

a communication made in the course of an attorney-client

7

relationship... Once that party establishes facts neces-

8

sary to support a prima facie claim of privilege, the

9

communication is presumed to have been made in confidence

10

and the opponent of the claim of privilege has the burden

11

of proof to establish the communication was not confiden-

12

tial or that the privilege does not for other reasons

13

apply.” Costco Wholesale Corp. v. Superior Court, 47 Cal.

14

4th 725, 732-733 (2009)(citations omitted), Umpqua Bank v.

15

First American Title Insurance Co., 2011 WL 997212 at *2

16

(E.D. Cal. 2011).

17

In Costco, the California Supreme Court stated that

18

in a bad faith case between an insured and an insurer, a

19

court

20

relationship between the insurance company and its in-

21

house attorneys, i.e. was it one of attorney-client or one

22

of claims adjuster-insurance corporation.” Costco, 47 Cal.

23

4th at 739-740 (emphasis in original).

should

“determine

the

dominant

purpose

of

the

24

Here, the issue raised by Plaintiff is whether Jones

25

Turner, LLP was hired by Defendant to give its legal

26

opinion or whether it was hired to take over the claims

27

adjuster role and to shield Defendant from liability on

28

21

11cv2389

1

the bad faith claim. Where the answer appears to be both,

2

the court must make a determination of which purpose was

3

primary. Umpqua Bank, 2011 WL 997212 at *3.

4

It is clear to the Court that Jones Turner, LLP

5

performed both the function of attorney hired to render

6

legal opinions regarding coverage under the insurance

7

policy at issue, and the function of a claim adjuster

8

assigned to take EUOs. However, based on the representa-

9

tions of Farley, Defendant’s claim adjuster assigned to

10

Plaintiff’s claim, and the representations of Turner, the

11

attorney

12

Plaintiff’s claim, the Court finds that the dominant

13

purpose of the relationship between Defendant and Turner

14

was one of attorney-client, not claims adjuster-insurance

15

corporation.

at

Jones

Turner,

LLP

who

performed

work

on

16

Specifically, Farley has stated that (1) she re-

17

ceived a copy of the York-Goldman divorce judgment, a

18

legal document that required interpretation, to clarify

19

what property Plaintiff alleged was stolen. (Farley Dec.,

20

para. 11), (2) she specifically retained Jones Turner, LLP

21

to assist Defendant in taking EUOs and to provide coverage

22

advice (Farley Dec., para. 12 emphasis added), (3) she

23

intended that all communications between Defendant and

24

Jones Turner, LLP would be privileged and confidential

25

(Farley

26

Turner, LLP were not, and are not, employees of Defendant

27

(Farley Dec., para. 14), (5) Turner conducted several

Dec.,

para.

13),

(4)

the

attorneys

at

Jones

28

22

11cv2389

1

sessions of York’s EUO, but that throughout the course of

2

the

3

coverage advice from Turner (Farley Dec., paras. 14, 16,

4

23, 39, emphasis added), and (5) Defendant, not Turner,

5

made the decision to deny coverage for Plaintiff’s claim

6

(Farley Dec., para. 38), and she wrote several letters to

7

Plaintiff and Plaintiff’s attorneys regarding Plaintiff’s

8

requests for advance payments. (Farley Dec., paras. 20-21,

9

24, 32, 34, 37, Exhs. 7, 8, 10, 13, 14).

administration

of

Plaintiff’s

claim,

she

sought

10

Further, Turner has stated that (1) in late March

11

2010, Defendant gave Jones Turner LLP the assignment to

12

provide coverage advice and conduct EUOs in connection

13

with Plaintiff’s claim. (Turner Dec., para. 2 emphasis

14

added), (2) Jones Turner, LLP served as coverage counsel

15

for Defendant for Plaintiff’s claim from approximately

16

March 2010 through early 2013. (Turner Dec., para. 1

17

emphasis added), and (3) he sent York and Plaintiff’s

18

attorney a letter that detailed the legal and factual

19

reasons

20

(Turner Dec., para, 47, Exh. 43).

for

Defendant’s

denial

of

Plaintiff’s

claim.

21

The Court finds that Defendant has met its burden of

22

establishing the preliminary facts necessary to support a

23

prima facie claim of attorney-client privilege for infor-

24

mation that was transmitted in confidence between Jones

25

Turner, LLP and Defendant in the course of the attorney-

26

client relationship. Further, Plaintiff has not met its

27

burden of proof to establish that the communications at

28

23

11cv2389

1

issue were not confidential or the privilege does not

2

apply

3

transmitted between Defendant and Jones Turner, LLP need

4

not be disclosed. See Umpqua Bank, 2011 WL 997212 at *3-4.

for

other

Plaintiff

5

reasons.

argues

Therefore,

that

Defendant

the

information

has

failed

to

6

establish the elements of the attorney-client privilege

7

for each document withheld by Defendant. Defendant argues

8

that it is not required to establish the elements of the

9

attorney-client

privilege

for

each

withheld

document.

10

Rather, it can meet its burden by showing that the domi-

11

nant purpose of the relationship between itself and its

12

attorney was one of attorney-client, and not one of claims

13

adjuster-insurance company.
Plaintiff

14

cites

2022

Ranch,

L.L.C.

v.

Superior

15

Court, 113 Cal. App. 4th 1377 (2003) in support of its

16

position. In 2022 Ranch, the court held that the results

17

of the factual investigation done by the insurance com-

18

pany’s in-house attorneys was not privileged, as the

19

attorneys were serving as claim adjusters in performing

20

the investigation. However, the court also held that

21

communications by the attorneys that reflected rendering

22

of legal advice were attorney-client privileged. There-

23

fore, it ordered the trial court to review each of the

24

communications to determine their dominant purpose. Id. at

25

1387.

26
27
28

24

11cv2389

1

However, the California Supreme Court in Costco

2

disapproved of 2022 Ranch, in part. The Costco court found

3

that the 2022 Ranch court erred in distinguishing between

4

the communication of the results of the factual investiga-

5

tion done by the attorneys and the attorneys’ communica-

6

tions reflecting the rendering of legal advice to the

7

insurance company. The Costco court held that the “proper

8

procedure would have been for the trial court first to

9

determine the dominant purpose of the relationship between

10

the insurance company and its attorneys, i.e. was it one

11

of attorney-client or one of claims adjuster-insurance

12

corporation...” Costco, 47 Cal. 4th 725, 739-740, Umpqua

13

Bank, 2011 WL 997212 at *2. “The (insurance company has)

14

the burden of establishing the preliminary facts that the

15

communications were made during the course of an attorney-

16

client relationship. Costco, 47 Cal 4th 725, 740 (emphasis

17

added). The California Supreme Court’s disapproval of 2022

18

Ranch has also been recognized by Bonfigli v. Strachan,

19

192 Cal. App. 4th 1302 (2011) and Hawker v. BancInsurance,

20

2013 WL 6843088 (E.D. Cal. 2013).

21

The Costco court joined together all the communica-

22

tions between the attorneys and the insurance company that

23

reflected the communications of factual information and

24

the rendering of legal advice. This approach has been

25

followed by Costco’s progeny. See Umpqua Bank, 2011 WL

26

997212 at *1 [“(Defendant counters that Plaintiff ‘is

27

improperly

28

created as a result of (defendant’s) retention of an

attempting

to

obtain

25

documents

that

were

11cv2389

1

outside,

independent

attorney

2

opinion...’”](emphasis

3

Casualty Co., 2011 WL 4914941 at *2 [“Ivy Hotel requested

4

documents concerning (Defendant’s) ‘handling of the claim

5

for legal fees and expenses incurred in connection with

6

(an underlying) cross-complaint.’”](emphasis added).

added);

to
Ivy

provide
Hotel

a
v.

coverage
Houston

7

Where the dominant or primary purpose of the rela-

8

tionship is to provide legal advice and claims adjusting

9

happens to occur as a collateral duty, as is the case

10

here, Defendant need only establish a prima facie case

11

that an attorney-client relationship exists. If Defendant

12

is able to make this showing, then all documents and

13

communications are protected by the privilege without the

14

necessity of having to make individualized showings as to

15

each communication or document. This approach makes sense,

16

especially in document-intensive cases, as it would be

17

potentially unduly burdensome to, if not outright invasive

18

of, the attorney-client relationship to require the party

19

who has established an attorney-client relationship to

20

justify

21

Conversely, if it is determined that the primary role of

22

the attorney is to adjust the claim and legal advice is

23

provided as a collateral duty, then, as Plaintiff argues,

24

it would make sense to require Defendant to itemize each

25

communication and justify those to which the privilege is

26

claimed. But this is not the case here.

27
28

As

each

a

and

result

every

of

communication

the

foregoing,

as

the

privileged.

Court

finds

Plaintiff’s argument in this regard to be unavailing.

26

11cv2389

1

Defendant is not required to establish the elements of the

2

attorney-client privilege for each document it has with-

3

held from production to Plaintiff.

4

Also,

Plaintiff

argues

that

Defendant

has

not

5

established that the dominant purpose of its relationship

6

with its attorney was for the rendering of legal advice

7

because Defendant has not shown for what legal issue(s)

8

legal advice was sought. Plaintiff argues that in Costco,

9

and its progeny, the courts in those cases noted, and

10

quoted from submitted declarations, the issues for which

11

legal advice was sought. Therefore here, since the Farley

12

Dec. and the Turner Dec. do not identify the issues for

13

which legal advice was sought, Defendant has failed to

14

meet its burden in proving the dominant purpose of its

15

relationship with its attorneys. Plaintiff does not cite

16

any authority for its position.

17

The Court finds that Plaintiff’s argument in this

18

regard is unavailing. Neither Costco, nor its progeny

19

require that the issues for which legal advice was sought

20

to be noted or explained by the insurance adjuster or the

21

attorney for the insurance company. In fact, the Costco

22

court explained that in a situation where an insurance

23

company hires an attorney to provide legal advice, “(t)he

24

attorney

25

policy) and (is) asked to interpret the policy and to

26

investigate the events that resulted in damage to deter-

27

mine whether (the insurance company is) legally bound to

28

provide coverage for such damage.” Costco, 47 Cal. 4th 725,

(is)

given

a

legal

27

document

(the

insurance

11cv2389

1

736, citing Aetna Casualty & Surety Co. v. Superior Court,

2

153 Cal. App. 3d 467, 476 (1984).

3

Here, the Court finds that Defendant did just what

4

the Costco court envisioned. As a result, the Court finds

5

that Defendant need not specifically identify the issues

6

for which it sought legal advice from its attorney to

7

adequately show the dominant purpose of its relationship

8

with its attorney.
III

9

CONCLUSION

10
11

1. Plaintiff’s Application to compel production of

12

documents pertaining to Defendant’s expense reserves is

13

DENIED.
2. Plaintiff’s Application to compel production of

14
15

documents

16

pertaining

to

Defendant’s

loss

reserves

is

GRANTED.

17

3. Plaintiff’s Application to compel production of

18

documents pertaining to Defendant’s Claims Handling and

19

Employee Training Standards is DENIED.

20

4. Plaintiff’s Application to compel production of

21

documents pertaining to the documents withheld by Defen-

22

dant based on the attorney-client privilege is DENIED.

23

IT IS SO ORDERED.

24

DATED:

April 1, 2014

25
26

Hon. William V. Gallo
U.S. Magistrate Judge

27
28

28

11cv2389