United National Insurance Company v. MNR Hotel Group/363 Roberts Partners, LLC et al
Filing
63
RULING granting, in part, and denying, in part 59 First MOTION to Compel Discovery. Please see attached Ruling for details and deadlines. Signed by Judge Sarah A. L. Merriam on 4/1/2021. (Katz, S.)
Case 3:19-cv-01265-JAM Document 63 Filed 04/01/21 Page 1 of 17
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
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:
UNITED NATIONAL INSURANCE
:
COMPANY
:
:
v.
:
:
MNR HOTEL GROUP/363 ROBERTS
:
PARTNERS, LLC, et al.
:
:
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Civ. No. 3:19CV01265(JAM)
April 1, 2021
RULING ON DEFENDANTS’ MOTION TO COMPEL [DOC. #59]
On January 28, 2021, Judge Jeffrey A. Meyer referred a
discovery dispute in this matter to the undersigned. [Docs. #48,
#49]. In response to the referral, the undersigned entered an
Order requiring that on or before February 12, 2021, the parties
meet and confer “in a good faith effort to resolve the current
discovery dispute.” Doc. #50.
On February 16, 2021, the undersigned held a telephonic
discovery conference, during which counsel reported on their
efforts to amicably resolve the instant discovery dispute. See
Docs. #51, #53, #54. Despite those efforts, counsel were unable
to resolve certain issues related to plaintiff United National
Insurance Company’s (“United”) assertion of the attorney-client
privilege and work product doctrine to certain documents and
communications. Accordingly, the Court ordered defendants MNR
Hotel Group/363 Roberts Partners, LLC and DNA Lodging East
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Hartford, LLC (collectively “MNR”) to file a motion to compel on
or before February 23, 2021. See Doc. #53. The Court ordered
United to file its response on or before March 2, 2021. See id.
Pursuant to the Court’s Order, on February 23, 2021, MNR filed a
Motion to Compel Discovery [Doc. #59], to which United timely
filed a memorandum in opposition, [Doc. #61].
For the reasons stated below, MNR’s Motion to Compel [Doc.
#59] is GRANTED, in part, and DENIED, in part.
I.
Background
United brings this action seeking a declaratory judgment
“for the purpose of determining the parties’ respective rights
and obligations under the insurance policy issued to” MNR. Doc.
#43 at 1.1 The instant insurance coverage dispute involves water
damage to MNR’s real property from a purported automatic
sprinkler malfunction. See generally id. at 6-7. 2
On or about February 3, 2019, MNR’s representative
discovered water damage to the fifth floor of MNR’s hotel, which
is insured by United. See Doc. #61 at 2; Doc. #43 at 8, ¶42.
“Shortly thereafter,” MNR notified United of the loss. Doc. #61
at 2; see also Doc. #44 at 6, ¶58. On February 6, 2019, an
MNR has asserted counterclaims for breach of contract and bad
faith. See generally Doc. #44.
1
As will be discussed further below, MNR contends that United
has changed its primary coverage defense during the course of
this litigation. See Doc. #59-1 at 1-2.
2
2
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independent adjuster hired by United, Custard Insurance
Adjusters (“CIA”), conducted an initial inspection of the
property. See Doc. #59 at 2; see generally Doc. #61-1 (February
13, 2019, report of inspection). The February 13, 2019, report
of that inspection, which was produced to MNR in redacted form,
states that “there could be a potential coverage issue regarding
the maintaining of heat in the building.” Doc. #61-1 at 3.
On February 12, 2019, United retained and hired an expert
engineer, Vertex. See Doc. #61 at 3. United states that it hired
Vertex “to inspect the property because of coverage issues.” Id.
United further represents that just two days later, on February
14, 2019, it retained coverage counsel after having “received
the first report from CIA that informed them of a potential
coverage issue[.]” Id.3 On February 14, 2019, United issued a
Reservation of Rights letter (“ROR”). See id.; see also Doc.
#61-3. The ROR states, in pertinent part: “This letter is being
sent because based on the results of the initial inspection of
the claim, there are coverage issues. Our investigation of your
claim is ongoing. Upon receipt of the Engineer’s report, we will
The documents submitted for in camera review reflect that
United referred this matter to counsel on February 15, 2019, not
February 14, 2019. United’s privilege log at item number one
mistakenly reflects the date of February 14, 2019. See Doc. #617 at 1.
3
3
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be back in touch with you.” Doc. #61-3 at 2. The ROR details
United’s policy defenses. See id. at 4. 4
On March 20, 2019, United’s counsel issued a Notice of
Examination Under Oath to Victor Antico, the property’s hotel
manager. See generally Doc. #61-5.
On August 9, 2019, United denied MNR’s claim. See Docs.
#59-2, #61-6. Five days after denying MNR’s claim, on August 14,
2019, United filed this action. See Doc. #1.
II.
Discussion
MNR seeks to compel the production of certain documents
withheld by United on the grounds of attorney-client privilege
and/or the work product doctrine. See Doc. #59-1 at 2. MNR
asserts that documents withheld on the basis of the work product
doctrine were created during the ordinary course of MNR’s claim
investigation and not in anticipation of litigation. See
generally id. at 5-9. MNR asserts that it is particularly
important that United produce these documents because during the
course of this litigation, United has changed the theory under
which it denied MNR’s claim. See Doc. #59-1 at 1-2. 5 Finally, MNR
It is curious that MNR fails to mention the issuance of the ROR
in its motion to compel briefing.
4
MNR asserts that through the filing of the Second Amended
Complaint, “United has changed its primary coverage defense in
this action from contending that MNR failed to do its best to
maintain heat, which is simply untenable based upon the
exception for fire protection systems, to contending that the
5
4
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has requested that the Court conduct an in camera review of
documents withheld on the basis of the attorney-client privilege
because “they were made during the early stages of United’s
investigation[.]” Id. at 9. The Court granted MNR’s request for
an in camera review on March 3, 2021. See Doc. #62.
United asserts that the documents at issue have been
properly withheld because “they are protected appropriately as
attorney/client for the purposes of obtaining legal advice.”
Doc. #61 at 5 (sic). With respect to the adjuster or expert
reports that have been withheld or produced in redacted form,
United contends that those documents “are immune from discovery
under the ‘work product’ doctrine.” Id. at 7.
The Court first considers the arguments implicating the
work product doctrine.
A.
Work Product Doctrine
MNR asserts that United has improperly designated certain
communications and reports as protected by the work product
doctrine. See generally Doc. #59-1 at 5-9. MNR contends that
because these documents “were prepared shortly after the loss of
February 3, 2019, during which time United was still evaluating
the claim in the ordinary course of its business[,]” they were
not created in anticipation of litigation. Doc. #59-1 at 5; see
sprinkler system in the hotel was not operational at the time of
the loss.” Doc. #59-1 at 2.
5
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also id. at 8-9. In support of this argument, MNR emphasizes
that United did not issue its coverage decision until August 9,
2019. See id. at 7.
United responds that the reports and communications “were
sought with an eye toward litigation.” Doc. #61 at 8 (citation
and quotation marks omitted). United asserts: “There is no
requirement that a claim be denied, or a dispute commenced, in
order to trigger the work product doctrine. Instead, the focus
is on United’s determination that they would likely deny a claim
and thus became aware of the potential for litigation.” Id. at
9. Finally, United contends that MNR has failed to establish a
substantial need for documents withheld on the grounds of the
work product doctrine. See id.
1.
Applicable Law
“The invocation of the work-product rule is governed by
federal law. Accordingly, we look to Fed. R. Civ. P. 26(b)(3)
for guidance.” Bowne of New York City, Inc. v. AmBase Corp., 150
F.R.D. 465, 471 (S.D.N.Y. 1993) (internal citations omitted).
The work product doctrine provides that generally, “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[.]” Fed. R. Civ. P. 26(b)(3). Thus, the
work product doctrine applies to any “materials obtained or
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prepared ... with an eye toward litigation[.]” Hickman v.
Taylor, 329 U.S. 495, 511 (1947).
For a court considering whether a document was created
in anticipation of litigation, the main question is
whether the document was prepared because of the
prospect of litigation. Documents that were prepared in
the ordinary course of business or that would have been
created in essentially similar form irrespective of the
litigation are not protected by the work product
doctrine. However, a document prepared in anticipation
of litigation that also serves an ordinary business
purpose
is
not
deprived
of work-product doctrine
protection.
Roc Nation LLC v. HCC Int’l Ins. Co., PLC, No. 19CV00554(PAE),
2020 WL 1970697, at *3 (S.D.N.Y. Apr. 24, 2020) (citations and
quotation marks omitted). “The party invoking the [work product]
privilege bears the heavy burden of establishing its
applicability.” In re Grand Jury Subpoena Dated July 6, 2005,
510 F.3d 180, 183 (2d Cir. 2007). If the court finds that a
document is protected by the work product doctrine, “the
requesting party must show ‘substantial need’ for the materials
and inability to obtain the substantial equivalent by other
means without ‘undue hardship.’” S.E.C. v. Collins & Aikman
Corp., 256 F.R.D. 403, 409 (S.D.N.Y. 2009) (footnotes and
quotation marks omitted).
“The application of this doctrine in the insurance context
is particularly troublesome because it is the routine business
of insurance companies to investigate and evaluate claims.” Roc
Nation, 2020 WL 1970697, at *3 (citation and quotation marks
7
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omitted); see also Pub. Serv. Ins. Co. v. Mount View Realty,
LLC., No. 3:15CV00740(AWT)(SALM), 2016 WL 4649803, at *2 (D.
Conn. Sept. 6, 2016) (“In the insurance business, not all claim
investigation is conducted ‘because of’ anticipated litigation.
Indeed, it is the routine business of insurance companies to
investigate and evaluate claims.” (citation and internal
quotation marks omitted)).
Some courts have applied a presumption that reports
prepared before a coverage decision are not protected by
the work product doctrine, while holding that this
presumption may be rebutted by the insurer if it
demonstrates with specific competent proof that it
possessed a “resolve to litigate” when the documents
were created.
Roc Nation, 2020 WL 1970697, at *3 (citation and quotation marks
omitted).
Other courts have applied a more flexible case-by-case
approach, which is fact specific. See id.; see also Mount View
Realty, 2016 WL 4649803, at *2 (“Because the very business of
the producing party is to evaluate claims that may ultimately
ripen into litigation, the determination of what is prepared
because of litigation is fact-specific.” (citation and quotation
marks omitted)). Relevant but not dispositive “factors that help
indicate anticipation of litigation include the date the
insurance company hired a law firm, the date a reservation of
rights letter was issued, and the date the claim was denied.”
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Roc Nation, 2020 WL 1970697, at *2. The Court takes this factspecific approach here.
2.
Analysis
MNR asserts that “United could not have made a firm
decision to deny the claim within the first 30 days after it had
been submitted, as its denial was not issued until six months
later.” Doc. #59-1 at 7. United responds that MNR’s focus on the
denial date “is erroneous, as United became aware of a potential
dispute almost immediately following the loss.” Doc. #61 at 9.
Specifically, United claims that it was during CIA’s first
inspection, on February 6, 2019, that it first “became aware of
the potential for commencement of an adversarial proceeding[.]”
Id.
Here, considering the facts before the Court, including the
documents submitted for in camera review, United did not
anticipate litigation until February 14, 2019, the date on which
it issued the ROR. See, e.g., In re Residential Capital, 575
B.R. 29, 44 (Bankr. S.D.N.Y. 2017) (insurance company
anticipated litigation when it issued the reservation of rights
letter); Mount Vernon Fire Ins. Co. v. Try 3 Bldg. Servs., Inc.,
No. 96CV05590(MJL)(HBP), 1998 WL 729735, at *8 (S.D.N.Y. Oct.
16, 1998) (“[T]he existing objective evidence establishes that
Mt. Vernon did not anticipate litigation until its June 20, 1995
reservation of rights letter.”). This is one day after CIA’s
9
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report of its initial investigation, dated February 13, 2019.
See Doc. #61-1. Without any evidence to the contrary, it is
reasonable to infer that United did not anticipate litigation
until after it had received, and reviewed, this initial report.
In addition, and significantly, just one day after the issuance
of the ROR, United referred this matter to coverage counsel, who
also represents United in this action. “While not determinative,
an insurer’s referral of a claim to its attorney is a
significant factor in determining when the insurer anticipates
litigation.” Mount Vernon Fire Ins., 1998 WL 729735, at *7.
The documents submitted by United, both with its opposition
and for in camera review, reflect that United suspected there
would be coverage issues from an early stage of its
investigation. However, United has not established “with
specific and competent evidence” that its initial investigation
efforts, including CIA’s inspection of the property and
resulting February 13, 2019, report, were conducted outside the
ordinary course of United’s business and with an eye towards
litigation. QBE Ins. Corp. v. Interstate Fire & Safety Equip.
Co., No. 3:07CV01883(SRU), 2011 WL 692982, at *3 (D. Conn. Feb.
18, 2011) (“Because all insurance investigations are likely
performed with an eye towards the prospect of future litigation,
it is particularly important that the party opposing production
of the documents, on whom the burden of proof as to the
10
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privilege rests, demonstrate by specific and competent evidence
that the documents were created in anticipation of litigation.”
(citation and quotation marks omitted)). Although United may
have suspected there would be coverage issues as early as
February 7, 2019, the claim was not referred to coverage counsel
until February 15, 2019, –- after United received CIA’s first
report and issued the ROR. Additionally, the Court’s review of a
withheld communication dated February 18, 2019, suggests that
United had taken a coverage position by that date.
United largely relies on the undersigned’s decision in
Mount View Realty, 2016 WL 4649803. There, the undersigned found
that the plaintiff insurance company anticipated litigation when
it determined that coverage would be disputed. See id. at *2. As
previously stated, the determination of when an insurance
company first anticipates litigation is a fact specific inquiry.
See id. In Mount View Realty, the date of “anticipated
litigation” was over two months after the insured’s loss. See
id.; see also Mount View Realty No. 3:15CV00740(AWT)(SALM), Doc.
#80 at 2 (D. Conn. June 2, 2016). Here, by contrast, United
claims it anticipated litigation immediately after the initial
inspection of the property. See Doc. #61 at 9. That timing is
significant to the Court’s analysis because “the actions that an
insurance company takes immediately after being notified of a
potential claim are almost always part of its ordinary business
11
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of claim investigation[.]” Weber v. Paduano, No. 02CV03392(GEL),
2003 WL 161340, at *6 (S.D.N.Y. Jan. 22, 2003) (emphasis added).
Nevertheless, even if United determined that coverage would be
disputed at such an early stage, there is no evidence
establishing that the actions United took before the ROR were
taken with an eye toward litigation, rather than as part of its
ordinary business of investigating a claim. See QBE Ins. Corp.,
2011 WL 692982, at *2 (“A first-party insurer is apt to
investigate any claim in the shadow of future litigation, either
as a potential defendant if it denies the insured’s claim or as
a potential plaintiff if it exercises subrogation rights against
a third party.”). United has failed to meet its burden of
establishing that it anticipated litigation, or otherwise had a
resolve to litigate, prior to February 14, 2019. See id. at *3
(“Because all insurance investigations are likely performed with
an eye towards the prospect of future litigation, it is
particularly important that the party opposing production of the
documents, on whom the burden of proof as to the privilege
rests, demonstrate by specific and competent evidence that the
documents were created in anticipation of litigation.” (citation
and quotation marks omitted)).
MNR seeks the production of unredacted copies of United’s
adjuster’s reports dated February 13, 2019 (privilege log No.
23), February 20, 2019 (privilege log No. 21), and March 5, 2019
12
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(privilege log No. 20). See Doc. #59-1 at 7. MNR also seeks the
production of materials “pertaining to communications between
[United’s engineer] Vertex and United’s adjuster,” which is
encompassed in the material listed at log No. 21. See id. at 89. United’s privilege log also includes an item described as
“Correspondence from independent adjuster” at No. 22, which is
in fact a “First report” by United’s adjuster; that item is
listed with a date of September 30, 2019. See Doc. #61-7 at 4.
The face of this document, however, is dated February 13, 2019.
MNR has not requested production of this document, but the Court
presumes that failure is due to the date error in the privilege
log, which makes it appear to have been prepared after the date
of United’s denial letter.
Nevertheless, because February 14, 2019, is the date that
United reasonably first anticipated litigation, United shall
produce, in unredacted form, the documents listed at privilege
log numbers 22 and 23, both of which are dated February 13,
2019, and had been withheld on the basis of the work product
doctrine. United shall produce these documents to MNR on or
before the close of business on Tuesday, April 6, 2021.
As to the documents post-dating February 14, 2019, MNR has
not established a substantial need for the documents sufficient
to override the protection. See, e.g., Marchello v. Chase
Manhattan Auto Fin. Corp., 219 F.R.D. 217, 219 (D. Conn. 2004)
13
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(“[T]he federal ... rules require that Plaintiff make a showing
of substantial need to overcome the work product doctrine.
Plaintiff’s conclusory allegation that he has a ‘substantial
need’ is not enough to meet the standard.”). Indeed, MNR does
not specifically argue, or otherwise “cite any caselaw supporting
[its] argument that the circumstances in this case merit
disclosure based upon substantial need.” Gargano v. Metro-N.,
222 F.R.D. 38, 40 (D. Conn. 2004).
B.
Attorney-Client Privilege
MNR has requested that the Court conduct an in camera
review of documents withheld by United on the grounds of the
attorney-client privilege. See Doc. #59-1 at 9-10. MNR
“questions whether these communications were properly withheld,
as they were made during the early stages of United’s
investigation[.]” Id. at 9. MNR appears to suggest that United
hired coverage counsel to conduct an ordinary claims
investigation, and therefore the communications are not
protected from disclosure. See id. at 10. United responds that
MNR is not entitled to the withheld documents because “they are
protected appropriately as attorney/client for the purposes of
obtaining legal advice.” Doc. #61 at 5 (sic).
The parties agree that in this diversity case, Connecticut
law applies to the application of the attorney-client privilege.
See Doc. #59-1 at 9-10 (citing Connecticut law); Doc. #61 at 5-6
14
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(same); see also Fed. R. Evid. 501. “Connecticut has a longstanding, strong public policy of protecting attorney-client
communications.” Metro. Life Ins. Co. v. Aetna Cas. & Surety
Co., 730 A.2d 51, 58 (Conn. 1999). “The privilege fosters full
and frank communications between attorneys and their clients and
thereby promotes the broader public interests in the observation
of law and the administration of justice.” Harrington v. Freedom
of Info. Comm’n, 144 A.3d 405, 413 (Conn. 2016) (citation and
quotation marks omitted).
Under Connecticut law, there are
four criteria that must be present, in the corporate
context, in order for the privilege to attach: “(1) the
attorney must be acting in a professional capacity for
the corporation, (2) the communication must be made to
the attorney by current employees or officials of the
corporation, (3) the communication must relate to the
legal advice sought by the corporation from the
attorney, and (4) the communication must be made in
confidence.” [Shew v. Freedom of Info. Comm’n, 714 A.2d
664, 670-71 (Conn. 2003)]. The burden of proving each
element of the privilege, by a fair preponderance of the
evidence, rests with the [party] ... seeking to assert
it. State v. Hanna, [191 A.2d 124, 130 (Conn. 1963)].
Blumenthal v. Kimber Mfg., Inc., 826 A.2d 1088, 1096 (Conn.
2003) (footnote omitted) (brackets altered). “The attorneyclient privilege in Connecticut protects both the confidential
giving of professional advice by an attorney acting in the
capacity of a legal advisor to those who can act on it, as well
as the giving of information to the lawyer to enable counsel to
give sound and informed advice.” First Aviation Servs., Inc. v.
15
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Gulf Ins. Co., 205 F.R.D. 65, 68 (D. Conn. 2001) (citation and
quotation marks omitted).
The Court has reviewed the documents submitted for in
camera review and finds that United has properly withheld the
majority of the challenged documents (privilege log Nos. 1-5 and
7-19) on the grounds of the attorney-client privilege and/or
work product doctrine. However, some of the documents do not
request or provide legal advice, or otherwise reflect legal
confidences or protected mental impressions, and therefore are
not protected by the privilege. The following documents shall be
produced:
No. 2 (UNITED_NATIONAL_FIRST_PRODUCTION_000091);
No. 4 (UNITED_NATIONAL_FIRST_PRODUCTION_000099);
No. 12 (UNITED_NATIONAL_FIRST_PRODUCTION_000276);
No. 13 (UNITED_NATIONAL_FIRST_PRODUCTION_000295);
No. 18 (UNITED_NATIONAL_FIRST_PRODUCTION_000710); and
No. 19 (UNITED_NATIONAL_FIRST_PRODUCTION_000729).
These documents are email transmittal cover sheets. The face of
the documents do not reflect any privileged information, or
confidential work product material. See, e.g., Travelers Indem.
Co. v. Northrop Grumman Corp., No. 12CV03040(KBF), 2013 WL
1087234, at *3 (S.D.N.Y. Mar. 12, 2013) (The Court ordered
production of a transmittal cover sheet where “the statement on
16
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the face of the document is not privileged and does not reflect
work product.”).
United shall produce these documents to MNR on or before
the close of business on Tuesday, April 6, 2021.
III. Conclusion
For the reasons stated, MNR’s Motion to Compel [Doc. #59]
is GRANTED, in part, and DENIED, in part.
SO ORDERED at New Haven, Connecticut, this 1 st day of April,
2021.
/s/
HON. SARAH A. L. MERRIAM
UNITED STATES MAGISTRATE JUDGE
17
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