State Farm Mutual Automobile Insurance Company et al v. Howard et al

Filing 48

ORDER granting in part and denying in part 44 Motion for Protective Order; denying 45 Motion to Stay. Signed by Magistrate Judge G. R. Smith on 12/27/2013. (loh)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF GEORGIA
SAVANNAH DIVISION
STATE FARM MUTUAL
AUTOMOBILE INSURANCE
COMPANY and STATE FARM FIRE
AND CASUALTY COMPANY,
Plaintiffs,
v.

Case No. CV412-215

THURMAN LEE HOWARD; and
FRANK POWERS and HEATHER
POWERS, Individually, as Husband
And Wife, and as Parents and Next
Friends of their minor children B.P.,
C.P. and E.P.,
Defendants.

ORDER
The plaintiff insurance companies in this declaratory judgment
action move the Court for a protective order against discovery sought not
by their insured, but by third parties suing their insured in a parallel
state court case (both the insured and the third parties nevertheless are
defendants here). Doc. 44. The third parties oppose and alternatively
move to stay this case until the state case is resolved. Doc. 45 at 6.

I. BACKGROUND 1
On a summer day in 2011, Thurman Lee Howard drove his car
along Interstate 95 in Georgia. He was not having a good day. In fact,
he became “road-raged,” pulled alongside the Frank Powers family, took
out his pistol and fired at least five rounds into their vehicle. 2 Doc. 35-5
at 2-3. Frank “suffered physical injury from flying glass, emotional
harm, and physical and mental pain and suffering as a direct and
proximate result of . . . Howard’s actions.”

Id.

His family suffered

likewise. Id. In state court they sued Howard for, inter alia, negligence,
assault, and intentional infliction of emotional distress.

Id. at 7-11

(Powers I). 3
Howard’s insurer subsequently filed this case ( Powers II) in quest
of a judgment declaring that its vehicle and umbrella insurance policies
do not extend to Howard’s intentional (road rage) conduct. Doc. 1, as

For purposes of this Order the Court is accepting as true the allegations contained
in the cited filings.
1

He later pled guilty to aggravated assault and received a three-year prison sentence.
State v. Howard , CR120201 (Chatham Cty. Super. Ct. Oct. 31, 2012).
2

A check of the state court’s docket shows that Powers v. Howard , STCV1200331
(Chatham Cty. St. Ct. Feb. 2, 2012) is ongoing.

3

2

amended , doc. 35. Actually, there are two insurer plaintiffs 4 but for
convenience the Court will refer to just one, and as “State Farm.”
Howard wants State Farm to defend him in the underlying lawsuit
(Powers I), but State Farm insists that its policies’ intentional-conduct
exclusion relieves it of any coverage obligation. Doc. 35 at 8-20. 5
The parties have been conducting discovery. The Powerses served
Fed. R. Civ. P. 30(b)(6) deposition notices on State Farm. They want its
designated witness to bring to the deposition things like the policies and
procedures that it used to process Howard’s coverage claim. Doc. 45 at 3.
They also want “[a] complete copy of any and all documentation related
to and/or generated in response to claims evaluation and/or policy
interpretation utilized in processing . . . Howard’s claim in connection
with [their case against him].” Id . Plus they want “all documentation
related to and/or generated in response to claims evaluation and/or policy

Plaintiff State Farm Mutual Automobile Insurance Company issued an automobile
policy to Howard, doc. 35 at 2, while co-plaintiff State Farm Fire and Casualty
Company issued a personal liability umbrella policy to him. Id. at 3.
4

See also Allstate Ins. Co. v. Thompson , 2006 WL 2387090 at * 5 (E.D. Pa. July 19,
2006) (road-rage case; insurer had no duty to defend due to insureds’ intentional, not
accidental, acts); Ma-Do Bars, Inc. v. Penn-America Ins. Co ., 2010 WL 5138475 at *7
(N.D.N.Y. Dec. 9, 2010) (declaring no coverage because “liability arising out of the
alleged assault and battery . . . and liability arising out of the unlawful and improper
service of alcohol . . . are clearly excluded . . . under the policy.”).
5

3

interpretation utilized in the processing of . . . Howard’s claim in
connection with [ Powers I].” Doc. 44 at 4. Hence, State Farm concludes,
these defendants want claims adjuster and attorney work product
memos, legal billing, etc. Id. at 5; see also doc. 44 at 3-5 (their entire list
of objected-to discovery requests).
State Farm insists that such “claims handling” materials are
irrelevant and violate various privileges. Doc. 44. The issue here, it
contends, is “whether or not there is coverage under the policies” ( id . at
10) and not , for example, what its adjusters and lawyers may have
analyzed in response to Howard’s coverage claim.

Id . at 9-10. That is,

the Powerses seek attorney-client and work-product privileged
documents that Rule 26(b)(1) does not permit.

Id. at 10-11. The

Powerses disagree; but if State Farm prevails here, they seek to stay this
case pending resolution of Powers I. Doc. 45 at 6.

II. ANALYSIS
A. Protective Order
A couple of preliminary notes help frame the analysis here. First,
State Farm seeks a protective order from discovery sought not by its
insured (Howard), but from third-party claimants (the Powerses), who

4

are otherwise strangers to the insurance contract. What the Powerses
want is typically pursued by an insured suing his insurer for bad faith
and negligent claims handling, if not also for breach of the policy
contract. See International Indem. Co. v. Saia Motor Freight Line, Inc .,
223 Ga. App. 544, 546 (1996) (liability insurer could be ordered to
produce its entire claims file in discovery on insured's bad faith claim,
where all correspondence between insurer and its counsel was excluded
and insurer did not contest relevancy of material requested); Mosley v.

American Home Assur. Co ., 2013 WL 6190746 at * 22 (S.D. Fla. Nov. 26,
2013); B AD FAITH A CTIONS L IABILITY & D AMAGES § 10:28 (2d ed. Sept.
2013) (“Insurance bad faith cases are won or lost on the contents of the
insurer's claims files. Insurance claims personnel are voracious note
writers, and their files sometimes contain the most amazingly
incriminating statements.”). They thus lack Howard’s standing, 6 for

“In Georgia, absent an action for bad faith vested in the insured following an excess
verdict and an assignment of such action to the plaintiff, an injured plaintiff has no
right to a bad faith action against the tortfeasor's insurer, and in a case in which a
party injured in a motor vehicle accident brought suit against the tortfeasor's insurer
for bad faith refusal to settle when settlement negotiations with the insurer broke
down, the court held that the trial court properly granted the insurer's motion to
dismiss for lack of standing. Richards v. State Farm Mut. Auto. Ins . Co., 252 Ga.
App. 45, 555 S.E.2d 506 (2001).” 1 H ANDLING MOTOR VEHICLE ACCIDENT CASES 2 D §
5:24 (Sept. 2013); see also Tiller v. State Farm Mut. Auto. Ins. Co. , 2013 WL 5878452
6

5

example, to pursue a bad-faith claim. In no small part that drives the
relevancy determination needed to resolve State Farm’s motion.
Nevertheless, the Powerses are parties in this case -- State Farm
brought them here -- so they are entitled to conduct discovery. Yet the
core issue here is different than in Powers I. There the issue is whether
Howard is liable to the Powerses for shooting at them (the civil assault
and related claims raised in the Powers I complaint). Here ( Powers II),
it is whether there exists a bona fide controversy over whether Howard’s
conduct is negligent (covered by State Farm’s policies) or intentional (not
covered). See, e.g. , State Farm Mut. Auto. Ins. Co. v. Pfiel , 710 N.E.2d
100, 103 (Ill. App. 1999) (existence of a bona fide controversy over
whether an insured's conduct alleged in an underlying tort case is
negligent or intentional renders premature a declaratory judgment
action to determine liability coverage until the controversy is resolved in
the underlying case).
Finally, and unsurprisingly, there is no claim that State Farm did
not immediately investigate this case in anticipation of imminent
litigation. That is important because the work product doctrine typically
at * 3 (11th Cir. Nov. 4, 2013) (applying Richards and noting third-party beneficiary
exceptions to the Richards standing doctrine).

6

does not protect documents from discovery unless they are prepared in

anticipation of litigation, and since not every claim is expected to result
in litigation, the privilege is not automatically conferred upon insurer
claims files. 7 State Farm undoubtedly generated its investigative file in
the face of highly anticipated litigation; rare is the individual who would
not in some way retaliate after having his family shot at.
It follows that enabling a stranger to the contract (the Powerses,
who point to no assignment of any claim from Howard against State
Farm) to rake through the work-product/attorney communications
portion of State Farm’s claims file is not warranted under Rule 26(b)(1).
Recall, too, that the Powerses were literally at the scene (they were
Howard’s victims ), so they alone are in the best position to prove -- via
direct testimony -- what Howard did to them that day. State Farm’s
claims file likely bears only hearsay-based recitations, as gathered by an

7

Courts are reluctant to declare as “work product” the routine “file investigation” of
each claim, especially those portions of a claims file generated before a decision is
made to investigate in bona fide anticipation of litigation. Chambers v. Allstate Ins.
Co. , 206 F.R.D. 579, 586 (S.D. W. Va. 2002) (documents protected after date when
“initial investigation by the claims adjuster revealed circumstances indicating that
the loss was caused by arson and the claim was routed to the senior representative
for further investigation”), cited in Welle v. Provident Life and Accident Insurance
Company , 2013 WL 6020763 at * 3 (N.D. Cal. July 31, 2013).

7

investigator, if not also attorney work product, 8 though it’s conceivable
that it could contain a direct admission from Howard, if not third-party
eyewitness statements.

It’s been said that insurers in this situation have no duty to investigate. They are
free simply to examine the underlying tort claim and categorically determine that
their policy provides no coverage:
8

[T]he liability insurer's decision not to defend is a result of comparing the
claimant's allegations and the known facts with the terms of the policy. So long
as coverage is arguably available for the claim, the insured must be defended.
If coverage is not even arguable, the absence of a duty to defend is so clear as
to be a matter of law. There is thus only a categorical inquiry by the liability
insurer before it decides to defend its insured or not. No evaluation or
negotiation of the claim is required. A duty to investigate is ordinarily not
required but is instead permitted where the claimant's allegations do not
arguably trigger coverage but the known facts arguably do.
1 HANDLING M OTOR VEHICLE ACCIDENT CASES 2 D § 5:24 (July 2013) (footnotes
omitted).
It thus was somewhat savvy of the Powerses to allege, in Howard I, simple
negligence plus intentional misconduct. See doc. 35-5 at 5-10. Alleging only
intentional misconduct risked removing a deep pocket (Howard’s insurer, who would
be apt to disclaim coverage for intentional conduct); see also supra n. 2 (Howard is in
prison, where most are presumed penniless). Yet at the same time, the facts the
Powerses do allege establish clear, intentional (not negligent) conduct. How could
aiming and firing one’s gun at others not be intentional? Conversely, how could a
jury rationally find that to be merely negligent conduct?
Plenty of mental friction undoubtedly arises when pleading intentional conduct
facts while simultaneously alleging facts that support only negligence. See , for that
matter, State Farm Insurance Co v Trezza , 469 N.Y.S.2d 1008, 1012 (Sup. 1983) (NY
law) (if an insurer believes that a complaint "has been drafted in bad faith and
designed solely to bring an insurer into a case," the insurer can institute a declaratory
judgment action against the claimant "to test the factual allegations of the complaint
in the underlying action," and the court can expedite discovery; if “such discovery
supported the dismissal of those allegations of the underlying complaint upon which
the insurer's duty to defend was predicated, an order so providing should then be
entered. Such an order would collaterally estop the claimant from pursuing the

8

For that matter, courts typically don’t order such work product
disclosures (i.e., information beyond gathered facts) even for insureds .

See, e.g. , Chambers, 206 F.R.D. at 590 (insurance representative’s
refusals to answer questions, during deposition in insured's action
against homeowner's liability insurer, arising out of its failure to pay
claim after insured's house was destroyed by fire, were proper if insured's
questions inquired into thoughts, opinions, and mental impressions of
representatives about insured's loss and claim, as they were protected by
work product doctrine); compare Carver v. Allstate Insurance Company ,
94 F.R.D. 131, 135-36 (S.D. Ga. 1982) (documents emanating from claims
representative's investigation were prepared “in anticipation of
litigation,” as at this point in investigation the likelihood that litigation
would ensue was substantial, and thus those documents fell within
purview of work-products rule; however, standard reports referred to as
“diary sheets” and “result forms” prepared at time when prospect of
litigation was still inchoate could not be said to have been “prepared in
anticipation of litigation” and were discoverable).
insured on the dismissed causes of action, since the claimant is a party to the
declaratory judgment action, and would prevent the insurer's duty to defend from
becoming interminable.”) (quotes and cite omitted); 2 I NSURANCE C LAIMS AND
D ISPUTES § 8:3 (6th ed. Apr. 2013).

9

To the extent that State Farm is objecting to any Rule 30(b)(6)
document request aimed at eliciting what facts it has gathered as a
matter of routine claims investigation in this case, its motion for a
protective order is denied. Conversely, the Court agrees with State
Farm 9 and grants it protection against any demand to produce
documents containing its agents’ and attorneys’ assessment of the
strength of Howard’s coverage claim against it, as well as other mentalimpression based writings.
The Powerses raise a waiver argument -- that by filing this
declaratory judgment action and disclosing (in discovery) that a State
Farm representative is likely to have otherwise discoverable information,
State Farm waived its privileges. Doc. 45 at 4-5. That implicates the
“sword and shield doctrine,” where a party raises a claim or defense that
will necessarily require proof by way of a privileged communication.
When that happens, he cannot (upon a discovery request) block a
communications disclosure as privileged. An example is where a client
calls his attorney to testify on the issues necessary to establish his claim.
See doc. 44 at 8 (contending that the Powerses “essentially [seek] the complete
defense file for Mr. Howard in the underlying tort case.”); id. at 9 (arguing that
information on how State Farm processed -- thus evaluated -- Howard’s claim is
“unrelated to the issues in this case, which involve insurance coverage questions.”).

9

10

There he obviously waives his right, in pretrial proceedings, to insist that
the matter is privileged. Allstate Ins. Co. v. Levesque , 263 F.R.D. 663,
667 (M.D. Fla. 2010) (“a party who raises a claim that will necessarily
require proof by way of a privileged communication cannot insist that
the communication is privileged.”).
The underlying dynamic in those cases: One waives a privilege by
raising, for example, an affirmative defense that makes that party’s
intent and knowledge of the law relevant. The Navajo Nation v. Peabody

Holding Co., Inc ., 255 F.R.D. 37 (D.D.C. 2009). The Powerses come
nowhere close to showing that State Farm’s declaratory quest is directly
dependent upon information contained within privileged materials.

See

Levesque , 263 F.R.D. at 667; Estate of Cornwell ex rel. Fuller v. American
Federation of Labor, 197 F.R.D. 3 (D.D.C. 2000); United States v. Exxon
Corp ., 94 F.R.D. 246 (D.D.C. 1981); 8 W RIGHT & M ILLER : F ED . P RAC . &
P ROC . C IV . § 2016.6 n. 20 (3d ed. Apr. 2013) (collecting cases). In proving

here that Howard acted intentionally, State Farm will be relying not
upon its own direct knowledge or attorney’s mental impressions, but on
facts and evidence of those facts that it rounded up from third parties

11

like any shooting witnesses, including (possibly) Howard and the
Powerses themselves. 10
The Court has been articulating general limitations and principles
and has reached only State Farm’s core objections. There is a multi-page
list of others that remain. See doc. 44 at 3-5. Yet, other than a generic
assertion that counsel met and “conferred” in a “good faith effort” to
resolve their discovery dispute, doc. 44-7 at 1,11 the parties’ briefs
strongly suggest that at best they superficially conferred, and apparently
did so without taking into account the above-guiding principles. Since
the remaining objections are spun mostly out of the same thread, the
Court grants the remainder of State Farm’s motion without prejudice to

This also negates, to the extent the Powerses raise it, the “substantial need”
exception to the work product rule, under which materials are nonetheless
discoverable if the requesting “party shows it has substantial need for the materials
to prepare its case and cannot, without undue hardship, obtain their substantial
equivalent by other means.” Fed. R. Civ. P. 26(b)(3); see Welles , 2013 WL 6020763 at
* 3.
10

Under Local Rule 26.4 and Fed. R. Civ. P. 37(a)(2), parties seeking a protective
order or to compel discovery must certify that a good faith effort has been made to
resolve the dispute before coming to court. Their duty to confer must also be
meaningful. Scruggs v. International Paper Co., 2012 WL 1899405 at *1 (S.D. Ga.
May 24, 2012). More than a “we met and talked” certification is needed, though
every case is different. See DirecTV, LLC v. Shirah , 2013 WL 5962870 at * 2 n. 3
(S.D. Ga. Nov. 6, 2013) (collecting cases); Jackson v. Deen , 2012 WL 7198434 at * 1
(S.D. Ga. Dec. 3, 2012) (“[n]either face-to-face nor telephone contact is necessarily
essential to the ‘good faith’ certification requirement in every case. Sometimes
letters, emails, or faxes will suffice. But under the circumstances here, the Court is
persuaded that more is required than a mere back and forth salvo of papers.”).
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the Powerses’ right to move to compel. However, the Court stays the
Rule 30(b)(6) depositions until the parties meet, within 14 days after the
date this Order is served, and meaningfully confer on the remaining
objections in light of the foregoing principles. Should they fail to resolve
their differences, the Powerses may, within 14 days thereafter, move to
compel compliance with a new Rule 30(b)(6) document list. State Farm
may respond within 11 days thereafter.

B. Motion To Stay
The Powerses move to stay this case if the Court grants State
Farm’s protective-order motion. 12 Doc. 45 at 6. The Court is granting
State Farm’s motion. However, the Powerses fail to explain what such a
stay would achieve. Again, they are not the insured here, only thirdparty claimants. And assuming that in Powers I they prevail against
Howard before this case is resolved, there is no guarantee that the

Powers I verdict and judgment would assist resolution of this case.
Put another way, unless the Powerses represent their intent to
present to this Court a Powers I judgment supported by a special jury
This goes to the Court’s discretion. See Essex Ins. Co. v. Gilbert Enterprises, Inc. ,
2013 WL 5347435 at * 7 (D.R.I. Sept. 23, 2013) (advising district judge to deny
insured’s motion to stay insurer’s action for judgment declaring noncoverage based
on policy exclusion for liquor liability, as well as a declaration that it is not obligated
to defend or indemnify against claims arising out of the underlying state tort action).
12

13

interrogatory specifying that Howard was merely negligent and did not
act intentionally, they will supply nothing to resolve the issue here
(whether Howard acted intentionally) and, in turn, State Farm can rest
on its policies’ exclusion provisions. The Powerses are not making that
representation. They understandably would not want to drop their
intentional tort claim against Howard in Powers I. At the same time, it
profits no one to stay this case unless and until Powers I can produce a
judgment that can be “ res judicata exploited” (hence, that it is 100%
negligence based, and that under a preclusion doctrine, State Farm
cannot litigate the intentional conduct issue here). 13

13

One court points out that:
when the third party seeks damages on account of the insured's negligence,
and the insurer seeks to avoid providing a defense by arguing that its insured
harmed the third party by intentional conduct, the potential that the insurer's
proof will prejudice its insured in the underlying litigation is obvious. This is
the classic situation in which the declaratory relief action should be stayed.

Corbalis v. Superior Court, 2008 WL 1801100 at * 3 (Cal. App. 6 Dist. Apr. 22,
2008) (quotes and cite omitted); see also 2 Insurance Claims and Disputes § 6:22
(Binding effect on insurer of a judgment against insured in the underlying action-Collateral estoppel) (6th ed. Apr. 2013).
The Corbalis factor fits here. Again, in Powers I the Powerses allege both
negligence and intentional conduct. Doc. 35-5 at 5-10. And State Farm’s proof of
intentional conduct here could prejudice its insured (Howard) in Powers I. “These
concerns for stepping on the factual issues in the underlying action are, of course,
lessened when all the parties to that action are parties to the declaratory
judgment and able to litigate the point.” 16 C OUCH ON I NS . § 232:67 (June 2013).
But State Farm is not named as a party in Powers I. See doc. 35-5 at 1.

14

No stay, then, is warranted.

See General Ins. Co. of America v.

Clark Mall, Corp ., 841 F. Supp. 2d 1057, 1062 (N.D. Ill. 2012) (stay of
insured's counterclaims against its insurer for breach of contract, bad
faith, deceptive trade practices, and fraud pending resolution of
underlying case against insured was not warranted in insurer's action
seeking declaratory judgment that it had no duty under commercial
general liability policy to defend or indemnify insured or its officers and
directors in underlying case, where insurer was not party to underlying
case, issue in underlying case was whether insured negligently caused
fire and made false representations to injured parties, insurer disclaimed
coverage on ground that insured intentionally started fire and failed to
cooperate in its investigation, and resolution of underlying case would
not moot dispute between insurer and insured). The Court thus denies
the stay motion until the Powerses can show that this Court can exploit
(via res judicata) a Powers I judgment to resolve this case. Doc. 45 at 6.

Nevertheless, no one here has raised the Corbalis factor, such as in a stay motion.
Again, the Powerses never say why they want a stay, and at most Howard himself
alludes to the Corbalis factor in his Answer. See doc. 15 at 3.

15

III. CONCLUSION
Without prejudice to the right to the Powers defendants to move to
compel further production, the Court GRANTS in part and DENIES in
part the State Farm plaintiffs’ Motion for a Protective Order. Doc. 44.
The Court also DENIES the Powers defendants’ motion to stay this
case. Doc. 45 at 6. Meanwhile, the parties must confer, as set forth in
Part II(A) above, before any further discovery motions are filed.

SO ORDERED , This 27th day of December, 2013.

UNITED STATES MAGISTRATE JUDGE
SOUTHERN DISTRICT OF GEORGIA

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