Federated Mutual Insurance Company v. Coyle Mechanical Supply Inc. et al
Filing
83
ORDER granting 64 Motion to Compel. Plaintiff Federated Mutual Insurance Company is ORDERED to turn over its internal coverage evaluations to Defendant Coyle within fourteen days, on or before AUGUST 11, 2021. Moreover, Plaintiff is ORDERED to resubmit its privilege log as described above within fourteen days, on or before AUGUST 11, 2021. Signed by Magistrate Judge Gilbert C. Sison on 7/28/2021. (mjf)
Case 3:17-cv-00991-SMY-GCS Document 83 Filed 07/28/21 Page 1 of 11 Page ID #780
UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
FEDERATED MUTUAL INSURANCE
COMPANY,
)
)
)
Plaintiff,
)
)
vs.
)
)
COYLE MECHANICAL SUPPLY INC., )
and PRAIRIE STATE GENERATING
)
COMPANY, LLC,
)
)
Defendants.
)
Case No. 3:17-cv-00991-SMY-GCS
MEMORANDUM & ORDER
SISON, Magistrate Judge:
INTRODUCTION AND BACKGROUND
Defendant Prairie State Generating Company (“Prairie”) filed suit against
Defendant Coyle Mechanical Supply, Inc. (“Coyle”) in the Circuit Court of the 20th
Judicial Circuit for Washington County, Illinois, on May 18, 2017. (Doc. 1, Exh. 1). In its
complaint, Prairie alleged that it requested bids from Coyle for valves for the operating
units of Prairie’s power plant. Id. at ¶ 4, ¶ 6. Coyle recommended valves manufactured
by Copeland Industries and allegedly represented that those valves were built to last for
decades and were the best high-pressure steam valves. Id. at ¶ 10, ¶ 11. In reliance on
these statements, Defendant Prairie installed thirty-two of the valves. Id. at ¶ 15.
However, the valves began to leak and failed shortly thereafter. Id. at ¶¶ 17-21.
Coyle relied on its insurer, Federated Mutual Insurance Company (“Federated”),
to defend the lawsuit filed against it; Federated is the plaintiff in the instant matter. (Doc.
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65, p. 3). However, on June 26, 2017, Federated informed Coyle that it would not provide
it with a defense or indemnification coverage for Prairie’s lawsuit. (Doc. 7, Exh. 3).
Federated filed the present lawsuit on September 14, 2017, seeking a declaratory
judgment in its favor. (Doc. 1).
On February 12, 2018, Federated filed a motion for judgment on the pleadings.
(Doc. 24). Shortly thereafter, Federated also moved for a stay of discovery pending a
ruling on that motion. (Doc. 26). The Court granted in part and denied in part Federated’s
motion for a stay, but permitted discovery related to whether Prairie’s damages fall
within the purview of an injury or occurrence under Federated’s policy. (Doc. 32).
Federated submitted answers to Coyle’s first set of interrogatories and requests for
production on June 4, 2018. It also included a privilege log identifying documents
withheld from production. (Doc. 65, Exh. A).
The Court granted Federated’s motion for judgment on the pleadings. (Doc. 57).
However, the United States Court of Appeals for the Seventh Circuit reversed that ruling,
stating that the case should be decided on a “fully developed factual record . . . .” Federated
Mut. Ins. Co. v. Coyle Mech. Supply Inc., 983 F.3d 307, 317 (7th Cir. 2020).
Now before the Court is Coyle’s motion to compel, which seeks the production of
documents listed in Federated’s privilege log and the provision of additional details with
respect to other entries listed in the log. (Doc. 64, 65). Plaintiff filed a response in
opposition. (Doc. 70). The instant matter was referred to the Court by United States
District Judge Staci M. Yandle. (Doc. 67). A hearing was held regarding the matter
on May 25, 2021. (Doc. 71). Afterwards, supplemental responses and authorities and
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were filed by both parties. (Doc. 74, 80). For the reasons delineated below, the motion
to compel is GRANTED.
ANALYSIS
In its privilege log, Federated asserts that nine documents are privileged; of those
nine, Federated claims that six are protected by the work-product privilege, and three are
protected by both the attorney-client privilege and the work-product privilege. (Doc. 65,
p. 4). Of the six documents allegedly protected by the work-product privilege, four
documents are internal coverage evaluations. Id. Coyle argues that Federated cannot
meet its burden of showing that these four internal coverage evaluations were written
exclusively in anticipation of litigation. Id. at p. 5. Coyle also asserts that Federated’s
privilege log does not provide sufficient information for Coyle to address adequately the
claims of privilege for the three documents subjected to the attorney-client and workproduct privilege. Id. at p. 7-8. In response, Federated claims that Coyle cannot show that
the requested documents are relevant; it further asserts that the documents are properly
protected by the work-doctrine privilege. (Doc. 70, p. 4, 8).
I.
Whether the Requested Documents are Relevant
Under the Federal Rules of Civil Procedure, parties may obtain discovery into any
non-privileged matter relevant to a party’s claim or defense so long as that discovery is
proportional to the needs of the case. See Pegues v. Coe, No. 3:16-CV-239-SMY/RJD, 2017
WL 4922198, at *1 (S.D. Ill. Oct. 31, 2017)(citing FED. R. CIV. PROC. 26(1)). The purpose of
discovery is to provide a mechanism for making relevant information available to
litigants. See FED. R. CIV. PROC. 26 advisory committee note to 1980 amendment.
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Accordingly, the relevancy requirement is to be broadly construed to include matters
“that bear on, or that could reasonably lead to other matters that could bear on, any issue
that is or may be in the case.” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978)
(internal citation omitted); see also FED. R. CIV. PROC. advisory committee note to 1946
amendment. Nevertheless, the relevancy requirement should be firmly applied, and a
district court should not neglect its power to restrict discovery when necessary. See
Herbert v. Lando, 441 U.S. 153, 177 (1979); Balderston v. Fairbanks Morse Engine Div. of Coltec
Industries, 328 F.3d 309, 320 (7th Cir. 2003); Stephenson v. Florilli Transportation, LLC, No.
3:18-cv-0103-NJR-DGW, 2018 WL 4699863, at *1 (S.D. Ill. Oct. 1, 2018).
Federated argues that the documents Coyle requested are not relevant to the
central issues in this case, i.e., whether a miscommunication led Prairie to purchase the
wrong valves, whether Prairie or the valve manufacturer was aware the valves were
defective prior to their failure, and whether Prairie seeks damages for physical injury to
its own property. (Doc. 70, p. 5). Coyle requests internal documents relating to whether
or not there was coverage under Federated’s policies. Id. at p. 7. However, during a
hearing on Federated’s motion to stay discovery on March 19, 2018, Magistrate Judge
Stephen C. Williams noted that Federated’s analysis of whether or not there is coverage
under its policies is immaterial to the Court’s analysis because the Court must make a de
novo determination regarding the existence of coverage. Id. Accordingly, Federated
asserts that its documents reflecting internal coverage evaluations are not relevant to the
ultimate issues in the case.
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Though the Court must make a de novo determination of whether an insurance
policy provides coverage for a particular incident, an insurer’s internal evaluations may
be relevant to determining to what degree the parties anticipated a similar incident and
its damages. The policies between Federated and Coyle state that Federated is obligated
to pay damages due to “property damage” caused by an “occurrence.” Fed. Mut. Ins. Co.,
983 F.3d at 311. An “occurrence” is an “accident, including continuous or repeated
exposure to substantially the same general harmful conditions.” Id. at 316. The policies
do not define an “accident,” but Illinois courts have defined an accident as “an unforeseen
occurrence, usually of an untoward or disastrous character or an undesigned, sudden, or
unexpected event of an inflictive or unfortunate character.” Westfield Nat. Ins. Co. v. Cont’l
Cmty. Bank & Tr. Co., 804 N.E.2d 601, 605 (Ill. Ct. App. 2003). “What matters is whether
the injury was expected or intended.” Fed. Mut. Ins. Co., 983 F.3d at 316 (citing United Nat.
Ins. Co. v. Faure Bros. Corp., 949 N.E.2d 1185, 1191 (Ill. Ct. App. 2011)). The Seventh Circuit
found that there is a material fact question as to whether Prairie seeks damages for
physical injury to its property and not just for its own faulty work product; as these
damages may extend beyond pure economic loss, they are not necessarily foreseeable
“and thus may arise from an ‘occurrence.” Id. at 317 (citing Lexington Ins. Co. v. Chicago
Flameproof & Wood Specialties Corp., 950 F.3d 976, 981 (7th Cir. 2020)). Review of
Federated’s internal coverage evaluations may therefore reveal whether Federated
believed that the incident was expected, or whether it arose from an ‘occurrence,’
potentially leading to the discovery of admissible evidence.
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The standard under which Coyle must prove relevance in order to obtain the
requested documents is necessarily lower than that applied to determine whether the
documents are admissible at trial. While Rule 26(b) governs this motion, admissibility is
determined under Federal Rule of Evidence 401. Under Rule 26(b)(1), “[i]nformation
within the scope of discovery need not be admissible in evidence to be discoverable.” The
subtle difference between “information” and “evidence” indicates that discovery permits
a greater breadth of relevance than would be admitted at trial. See Coleman v. Illinois, Case
No. 19 C 3789, 2020 WL 5752149, at *3 (N.D. Ill. Sep. 25, 2020). Because the purpose of
discovery is to help “define and clarify the issues,” relevance must be broadly construed.
Oppenheimer Fund, Inc., 437 U.S. at 351. “If relevance is in doubt, courts should err on the
side of permissive discovery.” Wiginlon v. CB Richard Ellis, Inc., 229 F.R.D. 568, 577 (N.D.
Ill. 2004).
A review of Federated’s internal coverage evaluations at the discovery stage may
help to define and clarify the issues related to coverage and expected damages at trial,
even if that evidence is not itself admissible. For example, Federated’s internal coverage
evaluations may reveal its own investigation of the factual circumstances underlying the
installation of the allegedly defective valves. To the extent that this information led
Federated to conclude that an “occurrence” was not present which would justify its
coverage denial, such information would most certainly be relevant. This is because such
information would bear directly on the issue of an “occurrence” that the Seventh Circuit
concluded needed more factual development.
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If, on the other hand, no such factual investigation took place that would justify
Federated’s coverage denial, that too would be of consequence to the instant litigation.
At the hearing, counsel for Coyle indicated that it currently did not have facts available
to justify the filing of a bad faith counterclaim. But, if Federated refused to defend under
the policy without conducting any type of investigation, such a fact would clearly give
Coyle legitimate grounds to file a bad faith refusal counterclaim. This is especially true
in the instant case where the duty to defend is much broader than the duty to indemnify.
The relevancy requirement does not simply include matters that “bear on” issues in the
case, but also “other matters that could bear on, any issue that is or may be in the case.”
Oppenheimer Fund, Inc. v. Sanders, 437 U.S. at 351 (emphasis added). Given that the instant
matter is a coverage dispute, the issue of bad faith could very well be an issue that may
be in the case, and this issue could reveal itself through Federated’s internal coverage
documents. In light of the above, the Court finds that the documents requested by Coyle
are indeed relevant and should be produced.
II.
Whether Federated’s Internal Coverage Evaluations are Protected by the
Work-Product Privilege
Courts sitting in diversity consider the work-product privilege on the basis of
federal law, rather than on the basis of the law in which they sit. See Slaven v. Great Am.
Ins. Co., 83 F. Supp.3d 789, 795 (N.D. Ill. 2015). This Court will therefore apply federal law
to this question. See (Doc. 1, ¶ 4). Under federal law, the work-product privilege is
narrowly construed because it makes the search for truth more difficult by preventing
disclosure of relevant and probative information. See Slaven, 83 F. Supp.3d at 796. A party
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asserting the work-product privilege must therefore demonstrate through competent
evidence and with particularity that the privilege applies to each document for which it
is claimed. Id.
The work-product privilege applies to documents an attorney or representative of
a party creates in anticipation of litigation in order to prepare or analyze the case. See FED.
R. CIV. PROC. 26(b)(3). Federal circuit courts are split as to the definition of “in anticipation
of litigation.” See Alton & Southern Railway Company v. CSX Transportation, Inc., Case No.
3:17-CV-01249-NJR, 2020 WL 4933652, at *2 (S.D. Ill. Aug. 24, 2020). The majority rule
dictates that documents are fairly protected when they are “prepared or obtained because
of the prospect of litigation.” Id. (quoting United States v. Adlman, 134 F.3d 1194, 1202 (2nd
Cir. 1998)). The minority view states that documents are only protected if the “primary
motivating purpose” of their production is litigation. Id. (quoting United States v. Davis,
636 F.2d 1028, 1040 (5th Cir. 1981)). The First Circuit also applies a strict standard,
requiring that the documents be produced for use in litigation. Id. (quoting United States
v. Textron Inc., 577 F.3d 21, 29 (1st Cir. 2009)). The latter two standards are more stringent
than the “because of” standard. Id. (internal citations omitted).
There appears to be an internal split among district courts in the Seventh Circuit
as to whether the “primary motivating purpose test” or the “because of” standard is
appropriate.1 The Seventh Circuit Court of Appeals has held that a party asserting the
1
This split appears to derive from many district courts in this Circuit applying the “primary
motivating purpose” standard based on a single quotation in Binks Mfg. Co. v. National Presto Industries,
Inc., 709 F.2d 1109 (7th Cir. 1983). See Alton, 2020 WL 4933652, at *3. However, the Seventh Circuit in Binks
ultimately denied work product protection on the grounds that the appellant failed to prove that the
documents sought were prepared because of the possibility of litigation. Id. at *2.
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work-product privilege must show that the documents were prepared “because of”
litigation. See Alton, 2020 WL 4933652, at *2 (citing Sandra T.E. v. S. Berwyn Sch. Dist. 100,
600 F.3d 612, 622 (7th Cir. 2009); Logan v. Commercial Union Ins. Co., 96 F.3d 971, 976-977
(7th Cir. 1996) (parentheticals omitted). When a document would have been needed to be
prepared regardless of any prospect of litigation, they are not protected by the workproduct privilege. See United States v. Frederick, 182 F.3d 496, 501 (7th Cir. 1999). Equally,
documents compiled for “routine corporate” practices are not protected by the privilege.
See Alton, 2020 WL 4933652, at *4.
Insurance practices carry a high likelihood of potential litigation; an insurer will
inevitably deny some claims for coverage in its normal course of business, and many of
those denied claims will result in litigation. See Slaven, 83 F.Supp.3d at 795. However, this
inevitability does not mean that all internal coverage evaluations are prepared because
of litigation. Cf. id. (applying the “primary motivating purpose test”). Insurance
companies are in the business of evaluating and granting or denying claims for coverage
after alleged accidents or occurrences. Documents created to assist an insurer in that
process, prior to the denial of a claim at issue in a lawsuit, reflect that business and are
more appropriately categorized as routine corporate practices than as legal workproduct. Id. at 796.
Federated takes issue with Coyle’s reliance on Slaven. (Doc. 70, p. 8-9). Slaven cites
to Lagestee-Mulder, Inc. v. Consolidated Ins. Co. for the proposition that pre-denial insurance
activities are not work-product. No. 09 C 7793, 2010 WL 4781461, at *2 (N.D. Ill. Nov. 17,
2010). In turn, Lagstee-Mulder relies on Country Life Ins. Co. v. St. Paul Surplus Lines Ins.
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Co., No. 03-1224, 2005 WL 3690565, at *7 (C.D. Ill. Jan. 31, 2005). Country Life Ins. Co. finally
cites to Logan v. Commercial Union Ins. Co., 96 F.3d 971, 977 (7th Cir. 1996). Logan did not
hold that the work-product privilege is inapplicable to all pre-denial claims, but instead
held that post-denial documents are work-product. Id. However, while Federated is
accurate in its reading of Logan, this history does not undermine the analysis in Slaven.
Pre-denial documents are often not work-product because insurance companies
regularly create these documents in the ordinary course of their business, rather than
because of any potential litigation. This analysis is equally applicable here. Accordingly,
the work-product privilege does not apply to Federated’s internal coverage evaluations.
III.
Whether Federated’s Privilege Log is Sufficiently Descriptive
Coyle claims that the remaining three documents Federated alleges are protected
by privilege are not sufficiently described in Federated’s privilege log for Coyle to
prepare an adequate response to the claim of privilege. (Doc. 65, p. 8). When asserting
privilege, the asserting party must state the date, author, recipients of the document,
subject matter, purpose, and an explanation as to why the document is privileged. See
Coltec Indus., Inc. v. Am. Motorists Ins. Co., 197 F.R.D. 368, 373 (N.D. Ill. 2000). The purpose
of this description is to provide an opposing party or a court the ability to determine
whether the reason for claiming privilege withstands scrutiny. Id. (noting that labeling a
document as work-product does not establish that the document is, in fact, privileged).
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A sparse description does nothing to distinguish the document at issue from “perhaps
thousands of others” which are not privileged. Id.
Federated describes two documents dated June 20, 2017 authored by Beth Ann
Berger Zerman, Esq. and received by A. Steinbauer as “Letter” in the description section
of the privilege log. (Doc. 1, Exh. A). It also describes a document dated July 5, 2017,
authored by Beth Ann Berger Zerman, Esq. and received by A. Steinbauer as “Email.” Id.
These descriptions do not properly indicate why Federated claims the documents are
protected by the attorney-client privilege and work-product privilege. In order for Coyle
and the Court to assess Federated’s claims properly, Federated must provide some
description of the documents sufficient to justify its assertions. The Court therefore finds
that Federated must re-submit its privilege log for the “Letters” and “Email” with a valid
description justifying its assertion of privilege.
CONCLUSION
For the above stated reasons, Defendant Coyle Mechanical Supply Inc.’s motion to
compel (Doc. 64) is GRANTED. Plaintiff Federated Mutual Insurance Company is
ORDERED to turn over its internal coverage evaluations to Defendant Coyle within
fourteen days, on or before AUGUST 11, 2021. Moreover, Plaintiff is ORDERED to
resubmit its privilege log as described above within fourteen days, on or before AUGUST
11, 2021.
Digitally signed
by Judge Sison 2
Date: 2021.07.28
09:18:53 -05'00'
IT IS SO ORDERED.
DATED: July 28, 2021.
______________________________
GILBERT C. SISON
United States Magistrate Judge
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