COMPTON v. ALLSTATE PROPERTY & CASUALTY INSURANCE COMPANY

Filing 41

Order Following In Camera Review. The only redactions that Allstate may maintain are those identified in this order on pages five (seven entries redacted on work product grounds) and seven and eight (list of entries redacted on attorney-client privi lege grounds). All other portions of the NextGen report must be produced. Allstate must produce the NextGen report, with the revised redactions as provided in this order, by December 28, 2011. Because the new version of the NextGen report reveals sig nificantly more information than Ms. Compton had available to her when Mr. Schaefer was first deposed and because Mr. Schaefer's testimony established that his recollection about various matters may be refreshed by entries in the NextGen report that had been redacted, Ms. Compton may resume the deposition of Mr. Schaefer. Signed by Magistrate Judge Debra McVicker Lynch on 12/13/2011. (LH)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

JILL COMPTON,
Plaintiff,
v.
ALLSTATE PROPERTY & CASUALTY
INSURANCE COMPANY,
Defendant.

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) CASE NO. 1:10-cv-01448-LJM-DML
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Order Following In Camera Review
On November 15, 2011, the court held a discovery hearing on defendant Allstate
Property & Casualty Insurance Company’s (“Allstate”) objections to producing certain portions
of a computerized claims record known as the NextGen record. The court heard argument from
the parties and ordered Allstate to submit the record for in camera review. The parties also
provided the court with the deposition transcript of an Allstate claims examiner, Bradley
Schaefer, who testified regarding the claims record and his practices in keeping track of his
activities by making entries in the NextGen record.
Allstate contends that its redactions are proper because they are protected from disclosure
by the attorney-client privilege or the work product doctrine. Allstate made other redactions
because entries were “privileged” insurance reserve information, “privileged” information
regarding another insured, or “privileged” subrogation information. In addition, Allstate justifies
some redactions on the ground that the information is not relevant. Allstate has coded the
NextGen record to show its grounds for each redaction.

The court has carefully reviewed the NextGen record and the reasons for Allstate’s
redactions, examined applicable law, and makes the determinations explained below.
Factual Background
This case concerns insurance coverage to Ms. Compton for losses from a November 15,
2009 fire that destroyed a home she owned. Allstate, by Mr. Schaefer, advised Ms. Compton by
letter dated July 8, 2010, of Allstate’s denial of her claim. Mr. Schaefer was the primary claims
examiner for Ms. Compton’s claim. He works in one of Allstate’s special claims investigation
units, a unit to which “suspicious” claims are sent for handling. A claim may be labeled
“suspicious” if, for example, the insured has a significant history of prior claims, a fire appears to
have suspicious origins, the insured appears to have had a financial motive, or there is an
indication that an insured may have made misrepresentations about the claim. For various
reasons, Ms. Compton’s claim was investigated primarily under Mr. Schaefer’s direction, and the
claim was ultimately denied based on alleged material misrepresentations that Ms. Compton
made in connection with her claim. Further, although Allstate concluded that the fire was
intentionally set, Mr. Schaefer had (and has) no basis to believe that Ms. Compton set the fire or
caused it to be set.
Allstate uses a computerized claims recordkeeping system called NextGen. The NextGen
system is used by Allstate representatives to record their activities in connection with the claim
process. The NextGen claims notes entered by Allstate personnel are used by Allstate as a
reference source of all activities undertaken in investigating and processing a claim. Mr.
Schaefer testified that his activities for Ms. Compton’s claim included having discussions with
field adjusters and personal property adjusters, hiring an investigator to perform a “cause and
origin” analysis and report, obtaining information from the local fire department, hiring an

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investigator to interview persons in Ms. Compton’s neighborhood to find witnesses regarding the
fire or other activities at the home, conducting background checks regarding Ms. Compton
including with respect to her finances and bankruptcy filings, reviewing claims files for other
claims Ms. Compton has made, hiring outside counsel to take Ms. Compton’s and her daughter’s
examination, and participating in those examinations. Mr. Schaefer also testified that, at least up
to the time that he sent the July 8, 2010 letter to Ms. Compton denying her claim, he had no
reason to believe that Ms. Compton intended to hire counsel or that this matter would lead to
litigation.
Mr. Schaefer agreed that his documentation of activities as part of evaluating Ms.
Compton’s claim in the NextGen computerized notes was done as part of the ordinary course of
his claim evaluation.
Analysis
Work Product Doctrine
The court first addresses the work product doctrine and its application in the first-party
insurance context.
Allstate’s ability to withhold documents based on the work product doctrine is governed
by federal law. Harper v. Auto-Owners Ins. Co., 138 F.R.D. 655, 658 (S.D. Ind. 1991). The
work product doctrine protects from disclosure (1) documents and tangible things (2) prepared in
anticipation of litigation or for trial (3) by or for a party or its representatives. Fed. R. Civ. P.
26(b)(3). An insurance company in a first-party insurance coverage dispute may not withhold on
work product grounds material that it or its representatives prepared as part of the normal course
of the insurance business, as contrasted to documents prepared for purposes of litigation with its
insured. See Harper, 138 F.R.D. 655 (S.D. Ind. 1991) (containing detailed discussion for

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applying the anticipation of litigation factor in insurance coverage litigation). In the insurance
context, the same document (or an entry in a document) can serve both litigation and ordinary
business purposes. Harper, 138 F.R.D. at 661 n.2. A document that serves dual purposes may
be protected work product for purposes of Rule 26(b)(3) where the “‘primary motivating purpose
behind the creation of a document or investigative report [is] to aid in possible litigation.’” Binks
Mfg. Co. v. National Presto Industries, Inc., 709 F.2d 1109, 1118 (7th Cir. 1983) (quoting
Janicker v. George Washington University, 94 F.R.D. 648, 650 (D.D.C. 1982)). See also Stout v.
Illinois Farmers Ins. Co., 852 F. Supp. 704, 706 (S.D. Ind. 1994) (for document to fall within
work product doctrine, “it must pass the ‘primary motivating purpose’ test” discussed in Binks).
Allstate has redacted entries from the NextGen record as work product on the ground that
the investigation of Ms. Compton’s claim was “outside the scope of ordinary claims adjustment
with the prospect of litigation.” It points to the numerous grounds it had for suspecting foul play
(by someone) or an otherwise improper claim by Ms. Compton as justification for labeling the
entries work product. But the existence of an out-of-the-ordinary claim does not transform work
regarding the claim into litigation work product. Allstate’s normal course of business includes
the adjustment of both “suspicious” claims and “ordinary” claims. Although Allstate may assign
specialists to adjust “suspicious” claims and those specialists may undertake a more rigorous and
detailed investigation of a claim than Allstate finds necessary for “ordinary” claims, the
investigation and adjustment of a “suspicious” claim still falls within Allstate’s ordinary business
duty to its insured to examine, adjust, and investigate the claim, and to determine whether and
the extent to which the claim must be covered.
Based on the court’s review of the NextGen record and Mr. Schaefer’s testimony
regarding his activities, the court finds that none of the entries before suit was filed by Ms.

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Compton were made with the “primary motivating purpose” to aid in possible litigation. The
seven entries dated 11/19/2010, after Ms. Compton filed her lawsuit, and redacted on work
product grounds, need not be produced.
Attorney-Client Privilege
Allstate made redactions to some entries because they reflect communications between
Allstate and an outside lawyer it hired to conduct the oral examinations, under oath, of Ms.
Compton and her daughter.
In a diversity case where state law provides the substantive rule of decision, privileges
are determined in accordance with the applicable state law. Fed. R. Evid. 501. In the absence of
argument that another state’s laws apply, and because the home destroyed in the fire was located
in Indiana, the court will apply Indiana attorney-client privilege law to the issues presented.
National Union Fire Ins. Co. v. Standard Fusee Corp., 940 N.E.2d 810, 814 (Ind. 2010) (quoting
Dunn v. Meridian Mutual Ins. Co., 836 N.E.2d 249, 251 (Ind. 2005)) (general rule is that an
insurance policy “‘is governed by the law of the principal location of the insured risk during the
term of the policy’”).
Indiana’s attorney-client privilege is an evidentiary privilege codified at Ind. Code § 3446-3-1:
Except as otherwise provided by statute, the following persons shall not be
required to testify regarding the following communications: (1) Attorneys, as to
confidential communications made to them in the course of their professional
business, and as to advice given in such cases.
It assures a client that it can provide complete and candid information in confidence to its
counsel and counsel in turn can provide complete and candid legal advice about the client’s
rights and liabilities without fear that the confidences will be revealed. Lahr v. State, 731 N.E.2d

5

479, 482 (Ind. Ct. App. 2000); Hartford Financial Services Group, Inc. v. Lake Cnty. Park and
Recreation Bd., 717 N.E.2d 1232, 1235 (Ind. Ct. App. 1999).
Indiana courts have applied the attorney-client privilege to protect from disclosure
communications between a lawyer and an insurance company regarding the company’s coverage
rights and obligations to its insured. See Hartford Financial, 717 N.E.2d at 1236 (“Simply put,
Hartford retained counsel to investigate [its insured’s] claim, render legal advice and make a
coverage determination under the policy”); Howard v. Dravet, 813 N.E.2d 1217, 1222 (Ind. Ct.
App. 2004) (evaluation letter written by outside counsel to the insurer contained legal advice and
“is protected by the attorney-client privilege because it involved confidential communications”).
See also Irving Materials, Inc. v. Zurich American Ins. Co., 2007 WL 4616917 at *4 (S.D. Ind.
Dec. 28, 2007) (“The attorney-client privilege can, however, be invoked for information
pertaining to general coverage issues (in contrast with the specific handling of the underlying
claims) and other legal advice.”)
The court’s review of the NextGen report shows that Mr. Schaefer had various
communications with attorney Scott Tyler, a lawyer in private practice who acted as outside
counsel to Allstate, and with whom Mr. Schaefer communicated about the oral examinations of
Ms. Compton and her daughter, and about coverage of the claim. Some of those
communications concern legal advice regarding the claim or involve the exchange of information
for the purpose of obtaining legal advice. But other entries reflecting communications between
Mr. Schaefer and Mr. Tyler do not relate to the provision of legal advice but rather discuss
meeting arrangements or transfer information consistent with the claims adjustment function.
Legal advice does not appear to have been the aim of these communications. See Lahr, 731

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N.E.2d at 482 (“not every communication between an attorney and client is deemed a
‘confidential communication’ entitled to a reasonable expectation of confidentiality”).
Allstate may maintain its redactions made on attorney-client privilege grounds for the
following entries only:
Date/Time of Entry

Page of NextGen Report

1/13/2010; 8:52 AM

88-89

1/21/2010; 8:08 AM

84

1/21/2010; 8:00 AM

84

1/25/2010; 10:19 AM

82 (attachment only)

2/10/2010; 3:31 PM

75

2/17/2010; 11:57 AM

72-73

2/24/2010; 9:45 am

71 (last 3 lines only)

2/24/2010; 10:59 AM

69-70

3/11/2010; 2:10 PM

65-66

3/16/2010; 9:25 AM

62

3/25/2010; 9:27 AM

57-58

4/19/2010; 10:14 AM

51

4/19/2010; 1:35 PM

50

4/27/2010; 1:41 PM

46-47

4/27/2010; 3:42 PM

45

4/27/2010; 3:50 PM

44-45

5/6/2010; 1:51 PM

41-42

5/7/2010; 8:30 AM

41

7

5/7/2010; 9:08 AM

40-41

5/13/2010; 1:39 PM

38

5/27/2010; 2:04 PM

34

5/27/2010; 2:22 PM

33

6/10/2010; 11:12 AM

30

6/10/2010; 4:41 PM

30

6/10/2010; 4:43 PM

30

6/14/2010; 3:24 PM

28

6/22/2010; 3:45 PM

25-26

6/22/2010; 3:52 PM

25

6/23/2010; 2:58 PM

25

6/23/2010; 3:20 PM

24-25

7/8/2010; 9:03 AM

22

7/14/2010; 2:48 PM

19

7/15/2010; 2:25 PM

19

7/29/2010; 9:58 AM

17

8/3/2010; 7:16 AM

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Loss Reserves Information
Allstate has made redactions to entries on the ground that the information is “privileged
insurance reserve information,” but it has not provided the court with any authority or factual
analysis that would permit the court to conclude that the information fits any privilege. The
court understands that insurers are reluctant to share reserve information because reserves
generally reflect only precautionary estimates used for business-risk purposes and not an
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insurer’s opinion about the merits of a claim. But the court has no basis for finding the
information wholly irrelevant or for finding that the burden of revealing the information in the
NextGen report outweighs any potential relevance. See, e.g., Silva v. Basin Western, Inc., 47
P.3d 1184, 1190-1192 (Colo. 2002) (discussion of cases from other jurisdictions on
discoverability of loss reserve information in both the first-party and third-party insurance
context). This is not to say that the reserve information is admissible.
On the record before it, the court finds no legal basis for permitting Allstate to redact the
loss reserve information for discovery purposes.
Other Information Allstate Asserts Is Privileged or Irrelevant
Allstate redacted a few other entries—those relating to potential subrogation claims and
those regarding the adjustment of a claim by the mortgagee on the home—on the ground that the
information is irrelevant or otherwise “privileged.” Allstate maintains that information about
adjustment of the mortgagee’s claim is privileged. The court assumes Allstate is invoking the
insured-insurer privilege recognized in Richey v. Chappell, 594 N.E.2d 443 (Ind. 1992). Richey
held that an insured’s statement about the underlying event given to the insurer (which has a duty
to defend its insured) and that is in the nature of a communication the insured would make for
the purpose of obtaining legal advice, can be protected from discovery by the person suing the
insured. The entries regarding the mortgagee in the NextGen report do not remotely fit these
circumstances.
The entries in the NextGen report regarding subrogation do not appear to have been made
primarily because of the prospect of subrogation litigation, but appear to reflect a typical and
ordinary evaluation of whether the insurer has any subrogation interest to pursue.

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With respect to the few entries that Allstate additionally asserts relate to matters “unlikely
to result in the discovery of admissible evidence,” the court finds that the presence of the
information within the main claims record itself is sufficient to make the information at least
marginally relevant. The court can find no countervailing burden to their production that
justifies their redaction.
Thus, with respect to entries Allstate labeled as “irrelevant,” or privileged because they
concern subrogation interests, or privileged because they involve the mortgagee, the court finds
that the redactions are not appropriate.
Conclusion
Based on the above analysis and the court’s in camera review of the redactions to the
NextGen computer claims report, the only redactions that Allstate may maintain are those
identified in this order on pages five (seven entries redacted on work product grounds) and seven
and eight (list of entries redacted on attorney-client privilege grounds). All other portions of the
NextGen report must be produced. Allstate must produce the NextGen report, with the revised
redactions as provided in this order, by December 28, 2011.
Further, because the new version of the NextGen report reveals significantly more
information than Ms. Compton had available to her when Mr. Schaefer was first deposed and
because Mr. Schaefer’s testimony established that his recollection about various matters may be
refreshed by entries in the NextGen report that had been redacted, Ms. Compton may resume the
deposition of Mr. Schaefer.
So ORDERED.
12/13/2011
Dated: ________________

____________________________________
Debra McVicker Lynch
United States Magistrate Judge
Southern District of Indiana

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Distribution:
William E. Winingham
WILSON KEHOE & WININGHAM
[e-mail]
Jeffrey William Ferrand
JENNINGS TAYLOR WHEELER & HALEY
[e-mail]
Thomas R. Haley III
JENNINGS TAYLOR WHEELER & HALEY
[e-mail]

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