MAINE WOODS PELLET CO LLC v. WESTERN WORLD INSURANCE COMPANY

Filing 63

ORDER ON DISCOVERY AFTER IN CAMERA REVIEW. By MAGISTRATE JUDGE JOHN C. NIVISON. (MFS)

UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
MAINE WOODS PELLET CO., LLC,
Plaintiff
v.
WESTERN WORLD INSURANCE
COMPANY,
Defendant

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1:17-cv-00446-JCN

ORDER ON DISCOVERY AFTER IN CAMERA REVIEW
Plaintiff alleges Defendant breached an insurance contract by applying three
separate deductibles, rather than a single deductible, to an insurance claim submitted as the
result of mechanical difficulties with Plaintiff’s heat and power plant. After discovery
closed, the parties filed cross motions for summary judgment; the Court granted partial
summary judgment in favor of Defendant, concluding the record established that at least
two deductibles applied to Plaintiff’s losses, but a genuine factual dispute remained as to
whether a third deductible applied. (Summary Judgment Order, ECF No. 38.) Because a
factual dispute remained as to whether the tube breakage identified in the third major
shutdown was caused by an earlier tube breakage, the Court allowed the parties to conduct
further discovery on that remaining factual issue. (Procedural Order, ECF No. 44.)
During the subsequent discovery process, in response to Plaintiff’s request for
documents, Defendant withheld or redacted certain documents, citing the attorney-client

and work product privileges and the limited scope of the authorized discovery. Defendant
submitted the redacted and withheld documents to the Court for an in camera review.
Plaintiff seeks production of the withheld material generated before August 22,
2017, which is the date Plaintiff maintains the parties began to prepare for litigation.
(Discovery Memorandum, ECF No. 50.) Defendant provided a privilege log of the
materials it withheld, (ECF No. 53-1), and submitted to the Court copies of the documents
generated before August 22, 2017.
Following a review of the record, the disputed documents, and after consideration
of the parties’ arguments, the Court concludes that Defendant is required to produce the
draft reports of its expert investigator and the correspondence with the investigator
regarding the status of his work and the claims. The Court concludes that Defendant is not
required to produce the remainder of the disputed documents.
LEGAL STANDARD
Unless the scope of permissive discovery is limited by a court order, “[p]arties may
obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim
or defense and proportional to the needs of the case. . . .” Fed. R. Civ. P. 26(b)(1).
Information “need not be admissible in evidence to be discoverable,” and proportionality
is determined considering “the importance of the issues at stake in the action, the amount
in controversy, the parties’ relative access to relevant information, the parties’ resources,
the importance of the discovery in resolving the issues, and whether the burden or expense
of the proposed discovery outweighs its likely benefit.” Id.

2

The party asserting a privilege to withhold documents responsive to a legitimate
discovery request bears the burden of demonstrating the applicability of the privilege. In
re Grand Jury Subpoena (Mr. S.), 662 F.3d 65, 69 (1st Cir. 2011). The standard requires
“sufficient information to allow the court to rule intelligently on the privilege claim.” Marx
v. Kelly, Hart & Hallman, P.C., 929 F.2d 8, 12 (1st Cir. 1991). Assuming the withholding
party makes an adequate showing that the documents in question are subject to a privilege,
the party seeking production may assert that an exception to the privilege applies under the
circumstances. Vicor Corp. v. Vigilant Ins. Co., 674 F.3d 1, 17 (1st Cir. 2012).
Recognizing that a party seeking production often will not be able to prove an
exception to a privilege without having access to the document(s) in question, a party can
request that the court conduct an in camera review in order to insure the proper balance is
struck between one party’s assertion of privilege and another’s need for relevant
documents. Ass’n for Reduction of Violence v. Hall, 734 F.2d 63, 66 (1st Cir. 1984).
“[T]he decision whether to engage in in camera review rests in the sound discretion of the
district court.” United States v. Zolin, 491 U.S. 554, 572 (1989). The standard is not
stringent. Id. If it appears that the asserted privilege “is subject to legitimate dispute, the
desirability of in camera review is heightened.” In re Grand Jury Subpoena (Mr. S.), 662
F.3d at 70.
DISCUSSION
A.

Privileges
“The attorney–client privilege is the oldest of the privileges for confidential

communications known to the common law.” Upjohn Co. v. United States, 449 U.S. 383,
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389 (1981). “By safeguarding communications between attorney and client, the privilege
encourages disclosures that facilitate the client’s compliance with law and better enable
him to present legitimate arguments when litigation arises.” Lluberes v. Uncommon
Prods., LLC, 663 F.3d 6, 23 (1st Cir. 2011). The elements of the privilege are:
(1) Where legal advice of any kind is sought (2) from a professional legal
adviser in his capacity as such, (3) the communications relating to that
purpose, (4) made in confidence (5) by the client, (6) are at his instance
permanently protected (7) from disclosure by himself or by the legal adviser,
(8) except the protection be waived.
Cavallaro v. United States, 284 F.3d 236, 245 (1st Cir. 2002) (quoting 8 J.H. Wigmore,
Evidence § 2292, at 554 (McNaughton rev. 1961)); see also, Rich v. Fuller, 666 A.2d 71,
74 (Me. 1995).1
The work product doctrine, codified for purposes of pretrial discovery within Rule
26, protects “documents and tangible things that are prepared in anticipation of litigation
or for trial by or for another party or its representative (including the other party’s attorney,
consultant, surety, indemnitor, insurer, or agent),” unless the materials are otherwise
discoverable and the party seeking production “shows that 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)(A). Even if a court orders the
documents or tangible things to be produced, “it must protect against the disclosure of the
mental impressions, conclusions, opinions, or legal theories of a party’s attorney or other
representative concerning the litigation.” Fed. R. Civ. P. 26(b)(3)(B).
1

To the extent there are legal differences between the state and federal versions of the privilege, the federal
rules incorporate the state law governing privileges in any federal civil case in which the rule of decision is
provided by state law. See Fed. R. Evid. 501.
4

The work product doctrine does not extend to “[m]aterials assembled in the ordinary
course of business, or pursuant to public requirements unrelated to litigation, or for
nonlitigation purposes,” even if the materials were prepared by a lawyer and reflect “legal
thinking.” United States v. Textron Inc. & Subsidiaries, 577 F.3d 21, 30 (1st Cir. 2009)
(quoting Fed. R. Civ. P. 26 advisory comm.’s note (1970)). The issue is “whether, in light
of the nature of the document and the factual situation in the particular case, the document
can fairly be said to have been prepared or obtained because of the prospect of litigation.”
8 C. Wright, A. Miller, Federal Practice and Procedure § 2024 (3d ed. 2020).
In the context of some insurance claims, the line between materials produced in
anticipation of litigation and materials created in the ordinary course of business while
adjusting claims can be difficult to discern. “A minority of federal courts have held that
all materials located in an insurance claims adjuster’s files must be deemed to have been
collected or created in anticipation of litigation because it is in the nature of the insurance
business to always be preparing for litigation,” but “[t]he overwhelming majority of federal
courts . . . have maintained [a] fact specific approach . . . .” S.D. Warren Co. v. E. Elec.
Corp., 201 F.R.D. 280, 283 (D. Me. 2001). In this district, “unless and until an insurance
company can demonstrate that it reasonably considered a claim to be more likely than not
headed for litigation . . . the documents in its claims file that predate this realization were
prepared in the ordinary course of business, i.e., the business of providing insurance

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coverage to insureds.” Id. at 285; see also, Precision Airmotive Corp. v. Ryan Ins. Servs.,
Inc., No. 2:10-MC-244-JHR, 2011 WL 148818, at *7 (D. Me. Jan. 17, 2011).2
A review of the privilege log and the documents reveals that some of the redacted
and withheld documents might be discoverable. For example, some portions of the
disputed documents were withheld because they relate to the reserves Defendant set for the
matter at different times in the claims process.3 The amounts and timing of reserve
decisions can be relevant to certain claims, such as bad faith denials of coverage, but the
authority on the discoverability of reserves is mixed. Compare e.g., Andrew Robinson
Int’l, Inc. v. Hartford Fire Ins. Co., No. CV 07-10930-NMG, 2009 WL 10692782, at *4–
5 (D. Mass. July 1, 2009), with McCray v. Allstate Ins. Co., No. 3:14-CV-02623-TLW,
2015 WL 6408048, at *5 (D.S.C. Oct. 22, 2015). Here, while the Court understands that
Plaintiff has not asserted a bad faith claim, the reserves arguably could provide some
insight as to whether Defendant believed one or multiple deductibles applied.
Most of the disputed materials relates to Defendant’s claim that the draft reports of
Defendant’s engineering investigator, John Imperatore, and the communications with him

2

Unlike some other privileges in which the rules of the privilege are governed by state law when the rule
of decision for the federal case is provided by state law, see Fed. R. Evid. 501, to the extent there are legal
differences between the state and federal versions of the work product doctrine in the context of discovery,
compare e.g., S.D. Warren, 201 F.R.D. at 285, with Springfield Terminal Ry. Co. v. Dep’t of Transp., 2000
ME 126, ¶ 17 n.5, 754 A.2d 353, 358, the federal version of the doctrine governs because Rule 26 codified
the work product doctrine for discovery purposes in federal court. See S.D. Warren, 201 F.R.D. at 282.
“Loss reserves are estimates of amounts insurers will have to pay for losses that have been reported but
not yet paid, for losses that have been incurred but not yet reported, and for administrative costs of resolving
claims.” Atl. Mut. Ins. Co. v. Comm’r, 523 U.S. 382, 384 (1998); see also, UNUM Life Ins. Co. v. United
States, 897 F.2d 599, 601 (1st Cir. 1990) (noting that often times an insurance “company (perhaps following
state regulators’ properly conservative accounting practices) [will] put aside (as a reserve) considerably
more money to pay future benefits than it actually needs”).
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regarding the status of the claim and the status of the investigation, are within the work
product privilege or are otherwise not discoverable because the investigator has been
designated as an expert witness in this case. Rule 26 requires mandatory disclosure of
individuals a party intends to call as expert witnesses at trial and may require the party to
disclose a report summarizing the witnesses’ opinions, qualifications, compensation, and a
list of other cases in which the witness recently provided expert testimony. Fed. R. Civ. P.
26(a)(2). The Rule also permits a party to depose anyone identified as an expert but
restricts permissive discovery of (1) prior drafts of the required expert witness disclosure
report, (2) most communications between the expert and a party’s attorney, and (3) facts
or opinions of retained experts who are not expected to testify at trial. Fed. R. Civ. P.
26(b)(4).
Rule 26(b)(4), however, applies only to materials prepared in anticipation of
litigation. See Fed. R. Civ. P. 26(b)(4) advisory committee’s note (“It should be noted that
the subdivision does not address itself to the expert whose information was not acquired in
preparation for trial . . .”). Although the investigation report from the spring of 2017 was
prepared by an individual later deemed a testifying expert, it is not equivalent to an expert
report described in Rule 26(b)(4). See Rankin v. Liberty Mut. Ins. Co., 50 F.3d 1, 1995
WL 131390 at *1 n.2 (1st Cir. 1995) (designating an individual with relevant prior work
or knowledge as an expert witness at trial “did not, as [the party] seemingly contends,
insulate the [witness’s] firsthand knowledge of the facts from discovery under the ‘work
product doctrine,’ nor cloak it with other protections which apply solely to expert opinions
developed in anticipation of litigation”). Instead, the information was prepared by an
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engineer investigator who was assisting in the adjustment of the claim, long before
litigation was reasonably anticipated. Materials generated by an insurance company are
prepared in the ordinary course of business until the point at which an insurance company
can demonstrate that it reasonably considered a claim to be more likely than not headed for
litigation. S.D. Warren, 201 F.R.D. at 285. Defendant has not shown that Mr. Imperatore’s
drafts and communications should be viewed differently than the other materials in the
claims files, which were generated in the ordinary course of claims investigation and
processing.
The disputed materials (e.g., the amount of the reserves, draft expert reports) that
are not within a privilege would be discoverable if the documents are within the scope of
limited scope of discovery authorized at this stage of the proceedings. See infra.
B.

Limited Scope of Discovery
The ordinary scope of permissive discovery may be circumscribed by a court order.

See e.g., Fed. R. Civ. P. 26(b)(1) (“Unless otherwise limited by court order, the scope of
discovery is as follows . . .”); Fed. R. Civ. P. 26(b)(2) (permitting a court to issue orders
putting “limitations on frequency and extent” of discovery); Fed. R. Civ. P. 26(c)(1)(D)
(permitting orders “forbidding inquiry into certain matters, or limiting the scope of
disclosure or discovery to certain matters”); U.S. ex rel. Duxbury v. Ortho Biotech Prod.,
L.P., 719 F.3d 31, 37 (1st Cir. 2013) (“We review the district court’s order limiting the
scope of discovery for abuse of discretion”). Following decision on the parties’ cross
motions for summary judgment, the Court reopened discovery “on the factual issues the
Court identified in its decision and order on the parties’ motions for summary judgment.”
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(Procedural Order at 1.) The summary judgment order determined that “a factual issue
exists as to whether the March 20 fracture was caused in some way by the March 9
breakage,” which factual issue prevented the Court from reaching a legal conclusion about
“whether the March shutdowns constitute one or two accidents and thus one or two
mechanical breakdowns under the policy.” (Summary Judgment Order at 21.)
Some of the disputed documents can reasonably be considered as beyond the scope
of the Court’s order and therefore not discoverable. For example, even if the information
concerning the timing and amounts of Defendant’s reserve decisions were within the scope
of ordinary permissible discovery in this case, the information is not probative of the
remaining mechanical or technical question on which the Court reopened discovery.4 The
drafts of the expert’s investigative report, however, could have some bearing on the
remaining factual question. Similarly, Defendant’s communications with the investigator
about the draft reports and the status of the claims have some relevance, including for
impeachment purposes. Because that information is within the scope of discovery and not
privileged, Plaintiff is entitled to the production of the expert-related documents.5

4

The reserve amounts could potentially be relevant to the remaining issue in this case if, for example,
Defendant had at any time set one reserve for the January 2017 shutdown and one reserve for the two March
2017 shutdowns. The in camera review, however, revealed that the structure and amounts of the reserve
decisions have no probative value for the remaining mechanical or technical issue.
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The in camera review confirmed that the redactions of certain personal contact information—to which
Plaintiff evidently does not object if legitimate—were in fact limited to that purpose. The in camera review
also confirmed that the withheld information related to potential subrogation claims against the designer or
manufacturer was either privileged or not within the scope of discovery at this stage.
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CONCLUSION
Based on the foregoing analysis, the Court orders Defendant to produce to Plaintiff
unredacted versions of the draft reports prepared by and Defendant’s communications with
John Imperatore prior to August 22, 2017. Defendant is not required to produce the other
withheld or redacted documents.6
/s/ John C. Nivison
U.S. Magistrate Judge
Dated this 28th day of August, 2020.

6

The documents Defendant submitted corresponding to the last four entries of the privilege log contained
redactions in the “native” version. The Court did not locate the unredacted version of the documents. The
Court assumes the submission of the redacted version was inadvertent, and orders Defendant to submit an
unredacted version of the documents. If the Court determines that the documents contain additional
information to which Plaintiff is entitled in accordance with the analysis set forth herein, the Court will
issue a supplemental order. Otherwise, the analysis set forth herein will govern Defendant’s further
production of documents.
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