United States Fire Insurance Company v. Warren, City of

Filing 158

OPINION and ORDER re 60 MOTION to Compel Signed by Magistrate Judge Paul J. Komives. (EBut)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
UNITED STATES FIRE INSURANCE
COMPANY, a Delaware corporation,
Plaintiff/Counter-Defendant,
CASE NO. 2:10-CV-13128
JUDGE STEPHEN J. MURPHY, III
MAGISTRATE JUDGE PAUL J. KOMIVES

v.
THE CITY OF WARREN, a Michigan municipal
corporation,
Defendant/Counter-Plaintiff.
_______________________________________
THE CITY OF WARREN, a Michigan municipal
corporation,
Third-Party Plaintiff,
v.

ROYAL INDEMNITY COMPANY, n/k/a Arrowood
Indemnity Company, a Delaware corporation,
ARROWOOD INDEMNITY COMPANY, f/k/a Royal
Indemnity Company, a Delaware corporation,
HARTFORD ACCIDENT AND INDEMNITY
COMPANY, a Connecticut corporation, GLEN
FALLS INSURANCE COMPANY, a Delaware
corporation, and CONTINENTAL INSURANCE
COMPANY, as successor to Glen Falls Insurance
Company, a Delaware corporation,
Third-Party Defendants.
/
OPINION AND ORDER DENYING U.S. FIRE’S MOTION TO COMPEL (docket #60)
I.

OPINION

A.

Background
This is an insurance coverage dispute between the City of Warren (“the City”) and several

insurance companies regarding the insurance companies’ duties to defend and indemnify with respect
to a state court class action suit against the City currently pending in the Macomb County Circuit
Court. In the underlying state court action, Hill v. City of Warren, the plaintiff class alleges that their
property was damaged by the growth of roots from trees planted by, or at the insistence of, the City,
in the City owned right-of-way between the street and sidewalk in front of plaintiffs’ homes. The Hill
action was filed on May 2, 2000. Plaintiff/Counter-Defendant United States Fire Insurance Company
(“U.S. Fire”) alleges that it provided general liability coverage to the City through a series of annual
insurance polices beginning in the mid-1970s through June 30, 1998. U.S. Fire alleges that it first
received notice of the Hill litigation on October 9, 2003. After further proceedings in the state court
action, including an appeal of the trial court’s class-certification decision and attempts to mediate the
state court action, U.S. Fire filed this action on August 6, 2010, seeking a declaratory judgment that
it is not liable to defend or indemnify the City with respect to the Hill litigation. Specifically, U.S.
Fire claims that it has no duty to defend or indemnify the City because: (1) the City knew of the
ongoing losses and failed to disclose its knowledge at the time of each annual policy renewal; (2) the
City breached the notice provisions of the policies; (3) the property damage alleged in the Hill
litigation is not the result of an “occurrence” covered by the policies; (4) any “occurrence” which did
occur did so outside of the period the City was covered by the U.S. Fire policies; (5) all or some of
the damages are within the intended acts exclusion of the policies; (6) damages in the Hill litigation
arising from the release of sewage into the homeowner’s property is excluded by the pollution
exclusion of the policies; (7) to the extent damage occurred to city owned property, the damages
sought in the Hill litigation are excluded by the owned property exclusion of the policies; (8) the
damages sought are excluded by the policies because the City’s actions constituted a willful violation
of a penal statute; and (9) the first $250,000.00 in damages with respect to each individual plaintiff
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in the underlying class action are subject to the City’s self-insured retention in the policies. The City
counter-claimed, asserting claims of breach of contract, breach of the implied duty of good faith and
fair dealing, and reformation. The City also filed third-party complaints against third-party defendants
Royal Indemnity Company (“Royal”), Arrowood Indemnity Company (“Arrowood”), Hartford
Accident and Indemnity Company (“Hartford”), Glens Falls Insurance Company (“Glens Falls”), and
Continental Insurance Company (“Continental”). The third-party complaint alleges that these
companies provided insurance coverage to the City at various points from the 1960s through 2001,
and seeks a declaratory judgment that these companies have a duty to defend and indemnify with
respect to the Hill litigation. The third-party complaint also alleges a breach of contract claim against
Royal.
The matter is currently before the Court on U.S. Fire’s motion to compel discovery from the
City, which has been joined in by Hartford. U.S. Fire and Hartford seek production of documents
relating to the Hill action which have been withheld by the City on the grounds of attorney-client
privilege and attorney work product. As set forth in U.S. Fire’s supplemental brief, U.S. Fire and
Hartford seek the following documents:
•

written communications to, from, or shared with the City’s Third Party Administrator,
Crawford & Company, relating to the class action, as sought in Document Request
Nos. 12, 13, 15, and 16;

•

written communications between the City and the attorneys, experts, or agents who
were defending the City in the Class Action, as sought in Document Request Nos. 913;

•

documents describing and/or summarizing the claims or damages asserted against the
City in the class action, as sought in Document Request Nos. 1, 2, 7, 17, and 22; and
documents describing the nature, amount, and expense of the work performed on
behalf of the City in the class action, as sought in Document Request Nos. 15, 16, 18,
and 19.

•

In its initial motion, U.S. Fire argues that these documents are not protected by the attorney client
3

privilege because: (1) the privilege does not protect any documents shared with the City’s third party
administrator; (2) the City waived the privilege with respect to the documents sought by placing the
information contained in those documents in dispute in this action; and (3) the City waived the
privilege by agreeing to provide the documents by virtue of the Transition Agreement which settled
an earlier coverage dispute between U.S. Fire and the City.
On January 23, 2012, after the City filed its response to the motion and U.S. Fire and Hartford
filed replies, U.S. Fire agreed to undertake the defense of the City in the class action and to pay all
defense costs incurred by the City after June 11, 2011. In light of this new posture, the Court granted
the parties’ request for supplemental briefing. U.S. Fire and Hartford filed their supplemental briefs
on April 11, 2012. U.S. Fire continues to press the arguments it made in its initial motion, and further
argues that the City is obligated to produce all of the requested documents relating to the Hill
litigation now that U.S. Fire is defending the City in that action. Hartford continues to press the
arguments initially made by U.S. Fire, and further argues that if U.S. Fire is entitled to the documents
by virtue of its defense of the City, production should also be made to Hartford because production
only to U.S. Fire would make efficient litigation impossible. The City filed a supplemental response
on April 25, 2012. The City argues that: (1) it has not waived the privilege by disclosing documents
to its agent, by placing any matter at issue, or by cooperating with U.S. Fire prior to the coverage
dispute; (2) U.S. Fire and Hartford cannot show a substantial need for the documents sought because
the underlying factual information was provided to U.S. Fire and Hartford; and (3) although U.S. Fire
is paying defense costs, it is not controlling the defense of the Hill action and has placed conditions
on its defense of the action, and thus is not entitled to the documents based on its decision to cover
the defense of the action. U.S. Fire and Hartford filed replies on April 30, 2012, and the Court heard
argument on the matter on May 1, 2012, at which time the Court took the matter under advisement.
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B.

General Discovery Standards
Rule 26 sets forth the scope of discovery in federal courts. Pursuant to the rule, “[p]arties may

obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense,”
and the court may also “order discovery of any matter relevant to the subject matter involved in the
action.” FED. R. CIV. P. 26(b)(1). The rule further explains that “[r]elevant information need not be
admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of
admissible evidence.” Id. Rule 26(b)(1) “encourage[s] the exchange of information through broad
discovery.” In re England, 375 F.3d 1169, 1177 (D.C. Cir. 2004); see also, Oklahoma v. Tyson
Foods, Inc., 262 F.R.D. 617, 627-28 (N.D. Okla. 2009) (“Rule 26(b)(1) defines a broad scope of
discovery.”); Seales v. Macomb County, 226 F.R.D. 572, 575 (E.D. Mich. 2005) (Whalen, M.J). The
relevancy standard set forth in Rule 26(b)(1) “is commonly recognized as one that is necessarily broad
in its scope in order ‘to encompass any matter that bears on, or that reasonably could lead to other
matter that could bear on, any issue that is or may be in the case.’” Security Plans, Inc. v. CUNA
Mutual Ins. Society, 261 F.R.D. 4, 8 (W.D.N.Y. 2009) (quoting Oppenheimer Fund, Inc. v. Sanders,
437 U.S. 340, 351 (1978)); see also, Regency of Palm Beach, Inc. v. QBE Ins. Corp., 259 F.R.D. 645,
648-49 (S.D. Fla. 2009).
Claims of privilege in federal court are governed by Federal Rule of Evidence 501, which
provides:
Except as otherwise required by the Constitution of the United States or
provided by Act of Congress or in rules prescribed by the Supreme Court pursuant to
statutory authority, the privilege of a witness, person, government, State, or political
subdivision thereof shall be governed by the principles of the common law as they
may be interpreted by the courts of the United States in the light of reason and
experience. However, in civil actions and proceedings, with respect to an element of
a claim or defense as to which State law supplies the rule of decision, the privilege of
a witness, person, government, State, or political subdivision thereof shall be
determined in accordance with State law.
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FED. R. EVID. 501. Because only state law claims are asserted by the parties, only Michigan privilege
law is implicated. Under Michigan law, “[t]he scope of the [attorney-client] privilege is narrow: it
attaches only to confidential communications by the client to its adviser that are made for the purpose
of obtaining legal advice.” Fruehauf Trailer Corp. v. Hagelthorn, 208 Mich. App. 447, 450, 528
N.W.2d 778, 780 (1995). However, “[t]he privilege does not . . . automatically shield documents
given by a client to his counsel.” McCartney v. Attorney General, 231 Mich. App. 722, 731, 587
N.W.2d 824, 828 (1998). Further, while communications are privileged, the underlying facts are not
privileged. See Wrench LLC v. Taco Bell Corp., 212 F.R.D. 514, 517 (W.D. Mich. 2002) (citing
Fruehauf Trailer, 208 Mich. App. at 451-52, 528 N.W.2d at 781).
Attorney work product not subject to the attorney client privilege is also protected from
disclosure by Rule 26, which in relevant part provides:
Ordinarily, 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 (including the other party’s attorney, consultant, surety, indemnitor,
insurer, or agent). But, subject to Rule 26(b)(4), those materials may be discovered if:
(I) they are otherwise discoverable under Rule 26(b)(1); and
(ii) the party 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). The rule further provides that “[i]f the court orders discovery of those
materials, it must protect against 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). This provision establishes two categories of work product: fact work product, which is
discoverable upon a showing of substantial need and undue hardship, and opinion work product,
which is virtually undiscoverable. See Director, Office of Thrift Supervision v. Vinson & Elkins, LLP,
124 F.3d 1304, 1307 (D.C. Cir. 1997); Eagle Compressors, Inc. v. HEC Liquidating Corp., 206
6

F.R.D. 474, 478 (N.D. Ill. 2002).
With respect to both the attorney-client privilege and the work product doctrine, the party
resisting discovery bears the burden of demonstrating the applicability of the privilege. See Auto
Owners Ins. Co. v. Total Tape, Inc., 135 F.R.D. 199, 201 (M.D. Fla. 1990); In re Shopping Cart
Antitrust Litig., 95 F.R.D. 299, 305-06 (S.D.N.Y. 1982). “A party asserting the attorney-client
privilege has the burden of showing with competent evidence of record that it clearly applies. . . .
Where a party fails to substantiate a claim of attorney-client privilege, the claim will be denied.”
Meridian Mortgage Corp. v. Spivak, No. 91-3932, 1992 WL 205640, at *3 (E.D. Pa. Aug. 14, 1992)
(citing Peat, Marwick, Mitchell & Co. v. West, 748 F.2d 540, 542 (10th Cir. 1984); Delco Wire &
Cable, Inc. v. Weinberger, 109 F.R.D. 680, 687-88 (E.D. Pa. 1986)).
C.

Analysis
At the outset, the Court does not address whether the City has properly invoked the attorney

client privilege or work product doctrine with respect to any particular document. U.S. Fire’s motion
and Hartford’s concurrence raise more generalized challenges to the assertion of privilege made by
the City, such as that the privilege has been waived or the material is discoverable notwithstanding
the work product doctrine. Thus, the question of whether a particular document is properly protected
by the attorney-client privilege or work product doctrine is not considered here, and remains an open
question. Second, unlike the work product doctrine, under which a party may still obtain protected
material upon a showing of substantial need, the attorney-client privilege is absolute, and no showing
of need, no matter how great, provides a basis for piercing the privilege. See Siddall v. Allstate Ins.
Co., 15 Fed. Appx. 522, 523 (9th Cir. 2001); Barr Marine Prods. Co., Inc. v. Borg-Warner Corp., 84
F.R.D. 631, 633 (E.D. Pa. 1979). Thus, the two issues must be analyzed separately, although the
waiver issues discussed in connection with the attorney-client privilege are equally applicable to the
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work product issue.
1.

Attorney-Client Privilege

Turning to the attorney-client privilege, U.S. Fire and Hartford contend that the privilege is
inapplicable for several reasons. The Court rejects each of these arguments.
a. Third Party Administrator Documents
The companies contend that the City has waived the attorney-client privilege with respect to
any documents or communications involving or shared with the City’s third party administrator,
Crawford & Company. The Court disagrees. It is well established that a communications to a party’s
attorney for the purpose of obtaining legal advice made by the party’s agent does not waive the
privilege, nor does a communication by a client to an agent of the attorney. See Grubbs v. Kmart
Corp., 161 Mich. App. 584, 589, 411 N.W.2d 477, 480 (1987). Because the City’s third-party
administrator served as the City’s agent in administering the claims involved in the underlying
litigation, communication involving the City, Crawford & Company, and the City’s attorneys are
privileged.
b. Waiver by Placing Documents “At Issue”
The companies next argue that the City has waived the privilege by placing the documents “at
issue” in this case. The Court disagrees. Although it is true that a party may impliedly waive the
privilege by placing the subject matter of a privileged communication at issue in the litigation, this
waiver is construed narrowly. See In re Lott, 424 F.3d 446, 453 (6th Cir. 2005). An implied waiver
occurs only where the party’s “pleading places at issue the subject matter of a privileged
communication in such a way that the party holding the privilege will be forced to draw upon the
privileged material at trial in order to prevail.” Id. As explained by Judge Murphy, the cases in this
area
8

stand for the principle that when a party asserts a defense of good faith or
reasonableness, and affirmatively offers testimony that the party consulted with their
attorney as factual support for the defense, and when counsel’s advice in some way
supports the defendant’s good faith belief, the defendant has put his counsel’s advice
“at issue” and thereby waives the attorney client privilege on the narrow subject matter
of those communications.
Henry v. Quicken Loans, Inc., 263 F.R.D. 458, 469 (E.D. Mich. 2008) (Murphy, J.).
Here, the City simply contends that the incidents in the Hill litigation are covered by the
companies’ policies. Nothing in its answer or counterclaims puts the substance of any attorney-client
communication at issue in the case. Nothing in the City’s claims that the companies breached their
contracts or acted in bad faith puts at issue the City’s communications with its attorneys. Rather, the
claims are to be resolved based on the facts of the underlying incidents and the language of the
contract. The City’s position does not “force[] [it] to draw upon the privileged material at trial in
order to prevail,” Lott, 424 F.3d at 453, and the City disavows any intention to rely upon privileged
matters in making its case. Accordingly, the City has not placed at issue its attorney-client
communications so as to waive the privilege.
c. Waiver by Transition Agreement
The companies next argue that the City has waived the privilege by virtue of the Transition
Agreement, which settled prior coverage litigation between the parties. That agreement requires the
City to, inter alia, provide reports on all claims which may affect the policy; “respond to . . . questions
about those claims, and . . . make the attorneys defending those claims available . . . for information
about the claims;” and “cooperate with [the companies] and . . . assist in the investigation, settlement,
or defense of the claim or ‘suit.’” Under Michigan law, a waiver of the attorney-client privilege must
be an intentional, voluntary act. See Leibel v. General Motors Corp., 250 Mich. App. 229, 241, 646
N.W.2d 179, 186 (2002). Nothing in the Transition Agreement expressly waives the attorney-client
9

privilege. The Agreement merely requires the City to cooperate with the insurance companies. While
the Illinois Supreme Court has held that such cooperation agreements waive the attorney-client
privilege, see Waste Mgmt., Inc. v. International Surplus Lines Ins. Co., 579 N.E.2d 322, 327 (Ill.
1991), that view “has been soundly rejected by courts across the country.” PETCO Animal Supply
Stores, Inc. v. Insurance Co. of N. Am., No. 10-682, 2011 WL 2490298, at *21 n.12 (D. Minn. June
10, 2011) (citing cases); see also, Pittston Co. v. Allianz Ins. Co., 143 F.R.D. 66, 72 (D.N.J. 1992).
Thus, the general cooperation provisions of the Transition Agreement do not waive the attorney client
privilege.
d. U.S. Fire’s Defense of the Hill Litigation
Finally, U.S. Fire argues that its agreement to defend the Hill litigation operates to waive the
attorney-client privilege with respect to that underlying litigation. Specifically, citing Brogdon v.
American Automobile Ins. Co., 290 Mich. 130, 287 N.W. 406 (1939), U.S. Fire argues that “[t]he City
is now obligated to turn over all documents relating to defense of the class action.” U.S. Fire’s Supp.
Br., at 6. Brogdon does not address the attorney-client privilege issue, however, holding only that an
insured has a duty to cooperate with the insurer. U.S. Fire has cited no cases holding that an insurer’s
decision to tender a defense waives the insured’s attorney-client privilege with respect to matters
occurring prior to the tendering of the defense.

Under the “common interest doctrine,”

“communications between an insured and its attorney connected with the defense of an underlying
litigation are normally not privileged vis-a-vis the insured’s carrier in a subsequent action.”
Independent Petrochem. Corp. v. Aetna Casualty & Surety Co., 654 F. Supp. 2d 1334, 1365 (D.D.C.
1986). However because this doctrine is based on the alliance of interests between an insured and its
insurer, and because such an alliance of interests does not exist where coverage is disputed, this
doctrine is not applicable, and this insured-attorney communications remain privileged with respect
10

to the insurer, where as here there remains a dispute as to coverage. See Fugro-McClelland Marine
Geosciences, Inc. v. Steadfast Ins. Co., No. H-07-1731, 2008 WL 5273304, at *3 (S.D. Tex. Dec. 19,
2008); Remington Arms Co. v. Liberty Mut. Ins. Co., 142 F.R.D. 408, 418 (D. Del. 1992); Rockwell
International Corp. v. Superior Ct., 32 Cal. Rptr. 2d 153, 158 (1994); Metropolitan Life Ins. Co. v.
Aetna Casualty & Surety Co., 730 A.2d 52, 61-62 (Conn. 1999); In re Environmental Ins. Declaratory
Judgment Actions, 612 A.2d 1338, 1343 (N.J. Super. Ct. App. Div. 1992).1 Further, even if U.S.
Fire’s tendering of a defense resulted in the attorney-client privilege being inapplicable going forward,
it would not defeat the privilege that had already attached to communications made before it tendered
a defense of the underlying litigation. See Bovis Lend Lease, LMB, Inc. v. Seasons Contracting Corp.,
No. 00 Civ. 9212, 2002 WL 31729693, at *15 (S.D.N.Y. Dec. 5, 2002). Finally, U.S. Fire’s argument
that it will suffer “undue prejudice” is irrelevant to the extent any of the information sought is
protected by the attorney-client privilege. As noted above, a showing of need, no matter how great,
cannot defeat the privilege. Thus, any documents that are protected by the attorney-client privilege
are not discoverable.
2.

Work Product Doctrine

To the extent any documents sought by the companies do not contain privileged
communications and are being withheld solely on the basis that they constitute attorney work product,
the Court concludes that such documents are discoverable as to fact work product, but not as to
opinion work product.

1

Although there is no Michigan case law directly on point, the Michigan courts have held that
no attorney-client relationship exists between an insurer and counsel retained by the insurer to defend
the underlying litigation against the insured. In such a situation, the attorney’s obligations are solely to
the insured. See Koster v. June’s Trucking, Inc., 244 Mich. App. 162, 166-67, 625 N.W.2d 82, 84 (2000)
(holding that insurer could not, under common interest privilege, assert attorney-client privilege with
respect to communications between the insured and counsel in the underlying litigation).
11

Under Rule 26(b)(3), a party may generally obtain discovery of “fact” work product upon a
showing of both a “substantial need” for the information and an inability to obtain the information
from another source without “undue hardship,” but generally may not obtain discovery of “opinion”
work product. See In re Columbia/HCA Healthcare Corp. Billing Practices Litig., 293 F.3d 289, 294
(6th Cir. 2002).2 This test generally requires a balancing of the relative importance of the information
to the party’s case against the party’s ability to obtain the information by other means. See Stampley
v. State Farm Fire & Casualty Co., 23 Fed. Appx. 467, 471 (6th Cir. 2001). However, “as a general
rule, inconvenience and expense do not constitute undue hardship.” Id.; see also, Colonial Gas Co.
v. Aetna Casualty & Surety Co., 139 F.R.D. 269, 275 (D. Mass. 1991).
Here, U.S. Fire and Hartford have failed to make a showing of substantial need and undue
burden. The City asserts, without contradiction, that it has provided to the companies all of the
underlying factual information relating to the Hill litigation. What the companies primarily seek are
the compilations of that underlying data by the City’s attorney in the Hill case. There is no reason,
beyond time and expense, why the companies cannot compile this data themselves, and as noted
above inconvenience and expense are insufficient to show an undue burden. U.S. Fire’s principal
argument is that the work product doctrine is inapplicable because the documents were prepared in
anticipation of litigation other than this suit. This argument is without merit. Although there is some
split of authority, “the prevailing view is that documents prepared in anticipation of litigation are
protected from disclosure even in subsequent actions.” Maine v. Norton, F. Supp. 2d 63, 68 (D. Me.
2002); see also, Lumber v. PPG Indus., Inc., 168 F.R.D. 641, 645 (D. Minn. 1996); cf. Federal Trade

2

“Fact” work product consists of the information received by an attorney, while “opinion” work
products consists of the mental impressions, judgments, conclusions, and legal analyses of the attorney.
See Reitz v. City of Mount Juliet, 680 F. Supp. 2d 888, 892 (M.D. Tenn. 2010) (quoting In re Columbia, 293
F.3d at 294).
12

Comm’n v. Grolier, Inc., 462 U.S. 19, 26-28 (1983). The Sixth Circuit adheres to this view. See
United States v. Leggett & Platt, Inc., 542 F.2d 655, 660 (6th Cir. 1976). Because the documents are
protected by the work product doctrine, and because the companies have failed to show a substantial
need for the documents and that they can not obtain the information from another source without an
undue burden, the documents are not discoverable.
II.

ORDER
In view of the foregoing, it is ORDERED that U.S. Fire’s motion to compel is hereby

DENIED. The attention of the parties is drawn to FED. R. CIV. P. 72(a), which provides a period of
fourteen days from the date of this Order within which to file any objections for consideration by the
District Judge as may be permissible under 28 U.S.C. § 636(b)(1).
IT IS SO ORDERED.

s/Paul J. Komives
PAUL J. KOMIVES
UNITED STATES MAGISTRATE JUDGE
Dated: 6/14/12

The undersigned certifies that a copy of the foregoing
order was served on the attorneys of record and by
electronic means or U.S. Mail on June 14, 2012.
s/Eddrey Butts
Case Manager

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