American Modern Home Insurance Company v. Thomas et al

Filing 134

MEMORANDUM AND ORDER - IT IS HEREBY ORDERED that defendant Aaron and Aimee Thomases' Motion to Compel 105 is granted in part, denied in part, and denied as moot in part as set out in this Memorandum and Order. IT IS FURTHER ORDERED that no l ater than September 18, 2017, American Modern Home Insurance Company shall produce to the Thomases the following portions of previously withheld documents, as denoted by their number listed on American Moderns updated privilege log (ECF #130-2) (See order for complete details.) Signed by District Judge Catherine D. Perry on September 11, 2017. (MCB)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
AMERICAN MODERN HOME
INSURANCE COMPANY,
Plaintiff,
v.
AARON THOMAS, et al.,
Defendants.

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No. 4:16 CV 215 CDP

MEMORANDUM AND ORDER
There have been multiple discovery disputes in this action requiring me on
several occasions to order counsel to appear in court to explain their positions. The
pending motion to compel filed by defendants Aaron and Aimee Thomas is one such
dispute. I held a hearing on the motion on August 1, 2017, and determined at that
time to defer ruling on portions of the motion until I received additional information
from the parties. Upon careful review of this additional information, I will grant the
motion in part, deny it in part, and deny it as moot in part.
Earlier orders have set out the factual background of this case, and I will not
repeat it here. The parties are well aware of how we got here. In short, plaintiff
American Modern Home Insurance Company seeks a declaration that there is no
coverage under a renters’ insurance policy issued to defendants Aaron and Aimee
Thomas on their claim for property damage caused by fire. In their counterclaim,

the Thomases raise claims of vexatious refusal to pay and intentional infliction of
emotional distress.
In the motion to compel now at issue, the Thomases request that I order
American Modern to respond and/or supplement its responses to numerous
outstanding interrogatories and requests for production of documents. The
Thomases also claim that American Modern improperly invoked the attorney-client
and work product privileges to withhold certain documents from production. At
the hearing on August 1, counsel for the Thomases represented that the only
remaining disputes involve Interrogatory Nos. 5, 6, and 14 and Request Nos. 17, 18,
20, and 23, as well as American Modern’s claims of privilege. I have since ruled on
Request No. 23. Since the parties were able to resolve their dispute as to the other
interrogatories and requests addressed in the motion, I will deny the motion as moot
with respect to those other interrogatories and requests.
As to the interrogatories and requests that remain in dispute (that is,
Interrogatory Nos. 5, 6, and 14 and Request Nos. 17, 18, and 20), the parties have
jointly represented to the Court that they have agreed on the information American
Modern would produce and in what form relating to the 72 renters’ insurance fire
claims made in Missouri from March 1, 2012, to March 1, 2017. While this time
frame is more limited in scope than what was sought by the interrogatories and
requests, it appears from the joint statement that the Thomases will review the
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information produced and may seek to broaden this limited scope if the information
is not useful. This is reasonable. I will therefore deny as moot the motion to
compel to the extent it seeks responses to Interrogatory Nos. 5, 6, and 14 and
Request Nos. 17, 18, and 20; but this denial is without prejudice to the Thomases to
seek to compel additional information within the scope originally requested.
I turn now to the Thomases’ claim that American Modern improperly invoked
the attorney-client and/or work product privilege to withhold certain documents
from production. The Thomases contend that the documents are part of their claims
file and that they are entitled to the contents of their claims file in toto.
Alternatively, they asked that I review the documents in camera to determine
whether American Modern properly invoked the privileges, which I have done. For
the following reasons, I do not find the Thomases to be entitled to the entirety of the
challenged documents. Based upon my in camera review, however, I will order
American Modern to produce some of the documents. The remaining documents
are protected.
The Thomases first argue that they are entitled to the contents of the claims
file without restriction given the Missouri Supreme Court’s determination that
because an insurer/insured relationship is analogous to an attorney/client
relationship, the insurer’s file belongs to the insured and not the insurer. See
Grewell v. State Farm Mut. Automobile Ins., 102 S.W.3d 33, 36-37 (Mo. banc
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2003). While this Court recognizes this rule, see, e.g., Fidelity Nat’l Title Ins. Co.
v. Captiva Lake Invs., LLC, No. 4:10-CV-1890 CEJ, 2012 WL 3562207, at *2 (E.D.
Mo. Aug. 17, 2012); Scottrade, Inc. v. The St. Paul Mercury Ins. Co., No.
4:09CV1855SNLJ, 2011 WL 572455, at *4 (E.D. Mo. Feb. 15, 2011); Medical
Protective Co. v. Bubenik, No. 4:06CV01639 ERW, 2007 WL 3026939, at *2-3
(E.D. Mo. Oct. 15, 2007), it is not without limitation. For example, legal advice
sought by the insurer regarding the insured’s level of cooperation is not considered
to be part of the insured’s claims file and is therefore not the property of the insured.
See Medical Protective Co., 2007 WL 3026939, at *3. The attorney-client
privilege can thus protect such communications. Id. Further, when a claims
investigation shifts toward litigation, those parts of the claims file that are then
created in anticipation of the litigation are subject to work product protection. Id.
Accordingly, I reject the Thomases’ argument that neither the attorney-client
privilege nor the work product privilege can apply to any part of their claims file
with American Modern.
With respect to the specific claims of privilege, American Modern – as the
party objecting to discovery on the basis of privilege – bears the burden of
establishing the existence of privilege, whether it be attorney-client or work product.
Advanced Pain Ctrs. Poplar Bluff v. Ware, 11 F. Supp. 3d 967 (E.D. Mo. 2014). If
American Modern meets its burden with respect to attorney-client privilege, the
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inquiry ends, given that the privilege is an absolute bar to production absent waiver.
If American Modern shows the information is protected because it is work product,
the Thomases may nevertheless obtain the discovery if they show a substantial need
for the documents and that they cannot otherwise obtain the substantial equivalent of
the materials without undue hardship. Fed. R. Civ. P. 26(b)(3)(A)(ii); PepsiCo.,
Inc. v. Baird, Kurtz & Dobson LLP, 305 F.3d 813, 817 (8th Cir. 2002).1
Attorney-Client Privilege
State law applies to claims of attorney-client privilege in diversity cases.
Baker v. General Motors Corp., 209 F.3d 1051, 1053 (8th Cir. 2000).
The privilege “protects ‘any professionally-oriented communication between
attorney and client regardless of whether it is made in anticipation of litigation or for
preparation for trial.’” Lloyd’s Acceptance Corp. v. Affiliated FM Ins. Co., No.
4:05CV1934 DDN, 2012 WL 1389708, at *7 (E.D. Mo. Apr. 23, 2012) (quoting
State ex rel. Tillman v. Copeland, 271 S.W.3d 42, 45 (Mo. Ct. App. 2008)).
[W]here legal advice of any kind is sought from a professional legal
advisor in his capacity as such, the communications relevant to that
purpose, made in confidence by the client, are at his instance
permanently protected from disclosure by himself or by the legal
advisor except the protection be waived.
Diversified Indus., Inc. v. Meredith, 572 F.2d 596, 602 (8th Cir. 1977) (internal
1

American Modern’s privilege log also showed that American Modern withheld documents
relating to reserve information because they were “irrelevant.” American Modern has since
produced these documents to the Thomases. (Pltf.’s Memo. of Compliance, ECF #127.)
Therefore, I do not address in this Order this asserted basis for withholding these documents.
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quotation marks and citation omitted). The privilege does not attach unless the
communication is between parties bearing the relationship of attorney and client, is
made to obtain legal services or advice, and involves the lawyer in his capacity as a
lawyer – “not in some other capacity.” Id.; see also United States v. Spencer, 700
F.3d 317, 320 (8th Cir. 2012); Tillman, 271 S.W.3d at 45. “A communication is not
privileged simply because it is made by or to a person who happens to be a lawyer.”
Diversified Indus., 572 F.2d at 602. “[T]he attorney-client privilege must be
strictly construed because of the adverse effect of its application on the disclosure of
truth.” Brackett v. St. Louis Bd. of Police Comm'rs, No. 4:12-CV-898-JAR, 2014
WL 3451197, at *2 (E.D. Mo. July 15, 2014) (internal quotation marks and citation
omitted).
Communications between a client’s representatives regarding the decision to
seek legal advice is not subject to the privilege if it is not a request directed to
counsel for the purpose of obtaining such advice. Olga Despotis Trust v.
Cincinnati Ins. Co., No. 4:12CV02369 AGF, 2014 WL 3477310, at *3 (E.D. Mo.
July 15, 2014). Nor does merely including counsel among the recipients of a
document bring the document within the ambit of the attorney-client privilege; the
document must be shared in furtherance of the client’s solicitation of legal advice.
Lloyd’s, 2012 WL 1389708, at *7 (citing Diversified Indus., 572 F.2d at 609;
Monsanto Co. & Monsanto Tech. LLC v. E.I. Du Pont de Nemours & Co., No.
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4:09CV686 ERW, 2011 WL 4408184, at *2 (E.D. Mo. Sept. 22, 2011)).
Communications made by representatives of an insurer for the purpose of
facilitating the rendition of legal services to the client are protected by the
attorney-client privilege. Navigators Mgt. Co. Inc. v. St. Paul Fire & Marine Ins.
Co., No. 4:06CV1722 SNLJ, 2009 WL 465584, at *4 (E.D. Mo. Feb. 24, 2009).
These include communications with in-house counsel as well as memorializing such
communications. Lloyds, 2012 WL 1389708, at *7-8. Keeping in-house counsel
apprised of the business activities of the insurer’s adjuster, however, is not protected.
Id. at *7; see also Monsanto Co., 2011 WL 4408184, at *2 (the “attorney-client
privilege does not cover client communications that relate only to business or
technical data, where the client is not sharing that information in order to solicit legal
advice”). Investigative reports are not privileged, even though they may be
attached to or discussed in counsel communications. State ex rel. Great Am. Ins.
Co. v. Smith, 574 S.W.2d 379, 385 (Mo. banc 1978); Board of Registration for
Healing Arts v. Spinden, 798 S.W.2d 472, 476 (Mo. Ct. App. 1990). See also
Upjohn Co. v. United States, 449 U.S. 383, 395 (1981) (attorney-client privilege
does not protect against disclosure of underlying facts).
To the extent American Modern contends that certain redacted portions of the
challenged documents are protected by the attorney-client privilege, I have reviewed
the documents in camera and find many redactions to contain communications
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relating only to ordinary business activities (e.g., diary entries updating status of
obtaining records from insureds) and not made for the purpose of soliciting legal
advice. Further, investigative reports, while attached to counsel communications,
are not privileged. Accordingly, the following redactions from the challenged
documents do not fall within the attorney-client parameters described above and are
not so protected2:
a.

Nos. 3-6: entirety of redactions

b.

Nos. 10-11: entirety of redactions

c.

No. 14: entirety of redaction

d.

No. 16: entirety of redaction

e.

No. 22: entirety of redaction

f.

Nos. 24-25: entirety of redactions

g.

No. 27: entirety of redaction

h.

Attachment to No. 35: entirety of redaction

i.

Attachment to No. 36: entirety of redaction

j.

Attachment to No. 37: entirety of redaction

k.

Attachment to No. 42: entirety of redaction

l.

Attachment to No. 43: entirety of redaction

m.

Attachment to No. 46: entirety of redaction

2

The redactions are identified by the number listed on American Modern’s updated privilege log
(ECF #130-2).
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The remaining redacted portions to which American Modern avers the privilege
applies are protected given that they contain or memorialize communications
between American Modern’s representatives and legal counsel for the purpose of
obtaining legal services and advice.
Work Product
Work product immunity is determined by federal law. Baker, 209 F.3d at
1053. Under Fed. R. Civ. P. 26, a party may not ordinarily discover documents
prepared in anticipation of litigation by an opposing party unless the party seeking
discovery shows that it has a substantial need for the materials and cannot, without
undue hardship, obtain the substantial equivalent by other means. Pepsico, 305
F.3d at 817; Baker, 209 F.3d at 1054.
The question of whether a document was prepared in anticipation of litigation
is a factual one, requiring evidence from which the Court can make a determination.
Statements of counsel are not evidence. Travelers Prop. Cas. Co. of Am. v.
National Union Ins. Co. of Pittsburgh, PA, 250 F.R.D. 421, 424 (W.D. Mo. 2008).
[T]he test should be 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. But the converse of this is that even though litigation is
already in prospect, there is no work product immunity for documents
prepared in the regular course of business rather than for purposes of
litigation.
Simon v. G.D. Searle & Co., 816 F.2d 397, 401 (8th Cir. 1987). To be protected,
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the documents must have been prepared after a “specific threat” of litigation became
“palpable.” That litigation was “merely a possibility” is insufficient. Lloyd’s,
2012 WL 1389708, at *4.
In the insurance context, the Seventh Circuit has noted that much of the
paperwork generated by insurance companies “is prepared with an eye toward a
possible legal dispute over a claim[.]” Logan v. Commercial Union Ins. Co., 96
F.3d 971, 977 (7th Cir. 1996). Because of this, “it is important to distinguish
between ‘an investigative report developed in the ordinary course of business’ as a
precaution for the ‘remote prospect of litigation’ and materials prepared because
some ‘articulable claim, likely to lead to litigation, . . . ha[s] arisen.’” Id. (quoting
Binks Mfg. Co. v. National Presto Indus., Inc., 709 F.2d 1109 (7th Cir. 1983))
(emphasis added). While an insurer’s decision to decline coverage is usually the
point at which the ordinary course of business ends and the anticipation of litigation
begins, courts must consider the factual context of each case. Lloyd’s, 2012 WL
1389708, at *4. Notably, in this case, American Modern has never denied the
Thomases’ claim.
Based upon my review of the record, litigation did not become palpable in this
case until November 12, 2015. From the time of the fire to November 12, 2015,
American Modern engaged in the ordinary course of business of investigating the
Thomases’ insurance claim. While it engaged legal counsel to assist in its
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investigation and to make recommendations based on that investigation, the record
shows that the question remained open until November 12, 2015, as to what course
of action American Modern would take on the Thomases’ claim. American
Modern has not presented any argument or evidence demonstrating otherwise. I
therefore find that documents prepared prior to November 12, 2015, were not
prepared because of the likelihood of litigation and are not work product.
Accordingly, to the extent the attorney-client privilege does not apply to redacted
information contained in documents created prior to November 12, 2015, the
information must be produced to the Thomases.
With respect to the redacted information dated November 12, 2015, and after
that is not subject to the attorney-client privilege, my in camera review shows only
Redaction No. 5 to be entitled to work product protection; the other portions, and
specifically Redaction Nos. 3 and 4, were prepared in the ordinary course of
business and not for purposes of litigation. See United States Liab. Ins. Co. v.
Global Acquisitions, LLC, No. 4:14CV1887 RWS, 2016 WL 2594067, at *2 (E.D.
Mo. May 5, 2016) (citing Diversified Indus., 572 F.2d at 604). Whether or not a
threat of litigation exists, an insurer’s continued attempt to adjust a claim is part of
its ordinary course of business. Id. Accordingly, the information contained in
Redaction Nos. 3 and 4 are not protected by the work product privilege and must be
produced to the Thomases.
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Vexatious Refusal to Pay and Substantial Need
As previously stated, the Thomases may obtain the redacted portions of the
challenged documents that are otherwise protected by the work product privilege if
they show a substantial need for the redacted information and that they cannot obtain
the substantial equivalent of the information without undue hardship.
There often is a substantial need for discovery of information in a claims file
as it relates to a claim of vexatious refusal to pay. In Logan, the Seventh Circuit
recognized that “allowing a plaintiff to overcome an insurer’s work product
privilege may be particularly appropriate in an action for bad faith, in light of the
insurer’s virtual monopoly over the evidence required to support an action.” 96
F.3d at 977. “[T]he substantial need arises because the ‘strategy, mental
impressions[,] and opinion of the insurer’s agents concerning the handling of the
claim are directly at issue.’” Lloyd’s, 2012 WL 1389708, at *5 (quoting Holmgren
v. State Farm Mut. Auto. Ins. Co., 976 F.2d 573, 577 (9th Cir. 1992)). See also
Busch Props., Inc. v. National Union Fire Ins. Co. of Pittsburgh, No. 4:12CV2318
SNLJ, 2014 WL 2815655, at *5 (E.D. Mo. June 23, 2014).
The mere pleading of vexatious refusal to pay, however, does not itself create
a substantial need for an insurer’s internal documents. Instead, the requesting party
must demonstrate some likelihood or probability that the documents sought may
contain evidence of bad faith. “The required showing is not a high hurdle, given
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that the [party] can only speculate as to the documents’ contents.” Lloyd’s, 2012
WL 1389708, at *6 (internal citations and quotation marks omitted). See also
United States Liab. Ins. Co., 2016 WL 2594067, at *3 (party need only show a
possibility, not a certainty, that the documents contain evidence of bad faith).
The Thomases generally argue that all contents of the claims file must be
produced and are not subject to any privilege – an assertion that I rejected above.
Their otherwise bare assertion that they have a substantial need for the information
given its relevance to their claim of vexatious refusal to pay is insufficient to invoke
the exception to work product protection. While counsel’s argument at the hearing
gives me pause to question American Modern’s conduct in this action, the Thomases
have nevertheless failed to demonstrate some likelihood or probability that the
protected documents here may contain evidence of bad faith. Moreover, they have
not shown that they cannot obtain the desired information through any other means,
including by deposition. See United States Liab. Ins. Co., 2016 WL 2594067, at *3.
Accordingly,
IT IS HEREBY ORDERED that defendant Aaron and Aimee Thomases’
Motion to Compel [105] is granted in part, denied in part, and denied as moot in part
as set out in this Memorandum and Order.
IT IS FURTHER ORDERED that no later than September 18, 2017,
American Modern Home Insurance Company shall produce to the Thomases the
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following portions of previously withheld documents, as denoted by their number
listed on American Modern’s updated privilege log (ECF #130-2):
a.

Nos. 3-4: entirety of redactions

b.

No. 6: entirety of redaction

b.

Nos. 10-11: entirety of redactions

c.

No. 14: entirety of redaction

d.

No. 16: entirety of redaction

e.

No. 22: entirety of redaction

f.

Nos. 24-25: entirety of redactions

g.

No. 27: entirety of redaction

h.

Attachment to No. 35: entirety of redaction

i.

Attachment to No. 36: entirety of redaction

j.

Attachment to No. 37: entirety of redaction

k.

Attachment to No. 42: entirety of redaction

l.

Attachment to No. 43: entirety of redaction

m.

Attachment to No. 46: entirety of redaction

_________________________________
CATHERINE D. PERRY
UNITED STATES DISTRICT JUDGE
Dated this 11th day of September, 2017.
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