Barnard Pipeline, Inc. v. Travelers Property Casualty Corp.
Filing
107
ORDER granting in part and denying in part 61 Motion to Compel of Plaintiff Barnard Pipeline, Inc. Signed by Chief Judge Dana L. Christensen on 4/17/2014. (dle)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BUTTE DIVISION
BARNARD PIPELINE, INC.,
a Montana Corporation,
CV 13–07–BU–DLC
Plaintiff,
ORDER
vs.
TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA,
Defendant.
Before the Court is Plaintiff Barnard Pipeline, Inc.’s motion to compel
documents and Defendant Travelers Property Casualty Company of America’s
motion for a protective order. Barnard seeks to compel documents from Travelers
that have been withheld on the basis of attorney-client privilege and work product
doctrine. Travelers seeks a protective order precluding the deposition of Ron
Clark, Travelers’ counsel in this matter. For the reasons explained below, the
Court orders that Travelers submit certain withheld documents for an in camera
review and denies the balance of Barnard’s motion, and reserves ruling on
Travelers’ motion until after the Court conducts its in camera review of the
documents.
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Factual and Procedural Background
In 2010, Barnard contracted with Kern River Gas Transmission Company to
complete the Apex Pipeline Expansion Wasatch Loop project (“the Project”),
which involved the construction and installation of a 28-mile gas pipeline along a
right of way traveling through the Wasatch Mountain Range in Utah. In
association with the Project, Barnard purchased a “builder’s risk” insurance policy
from Travelers. This litigation stems from a dispute regarding coverage of
Barnard’s claimed losses associated with damage to the right of way. In addition
to seeking a declaratory judgment regarding coverage, Barnard brings a claim of
bad faith insurance claims handling against Travelers under Montana’s Unfair
Trade Practices Act, Mont. Code Ann §§ 33-18-201 et seq. The Court recently
granted partial summary judgment to Barnard on an issue concerning coverage.
The current discovery dispute pertains to Barnard’s bad faith claim.
Barnard seeks to depose Travelers’ counsel, Ron Clark (“Clark”), and to
compel production of documents appearing in Travelers’ claims file that were
either generated by or sent to Clark. Travelers contends it is entitled to a
protective order prohibiting the deposition of Clark and that the documents at
issue are not discoverable pursuant to the attorney-client privilege and the work
product doctrine.
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A time line of events is necessary to bring the issues at bar in focus.
Because of unprecedented precipitation levels in the Wasatch Range in the fall and
winter of 2010, Barnard experienced problems with the Project soon after
construction began. In December 2011, Barnard notified Travelers of its claim for
coverage, and Dennis Luoma (“Luoma”) was assigned to adjust the claim.
Luoma investigated the claim and made periodic entries in his General
Adjuster Activity Log reflecting the progress of his investigation. On June 27,
2012, Luoma and Barnard’s General Counsel Pat Brown met to discuss Barnard’s
proof of loss statement. At the meeting, Luoma requested further documentation
regarding Barnard’s claim. Barnard appears to have submitted the requested
documentation on July 19, 2012 and expected a claims decision would be
forthcoming within 60 days of the receipt of this additional documentation.
Travelers, however, did not render its decision within 60 days of receiving
the additional documentation. On September 5, 2012, Travelers retained attorney
Clark. Luoma testified in his deposition that Clark was initially hired in order to
conduct an Examination Under Oath (“EUO”) of a Barnard representative.
According to Luoma’s Activity Log, however, by October 24, 2012, Clark was
performing “a coverage analysis” for Travelers. (Doc. 60-4 at 7.) Very few
substantive entries appear in Luoma’s adjuster activity log after this date.
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Barnard filed suit against Travelers on January 15, 2013, seeking a
declaratory judgment and tort damages for bad faith claims handling. Barnard
served Travelers with its amended complaint on February 22, 2013. In March of
2013, Travelers conducted an Examination Under Oath (“EUO”) of the Barnard
representative. Clark conducted the EUO. Travelers finally denied Barnard’s
claim for coverage for damage to the right of way on August 23, 2013. Clark
drafted the denial letter, though it appears some changes were made to the draft
before Travelers’ representatives signed and sent the letter to Barnard.
The parties dispute the role that Clark played in the claim handling process.
Barnard asserts that Luoma “outsourced to Clark” the claim handling investigation
once Travelers retained Clark. (Doc. 60 at 7.) Travelers counters that it hired
Clark merely to provide legal advice and that any fact investigation Clark may
have performed was strictly in association with his rendition of legal advice.
The record does not reveal the precise contours of Clark’s activities during
the claim handling process or whether or to what degree Clark was engaged in any
factual investigation. Barnard points to the lack of substantive notations in the
Adjuster Activity Log after Luoma’s meeting with Brown to support its argument
that Clark was at the center of the claims investigation once Travelers retained
him. Barnard asserts that the absence of any notations is significant because
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Travelers’ internal policies require adjusters to fully document their claim
investigation such that the claim file “should speak for itself.” (Doc. 60-5 at 8.)
Meanwhile, Travelers cites the deposition testimony of Luoma where he stated
that because of “an oversight” not all of his investigative activities were logged in
the activity log and that he continued to perform many investigative activities after
Travelers retained Clark. (Doc. 70-1 at 3.)
APPLICABLE LAW
A federal court sitting in diversity applies the privilege law of the forum
state, Theme Promotions, Inc. v. News America Marketing FSI, 546 F.3d 991,
1007 (9th Cir. 2008), and applies federal law in determining the application of the
work product doctrine. Moe v. System Transport, Inc., 270 F.R.D. 613, 622 (D.
Mont. 2010). Here, the Court applies Montana privilege law and applies federal
law with respect to the work product doctrine.
I.
Attorney-Client Privilege
Montana’s attorney-client privilege statute provides as follows:
(1) An attorney cannot, without the consent of the client, be examined
as to any communication made by the client to the attorney or the advice
given to the client in the course of professional employment.
(2) A client cannot, except voluntarily, be examined as to any
communication made by the client to the client's attorney or the advice
given to the client by the attorney in the course of the attorney's
professional employment.
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Mont. Code Ann. § 26-1-803. Absent a voluntary waiver or an exception, the
attorney client privilege “applies to all communications from the client to the
attorney and to all advice given to the client by the attorney in the course of the
professional relationship.” Palmer, 861 P.2d at 906. The privilege applies “only
to communications in which legal advice is sought by the client, or legal advice is
given by the attorney.” Moe, 270 F.R.D. at 622. The attorney-client privilege
protects confidential communications between the attorney and the client in order
to encourage clients “to be open and forthright with their attorneys” and to ensure
“that attorneys are free to give accurate and candid advice without fear that the
advice will later be used against the client.” Palmer, 861 P.2d at 906.
“The attorney-client privilege applies with equal force in ‘bad faith’
insurance litigation as in all other civil litigation.” Id., 185 F.R.D. at 294. But the
privilege does not apply when the insurer’s attorney represents the interests of
both the insured and the insurer. Palmer by Diacon v. Farmers Ins. Exchange,
861 P.2d 895, 906 (Mont. 1993); Jessen v. O’Daniel, 210 F.Supp, 317, 331-32 (D.
Mont. 1962); see also Aetna Cas. Surety Co. v. Superior Court, 200 Cal.Rptr.
471,473-74 (Cal. App. 1984).
While the privilege applies equally in insurance litigation, in insurance bad
faith cases when an attorney serves as coverage counsel, the “line between what
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constitutes claim handling and the rendition of legal advice is often more cloudy
than crystalline.” Thus, “the question of whether a communication falls within the
attorney-client privilege can often be difficult because of the investigatory nature
of the insurance business.” HSS Enterprises, LLC v. Amco Ins. Co., 2008 WL
163669, *3 (W.D. Wash. Jan. 14, 2008). “[T]o the extent that an attorney acts as a
claims adjuster, claims process supervisor, or claims investigation monitor, and
not as a legal advisor, the attorney-client privilege does not apply.” Id. This is
consistent with the rule that the privilege only applies to communications in which
legal advice is given. Furthermore, to the extent that the insurer or its
representative communicates non-confidential information to the attorney, i.e.
basic facts that the insurer discovers pursuant to its statutory duty to investigate a
claim, such information cannot be protected from discovery by a claim of attorneyclient privilege. Courts must make these distinctions on a case-by-case (or
document-by-document) basis, mindful that “the privilege must be construed
narrowly because it obstructs the truth-finding process.” American Zurich Ins. Co.
v. Montana Thirteenth Judicial Dist. Court, 280 P.3d 240, 245 (Mont. 2012).
An insurer in a bad faith case waives the attorney-client privilege by relying
on advice of counsel as a defense to a bad faith charge. Id., 861 P.2d at 907.
However, an insurer has not asserted the defense of advice of counsel, and
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therefore has not waived the attorney-client privilege, simply because the insurer’s
representative admits in response to a question on cross-examination that he/she
listened to advice of counsel in deciding to deny an insured’s claim. Id. To waive
the privilege, the party “must affirmatively raise the issue involving privileged
communications.” Dion v. Nationwide. Mut. Ins. Co., 185 F.R.D. 288, 295 (D.
Mont. 1998). But, to be waived, “the issue need not be raised as an affirmative
defense or by the party’s pleadings.” Id.
II.
Work Product Doctrine
The work product doctrine protects from discovery “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).” Fed. R.Civ.P. 26(b)(3)(A). “The primary purpose
of the work product doctrine is to ‘prevent exploitation of a party’s efforts in
preparing for litigation.’” Holmgren v. State Farm Mutual Auto. Ins. Co., 976
F.2d 573, 576 (9th Cir. 1992) (quoting Admiral Ins. Co. v. United States District
Court, 881 F.2d 1486, 1494 (9th Cir. 1989)).
To be protected under the work product doctrine, the document must be
“prepared in anticipation of litigation.” “[D]ocuments prepared in the ordinary
course of business are not protected by the work-product doctrine because they
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would have been created regardless of the litigation.” Heath v. F/V ZOLOTOI,
221 F.R.D. 545, 549 (W.D. Wash. 2004). The party withholding documents on
the basis of the work product doctrine has the burden to show that each document
withheld was “prepared or obtained because of the prospect of litigation.” Moe,
270 F.R.D. at 625 (quoting Dion, 185. F.R.D. at 292 n. 1).
In the insurance context, materials prepared as part of the ordinary course of
business in investigating a claim are not covered by the work product doctrine.
Id., 270 F.R.D. at 624-25 (citing Bronsink v. Allied Prop. and Cas. Ins., 2010 WL
786016, *2 (W.D. Wash. 2010)). However, “where a sufficient degree of
adversity arises between the insurer and the insured,” the nature of the insurer’s
investigation and other claim handling activity may “develop into an activity
undertaken in anticipation of litigation.” Id., 270 F.R.D. at 625.
Often, in insurance bad faith litigation, the work product doctrine does not
apply to materials that are generated before the insurer has formally denied the
insured’s claim because such materials are prepared as part of the ordinary course
of business. Id. However, once the insured has filed a bad faith claim against its
insurer, the requisite degree of adversity exists such that the insurer’s subsequent
investigation and claim handling activities cannot be said to be undertaken as part
of the insurer’s ordinary course of business. Accordingly, the work-product
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doctrine applies to documents generated by an insurer after the insured files a bad
faith claim against its insurer, even when the insurer has not yet formally denied
the insured’s claim. Once the insured files a bad faith lawsuit against its insurer,
all documents generated by the insurer are generated “in anticipation of litigation”
and are not part of the ordinary course of business.
Work product protection, however, is not absolute and a party may discover
work product materials if it can establish the relevance of the materials, the
requisite need for the materials, and the requisite hardship in obtaining the
materials by other means. Fed.R.Civ.P. 26(b)(3)(A)(i)-(ii). To obtain ordinary
work product materials, the requesting party must show a “substantial need” for
the materials. Id. To obtain opinion or mental impression work product as
defined in Fed. R.Civ.P. 26(b)(3)(A)(ii), the requesting party must show a
“compelling or overwhelming need” for the materials. Moe, 270 F.R.D. at 626-27
(citing Dion, 185 F.R.D. at 292-93; and Holmgren, 976 F.2d at 577).
Because an insurer’s “claims file reflects a unique, contemporaneous record
of the handling of the claim” that cannot be obtained elsewhere, id., 270 F.R.D. at
627 (quoting Dion, 185 F.R.D. at 293), and because the “strategy, mental
impressions and opinion of the insurer’s agents concerning the handling of the
claim are directly at issue” in an insurance bad faith claim, id. (quoting Holmgren,
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976 F.2d at 577), the need for such materials is compelling, and both ordinary and
opinion work product protection is generally overcome in bad faith litigation when
asserted by the insurer’s agents. Id.
However, “opinion work product of an insurer’s attorneys must be
distinguished from that of the insurer’s representatives responsible for denying the
underlying claim.” Id., 270 F.R.D. at 628 (citing Dion, 185 F.R.D. at 293). This
is because unless the insurer relies on the advice of counsel defense “the insurer,
not the attorneys, [makes] the ultimate decision to deny coverage,” and therefore
“attorney mental impressions and opinions are not directly at issue” in insurance
bad faith claims. Palmer, 861 P.2d at 912. The insured cannot establish a
compelling need for opinion work product of an insurer’s attorneys and the work
product doctrine thus protects such materials from disclosure. Id.; Moe, 270
F.R.D. at 628.
ANALYSIS
Barnard seeks to compel production of “all correspondence either, to,
from or carbon copying Ron Clark relating to Barnard’s claim prior to August 23,
2013," the date when Traveler’s formally denied Barnard’s claim. Travelers has
withheld production of these documents on the basis of the attorney-client
privilege, the work product doctrine, or both.
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I.
Waiver
Barnard asserts that Travelers has waived the right to claim the attorneyclient privilege and/or work product protection with respect to the requested
documents because Travelers has asserted an advice of counsel defense. Travelers
responds that it has not asserted an advice of counsel defense and that its
representatives’ answers to questions posed by Barnard in depositions are
insufficient to establish that it is asserting an advice of counsel defense. The
Court agrees with Travelers that it has not waived the right to assert attorney-client
privilege or work product protection by asserting an advice of counsel defense.
The answers of the representatives of Travelers to leading, cross-examination
questions during depositions in which the representatives admitted that advice of
counsel influenced their decision making process is not equivalent to
“affirmatively [raising] the issue involving privileged communications,” Dion v.
Nationwide. Mut. Ins. Co., 185 F.R.D. at 295. Nor does this rise to the level of
impliedly raising an advice of counsel defense.1
II.
Documents authored by Clark after Service of the Complaint
Barnard asserts that it is entitled to all “Ron Clark documents” up until the
1
Whether such information can be admitted during trial without waiving the privilege is
a different matter. See Dion, 185 F.R.D. at 295 (holding that “Where an insurer makes factual
assertions in defense of a claim which incorporate, expressly or implicitly, the advice and
judgment of counsel, it cannot deny an opposing party ‘an opportunity to uncover the foundation
for those assertions in order to contradict them.’” ).
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time that Travelers formally denied the claim. The Court concludes, however, that
Travelers is entitled to work product protection with respect to all documents
authored by Clark after Travelers had notice of Barnard’s complaint against it.
The Court adopts the date of service of process, February 22, 2013, as the date that
Travelers first had notice of the complaint. Documents generated after Travelers
had notice of the complaint were made in anticipation of litigation and Barnard
cannot show a compelling need for the documents because the mental impressions
of Clark are not directly at issue. Palmer, 861 P.2d at 912. Accordingly, all
documents authored by Clark after Travelers had notice of the complaint are
protected from discovery by the work product doctrine and need not be produced.
Travelers contends that litigation was anticipated before service of process,
but currently fails to meet its burden in this regard. The Court rejects Traveler’s
contention that Barnard’s earlier expression of general dissatisfaction with the
claim handling process demonstrates that the parties had a “resolve to litigate”
prior to Barnard’s filing of the complaint. Moe, 270 F.R.D. at 626. Additionally,
while Barnard’s complaint was filed on January 15, 2013, Travelers offers no
evidence that it had any notice of the complaint until the complaint was formally
served on February 22, 2013.
Barnard’s motion to compel documents authored by Clark after February
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22, 2013 is denied. If Travelers can supply specific evidence showing that it had
notice of Barnard’s complaint on some date prior to formal service of process,
then the Court will amend its ruling to protect all documents authored by Clark
from the date that Travelers had notice of Barnard’s complaint. Travelers must
submit any such evidence of earlier notice of the complaint within ten days of the
date of this Order. Otherwise, February 22, 2013 will serve as the date from which
work product protection applies to documents authored by Clark.
III.
Remaining Documents
The Court must determine whether the following remaining categories of
documents deserve protection from discovery:
A.
Documents authored by Travelers’ representatives2 prior to
August 23, 2013 not involving Clark for which Travelers claims
only work product protection.
The Court orders that all documents within the above-described category be
produced to Barnard. The work product doctrine does not protect from discovery
documents authored by Travelers’ representatives prior to Travelers’ formal denial
of the claim. Barnard has a compelling need for such documents because the facts
and mental impressions of Travelers’ representatives are directly at issue in this
bad faith litigation. Holmgren, 976 F.2d at 577. Within ten days from the date of
2
The term “Travelers’ representatives” does not include Joe Salko, who is not the
subject of Barnard’s motion and who appears to serve as Travelers’ in-house counsel.
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this Order, Travelers must produce all documents authored by Travelers
representatives before August 23, 2013 for which Travelers claims only work
product protection.3
B.
Documents authored by Travelers’ representatives at any time
not involving Clark for which Travelers claims attorney client
privilege, or attorney client privilege and work product
protection.
Documents in this category are not the subject of this motion. Many of
these documents involve communications with Joe Salko or Marshall Mickelson.
These documents need not be produced or submitted for an in camera review.
C.
Documents authored by Travelers’ representatives before August
23, 2013 sent to or carbon copying Clark for which Travelers
claims attorney-client privilege, or attorney-client privilege and
work product protection.
The Court orders that all documents within the above-described category be
submitted for an in camera review within ten days of the date of this Order.
Again, Joe Salko is not considered a Travelers representative for purposes of
compliance with this Order. As noted above, the work product doctrine does not
protect from discovery documents authored by Travelers’ representatives before
Travelers formally denied the claim. Thus, the Court’s review of documents in
3
The Court realizes that this holding implicates some documents that are not the subject
of this motion, see e.g. TRAV-000390, TRAV-DM000178-000179, but the Court orders
production of these documents in the interest of judicial economy.
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this category will be solely for the purpose of determining whether the attorneyclient privilege applies. To deserve protection, such documents must contain
confidential communications for the purpose of seeking legal advice.
D.
Documents authored by Clark prior to Travelers’ notice of
Barnard’s complaint for which Travelers claims attorney-client
privilege, work product protection, or both.
The Court orders that all documents within the above-described category be
submitted for an in camera review within ten days of the date of this Order. The
presumptive date that Travelers had notice of the complaint is February 22, 2013,
unless Travelers supplies specific evidence to the contrary as ordered in part II.
For the reasons explained in part II above, documents within this category for
which Travelers claims only work product protection will likely be subject to
discovery, but the Court will first review these documents in camera in order to
appropriately rule on Travelers’ motion to preclude Clark’s deposition. The Court
will also review documents in this category for which Travelers claims attorneyclient privilege to determine if the privilege applies. If the documents do not
contain confidential communications for the purpose of rendering legal advice, the
Court will order that they be produced.
CONCLUSION
In sum, the Court orders that
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(1) Travelers need not produce any documents authored by Clark after
Travelers had notice of Barnard’s complaint. Barnard’s motion with respect to
this category of documents is DENIED.
(2) Within ten days of the date of this Order, Travelers shall produce all
documents not involving Clark authored by Travelers’ representatives before
August 23, 2013 for which Travelers claims only work product production.
(3) Within ten days of the date of this Order, Travelers shall submit for an in
camera review all documents authored by Travelers’ representatives before
August 23, 2013 sent to or carbon copying Clark for which Travelers claims
attorney-client privilege, or attorney-client privilege and work product protection.
(4) Within ten days of the date of this Order, Travelers shall submit for an in
camera review all documents authored by Clark prior to Travelers’ notice of
Barnard’s complaint for which Travelers claims attorney-client privilege, work
product protection, or both. This means that Travelers must submit to the Court
all documents authored by Clark before February 22, 2013, unless Travelers
provides to the Court specific evidence demonstrating that Travelers had notice of
the complaint before service of process.
The Court will determine, following the in camera review, which
documents, in whole or in part, will be produced to Barnard. Furthermore, once
the Court has had the opportunity to review the documents in camera, the Court
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will be in a better position to rule on Travelers’ motion to preclude the deposition
of Clark.
IT IS ORDERED that Barnard’s motion to Compel is GRANTED and
DENIED in part as specified above.
DATED this 17th day of April, 2014.
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