ALIT (NO. 1) LIMITED v. BROOKS INSURANCE AGENCY et al
Filing
67
MEMORANDUM OPINION. Signed by Magistrate Judge Tonianne J. Bongiovanni on 3/20/2012. (gxh)
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
ALIT (No. 1) LIMITED, et al.,
Civil Action No. 10-2403 (FLW)
Plaintiff,
v.
MEMORANDUM OPINION
BROOKS INSURANCE AGENCY, et al.,
Defendant.
BONGIOVANNI, Magistrate Judge
Currently pending before the Court is a Motion to Compel Production of Documents [Docket
Entry No. 57] filed by Plaintiff Alit (No.1) Limited (“Plaintiff” or “Alit”). Defendant American
Equity Insurance Company (“AEIC”) opposes Plaintiff’s motion. The Court has fully reviewed the
papers submitted in support of and in opposition to Plaintiff’s motion, and considers same without
oral argument pursuant to FED .R.CIV .P. 78. For the reasons set forth below, Plaintiff’s motion to
compel AEIC to produce documents is GRANTED in part and DENIED in part without prejudice.
I.
Background
In 2006, Plaintiff filed a Complaint against Defendants Brooks Insurance Company
(“Brooks”) and their insurer, AEIC, alleging Brooks’ breach of certain binding agreements which
permitted Brooks to issue insurance on Alit’s behalf. Alit (No.1) Limited v. Brooks, No. 06-4500,
[Docket Entry No. 1]. Through the Complaint, Plaintiff sought to compel Brooks to submit to
arbitration in accordance with the terms of the Binding Authority Agreements. The parties
exchanged discovery. Per Court Order dated October 26, 2007, Brooks was required to participate
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in arbitration in London and the matter was administratively terminated with the right to reopen upon
completion of the London Arbitration. Alit, No. 06-4500, [Docket Entry No. 26]. In addition, AEIC,
as Brooks’ insurer, was required to pay for the costs of Brooks’ defense.
As a result of arbitration, Plaintiff was awarded approximately $5.4 million. In May 2010,
Plaintiff filed the current action seeking to recover the award directly from AEIC. Alit (No.1)
Limited v. Brooks, No. 10-2403, [Docket Entry No. 1].
The AEIC policy insures claims which were made against Brooks and reported to AEIC
during the policy period, and excludes all claims or potential claims known by Brooks as of the date
the policy’s inception. In September 2009, AEIC discovered evidence via the arbitration which
suggested that Brooks had notice of Alit’s potential claim against them prior to applying for
insurance with AEIC. AEIC thereafter denied coverage. However, it is undisputed that the evidence
discovered by AEIC in September 2009 had been produced to AEIC previously in 2007 as a result
of the initial action. Both AEIC and Brooks have filed cross-claims against each other [Docket Entry
Nos. 9, 11].
In August 2010, Plaintiff served Requests for Production of Documents and Interrogatories
on Defendant AEIC. AEIC provided responses; however, Plaintiff asserts that the responses are
deficient. The parties have exchanged significant correspondence on this issue and the Court and
the parties are very familiar with the facts underlying this matter as well as the positions taken by
both sides. Indeed, a letter Order was issued regarding the discovery dispute on February 18, 2011
[Docket Entry No. 42] and the parties participated in a telephonic conference regarding this issue on
April 15, 2011. As such, the Court shall neither restate the facts of this case nor repeat the
arguments made in support of and in opposition to Plaintiff’s motion at length.
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A. Plaintiff Alit’s Argument
Plaintiff seeks an Order compelling AEIC to “(1) produce certain documents identified in
AEIC’s October 5, 2010 privilege log; and (2) provide full responses to certain interrogatories and
document requests to which AEIC has failed to provide responses on the grounds that the
information requested therein is not discoverable.” Plaintiff’s Memorandum in Support of Motion
to Compel, Docket Entry No. 57-3, *5. Plaintiff provides a schedule in which it categorically breaks
down the documents it seeks. “Part A lists documents that have been provided to third parties; Part
B lists documents to or from Ms. Nilam Sharma which are either not protected in the first instance,
or for which AEIC has waived privilege; and Part C lists the interrogatories and document requests
that AEIC has failed to fully respond.” Id.
With respect to the documents enumerated in Parts A and B, Plaintiff argues that neither the
attorney-client privilege nor the work product doctrine protect them. First, Plaintiff argues that
AEIC has waived any protection provided by the attorney-client privilege or work product doctrine
because AEIC identifies several documents in its privilege log which are correspondence between
AEIC and various individuals associated with Brooks. Plaintiff states that the attorney-client
privilege is waived if otherwise privileged materials are provided to outside parties. United States
v. Rockwell International, 897 F.2d 1255, 1265 (3d Cir. 1990); See also In re Teleglobe
Communication Corp., 493 F.3d 345, 364 (3d Cir. 2007); Louisiana Municipal Police Employees
Retirement System v. Sealed Air Corporation, 253 F.R.D. 300, 305 (D.N.J., 2008). Plaintiff further
asserts that the privilege of the work product doctrine is waived when a disclosure enables an
adversary to gain access to the information. See Louisiana Municipal citing Westinghouse Elec.
Corp. V. Republic of Phil., 951 F.2d 1414 (3d Cir. N.J. 1991). Plaintiff argues that, because AEIC’s
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privilege log indicates that AEIC provided the materials at issue to Brooks (whom Plaintiff asserts
is an adversary), AEIC has waived any protection from the attorney-client privilege or the work
product doctrine.
Plaintiff next argues that the attorney-client privilege and work product doctrine do not
protect documents which are prepared in the ordinary course of business. Rockwell, 897 F.2d at
1265-66; United States v. Ernstoff, 183 F.R.D. 148, 156 (D.N.J. 1998). With respect to the workproduct doctrine, Plaintiff states that AEIC bears the burden of showing that the privilege applies.
Louisiana Municipal, 253 F.R.D., at 305 (citing Conoco, Ins. v. U.S. Dep’t of Justice, 687 F.2d 724,
730 (3d Cir. 1982)). Further, Plaintiff states that the Third Circuit has adopted a “two part test for
ascertaining whether the documents or things at issue should be protected under the work product
doctrine.” Id. (citing In re Gabapentin Patent Litig., 214 F.R.D. 178, 183 (D.N.J. 2003)). The first
part requires the court to determine whether “litigation could reasonably have been anticipated.” Id.
(citing In re Gabapentin, at 183). The second part requires a determination of whether the
documents were prepared “primarily for the purpose of litigation.” Id. Plaintiff also cites to a recent
decision in this District which addresses the issue of work-product documents in insurance cases.
Westwood Products, Inc., v. Great American E & S Ins. Co., No. 10-3605, 2011 WL 3329616, 15
(D.N.J., August 1, 2011). Although Plaintiff never expressly states it, the Court infers that it is
Plaintiff’s contention that the documents enumerated in Parts A and B were prepared by AEIC in the
ordinary course of business and, thus, are not protected by the work product doctrine. Plaintiff does
not further address the attorney-client privilege in this section of its brief.
Plaintiff next asserts that Nila Sharma, AEIC’s London representative, was not truly acting
as AEIC’s counsel. As such, Plaintiff argues that correspondence to and from Ms. Sharma is not
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protected by the attorney-client privilege or the work product doctrine and Plaintiff requests
production of the documents enumerated in Part B. The essence of Plaintiff’s argument is that,
“while Ms. Sharma is an attorney, in the instant case AEIC used Ms. Sharma and her firm... as claim
adjusters. Therefore, neither the attorney-client privilege nor the work product doctrine protect Ms.
Sharma’s communications from discovery.” Plaintiff’s Memorandum at *14. Plaintiff also points
out that Ms. Sharma is not admitted to practice law in New Jersey. As such, Plaintiff asserts that any
commentary given by her regarding New Jersey law on coverage issues is gratuitous. Plaintiff
devotes much of its brief to addressing Ms. Sharma’s role as a non-attorney in this litigation and in
the arbitration held in London.
Plaintiff further asserts that AEIC relied on information gathered by Ms. Sharma to disclaim
coverage. As such, Plaintiff argues that production of those documents is necessary to permit
Plaintiff, and the fact-finder at trial, to “probe” these documents to determine the adequacy of the
content of the investigation. Plaintiff contends that AEIC may not use the attorney-client privilege
as both a sword and a shield by relying on Ms. Sharma’s communications, but then refusing to
produce those documents in discovery.
Plaintiff also argues that AEIC’s reliance on documents collected by Ms. Sharma and
communications from Ms. Sharma regarding the arbitration have put the documents and
communications between AEIC and Ms. Sharma at issue. Plaintiff asserts that reliance on these
documents triggers the “advice of counsel” defense even though AEIC has not expressly pled this
defense. Because Plaintiff concludes that AEIC intends to prove its defense through use of the
privileged materials, Plaintiff asserts that the “at issue” doctrine applies and any privilege is waived.
United States v. Sensient Colors, Inc., No. 07-1275, 2009 WL 2905474 (D.N.J., September 9, 2009)
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(citing Pittston Co. v. Allianz Ins. Co., 143 F.R.D. 66, 71 (D.N.J., 1992); North River Ins. v.
Philadelphia Reinsurance Corp., 797 F.Supp. 363, 370 (D.N.J., 1992)).
As a general matter, Plaintiff asserts that the materials requested “are necessary to both
further its claims against AEIC and relevant to Brooks’ defense against AEIC’s claims.” Plaintiff’s
Memorandum at *24. Plaintiff argues that by filing suit against Brooks, AEIC has waived the
protections provided by the attorney-client privilege and the work product doctrine.” Id. Plaintiff
again accuses AEIC of using these protective doctrines as both a sword and a shield by hiding the
documents which serve as the basis for their disclaimer.
Furthermore, Plaintiff notes that there is a claim against AEIC alleging that their failure to
settle this matter within the policy limits was unreasonable. Plaintiff asserts that AEIC’s refusal
serves as the basis for Brooks’ claims against AEIC. Because Plaintiff has concluded that Ms.
Sharma’s input had “some bearing on AEIC’s coverage determinations and failure to settle this
matter,” Plaintiff asserts that “Ms. Sharma’s communications are directly relevant to the matter at
hand.” Id. at *25. Plaintiff adds that there is no possible way for it to gain access to this information
outside of the requested documents.
Finally, Plaintiff argues that AEIC’s Claim Handling Guidelines, Underwriting Materials,
and information regarding the handling of this specific claim, which are enumerated in Part C, are
relevant and discoverable and are being improperly withheld by AEIC. Plaintiff requests production
of AEIC’s internal guidelines which are applicable to claims similar to the matter at hand.
B. Defendant AEIC’s Response
Defendant explains that Ms. Sharma was retained as legal counsel for AEIC in London and
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that her efforts on behalf of AEIC were “multi-faceted.” Defendant’s Brief in Opposition, Docket
Entry No. 60, *10. AEIC describes Ms. Sharma’s functions as being, among other things, to monitor
the arbitration between Alit and Brooks and to provide counsel to AEIC. Defendant asserts that Ms.
Sharma did not conduct any independent or affirmative investigation, but that she reviewed the
documents exchanged between Alit and Brooks prior to, and during, the arbitration and observed
testimony and other proceedings. AEIC further states that Ms. Sharma consulted with Brooks’
independent counsel regarding Brooks’ and AEIC’s mutual interest in defending against Alit’s claim
and that Ms. Sharma made suggestions to Brooks’ counsel regarding litigation strategy. In addition,
AEIC certifies that “Ms. Sharma provided legal advice regarding other matters potentially impacting
coverage as they arose.” Id.
AEIC argues that the multi-faceted nature of Ms. Sharma’s
representation does not extinguish the attorney-client privilege.
AEIC explains that, “[i]n the course of reviewing the documents exchanged between Alit and
Brooks, Ms. Sharma identified the 2001-era communications which revealed that Alit had asserted
that Brooks was in breach of the binding agreements and advised Brooks to ‘put its E&O insurer on
notice’ in 2001, prior to the inception of the AEIC policy.” Id. AEIC states that these documents
were relevant not only to Ms. Sharma’s analysis of Brooks’ defense in the arbitration; but that they
also were significant to AEIC’s coverage rights and obligations. Therefore, Ms. Sharma forwarded
these documents to AIEC along with her comments and opinions regarding same.
AEIC points out that Plaintiff does not distinguish between the 2001-era documents which
Ms. Sharma forwarded to AEIC and Ms. Sharma’s opinions and analysis of those documents. AEIC
asserts that Plaintiff incorrectly characterizes Ms. Sharma’s communications as “investigative
records” which were collected in the ordinary course of a claim adjustment. AEIC stresses that Ms.
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Sharma did not conduct any independent investigation and that AEIC’s privilege log does not reflect
the existence of any additional documents or facts which have not already been provided to Plaintiff.
Indeed, Plaintiff does not dispute AIEC’s contention that the information and documents reviewed
by Ms. Sharma in the arbitration and provided to AEIC have been produced during discovery.
AEIC next argues that, even if Ms. Sharma had been acting as a claims handler, her withheld
opinions, mental impressions, conclusions and analysis are protected by the work-product doctrine.
AIEC asserts that documents are protected under the work-product doctrine if they are “prepared in
anticipation of litigation” and AEIC believes that Ms. Sharma’s communications regarding the
ongoing arbitration meet this standard. FED . R. CIV . P. 26(b)(3)(A). Additionally, AEIC contends
that the Court must determine “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.” George v. Siemens Industrial Automation, Inc., 182 F.R.D.
134, 140-41 (D.N.J. 1998). AEIC further asserts that the litigation need not be imminent “as long
as the main purpose behind the creation of the document was to aid in possible future litigation.” Id.
AEIC therefore concludes Ms. Sharma’s comments with respect to the 2001-era documents are
protected given the 2006 action and the “obvious coverage significance of the 2001-era documents.”
Defendant’s Opposition at *13.
In response to Plaintiff’s alternative contention that AEIC waived any privilege applicable
to Ms. Sharma’s communications by placing them “at issue” in this litigation, AEIC argues that
Plaintiff has failed to make the requisite showing. As stated above, Plaintiff makes mention in its
motion papers of a claim against AEIC for failure to settle and Plaintiff, in part, uses that claim as
basis for probing further into Ms. Sharma’s communications. AEIC points out that “this Court has
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already dismissed Alit’s cause of action against AEIC for failure to settle.” Defendant’s Opposition
at *16. Regardless, AEIC asserts that any claim for failure to settle would still fail to provide a basis
for Plaintiff’s contention that AEIC placed Ms. Sharma’s communications “at issue.”
AEIC also contends that the Third Circuit has set forth a three-part test for compelling
disclosure of privileged information, which Plaintiff failed to address in its brief. In re Kozlov, 79
N.J. 232 (1979). AEIC states that, had Plaintiff properly mentioned the Kozlov factors, it would have
been unable to meet its burden to compel disclosure. Specifically, AEIC argues that Plaintiff cannot
demonstrate “(1) a need for the communications; (2) that such privileged communications are
relevant and material to the matter at issue; and (3) that no less intrusive source is adequate.”
Defendant’s Opposition at *17. Regardless, AEIC maintains that it did not put any communications
at issue and, as Plaintiff pointed out, AEIC has not pled advice of counsel as part of any defense or
claim.
AEIC states that Plaintiff has identified four basic reasons as to why Plaintiff believes it is
entitled to “probe” into Ms. Sharma’s communications.
First, Plaintiff contends that the
“communications may establish when AEIC first learned of Brooks’ misrepresentations in its
application for insurance.” Id. at *18. In response, AEIC asserts that, should Plaintiff wish to
challenge AEIC’s claim that it first learned of Brooks’ alleged misrepresentations in September
2009, far less intrusive means could be utilized to establish this date; such as “a single interrogatory
or a question at a deposition.” Id. at *19.
AEIC next asserts that Plaintiff’s second reason for compelling disclosure of privileged
information is to determine the sufficiency of AEIC’s investigation. AEIC is unsure what
investigation to which Plaintiff is referring. However, AEIC presumes that the “investigation”
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mentioned by Plaintiff refers to “AEIC’s efforts to investigate and ultimately uncover the documents
evidencing Brooks’ awareness of Alit’s claim when it applied for insurance from AEIC.” Id. at *20.
AEIC again distinguishes between the 2001-era documents, on which it based its disclaimer, and Ms.
Sharma’s legal analysis and opinions regarding those documents and the arbitration. AEIC asserts
that Ms. Sharma’s analysis and opinions are not relevant to Plaintiff’s waiver and estoppel claims.
Moreover, AEIC contends that Plaintiff can obtain facts to support its waiver and estoppel claims
by less intrusive means. Thus, AEIC concludes that this basis for compelling production of
privileged information fails the third prong of Kozlov.
AEIC states that Plaintiff’s third argument for compelling disclosure of AEIC’s privileged
information is to uncover the basis for AEIC’s disclaimer of coverage. Indeed, it its opening brief,
Plaintiff accuses AEIC several times of using privilege as both a sword and a shield by “hiding” the
documents which contain its reasons for denying coverage. See Plaintiff’s Memorandum at *15,
*19, *23, *24. However, AEIC emphasizes that its “coverage position is based entirely on the
documentary record establishing Brooks’ prior awareness of Alit’s claims in 2001;” specifically, the
2001-era documents. Defendant’s Opposition at *22. AEIC asserts that “AEIC did not wholesale
surrender the attorney-client privilege merely because Ms. Sharma may have pointed out the
obvious.” See Pittston Co. v. Allianz Ins. Co., 143 F.R.D. 66, 72 (D.N.J. 1992). Also, AEIC
contends that Plaintiff can obtain this information through other, less intrusive means; therefore, this
argument fails the third prong of Kozlov.
Finally, AEIC states that Plaintiff’s fourth reason in support of its motion to compel the
production of privileged documents is that a review of Ms. Sharma’s confidential attorney-client
communications are necessary to determine whether AEIC’s failure to settle was in bad faith. AEIC
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again points out that Plaintiff has no such claim against AEIC because it was dismissed pursuant to
the Court’s Order dated May 25, 2011 [Docket Entry No. 50]. However, Plaintiff offers this
argument on behalf of Brooks. AEIC contends that this argument is without merit because “Brooks’
bad faith cause of action against AEIC does not place Ms. Sharma’s advice at issue.” Defendant’s
Opposition at *23. AEIC points out that it has not raised “advice of counsel” as a defense; which
AEIC asserts is necessary to trigger the “at issue” doctrine. Again, AEIC contends that its decision
to disclaim coverage was based on the 2001-era documents and that production of those documents
establishes a good faith basis for its disclaimer. As with the other arguments, AEIC contends that
Plaintiff could obtain this information through less intrusive means, such as depositions. Therefore,
AEIC concludes that this argument too fails the third prong of Kozlov.
AEIC also asserts that the documents requested by Plaintiff are protected under the common
interest doctrine. AEIC explains that, pursuant to the common interest doctrine, the attorney-client
privilege may be asserted with respect to communications between different parties and the attorney
therefore, if “(1) the disclosure is made due to actual or anticipated litigation; (2) for the purposes
of furthering a common interest; and (3) the disclosure is made in a manner not inconsistent with
maintaining confidentiality against adverse parties.” Laporta v. Gloucester County Board of Chosen
Freeholders, 34 N.J. Super 254, 262 (App.Div. 2001). AEIC argues that, “[i]n the specific context
of the insured/insurer relationship, courts in this District have recognized that where[,] as here,
counsel for an insured has been paid for by the insurer, the common interest doctrine protects
communications between those parties because of the common interest in defeating the third-party
claim against the insured.” See North River Ins. Co. v. Philadelphia Reinsurance Corporation, 797
F.Supp. 363, 366 (D.N.J. 1992); and Pittston Co., 143 F.R.D. at 71.
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As mentioned above, it is Plaintiff’s contention that AEIC and Brooks are adversaries.
However, AEIC contends that “Brooks and AEIC had a common interest during the Arbitration in
defending the claims asserted against Brooks by Plaintiff and it is in this context that the Part A
communications were exchanged.” Defendant’s Opposition at *25. AEIC argues that the fact that
AEIC and Brooks have since asserted claims against each other related to coverage does not
“relegate them to adversarial status with respect to the communications they shared in their common
purpose in defeating Alit’s claim.” Id. AEIC distinguishes this case from the cases relied on by
Plaintiff.
Finally, AEIC argues that its underwriting and claim handling materials, the materials listed
in Part C, are irrelevant and not discoverable. AEIC points out that Plaintiff has not claimed that
AEIC has breached any of its own internal guidelines. In light of the fact that Plaintiff’s claim is
aimed at estopping AEIC from asserting coverage defenses, AEIC concludes that their internal claim
handling and underwriting materials are wholly irrelevant.
C. Plaintiff’s Reply
Plaintiff devotes much of its Reply brief addressing Ms. Sharma’s role in this litigation and
in the arbitration. Plaintiff takes the position that Ms. Sharma acted solely for the interests of AEIC.
Plaintiff asserts that she was “hired to monitor the arbitration on behalf of AEIC, and to obtain
documents on AEIC’s behalf.” Plaintiff’s Reply Memorandum, Docket Entry No. 62, *5. Plaintiff
concludes that Ms. Sharma “was acting as a de facto claims investigator or adjuster.” Id. Plaintiff
further complains that AEIC cannot adequately describe what Ms. Sharma was doing and that AEIC
has repeatedly changed its stance regarding Ms. Sharma’s role. Plaintiff describes a history of
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AEIC’s submissions, interrogatory responses and statements regarding Ms. Sharma’s involvement
and Plaintiff contends that AEIC has not met its burden of establishing that the documents sought
are protected from discovery. Plaintiff’s Reply at *14.
Plaintiff also argues that, contrary to AEIC’s argument, there is no joint or common interest
between AEIC and Brooks. Thus, Plaintiff asserts that the documents sought by way of this motion
are discoverable. Plaintiff further argues that the cases cited by AEIC in support of its position that
the common interest doctrine applies are actually inapposite to AEIC’s position. See Plaintiff’s Reply
at *11; North River Ins. Co., 797 F.Supp. at 366; and Pittston Co., 143 F.R.D. at 71. Plaintiff asserts
that in those cases, as here, the “common interest” itself is at issue because the insurer is claiming
that there is no coverage for the underlying claims. Pittston Co., 143 F.R.D.at 69. Thus, the courts
in those cases found that no common interest existed between the parties in those cases because the
insurer and the insured essentially had adverse interests. Id. Further, the North River court
determined that the common interest privilege did not apply merely because an insured and an
insurer may have had a common interest in the outcome of the litigation. North River, 797 F.Supp.
at 367. Plaintiff asserts that correspondence between the parties made it clear that AEIC and Brooks
had opposing interests; thus the common interest doctrine does not apply and the information
requested by Plaintiff is not protected and should be produced.
Finally, Plaintiff argues that even if a protection applied to the documents sought, AEIC has
effectively waived the privilege. Plaintiff addresses the Kozlov factors raised by AEIC in their
Opposition Brief. Kozlov, 79 N.J. 232 (1979). Plaintiff explains that its need for the information
sought is based on issues of timing, which Plaintiff contends is relevant to its waiver and estoppel
defenses. Plaintiff’s Reply at *16. In addition, Plaintiff asserts that the information sought is also
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relevant to Brooks due to Brooks’ claim against AEIC for failure to negotiate in good faith. Plaintiff
further asserts that there is no other way for it to procure this information. Although AEIC has
argued that Plaintiff could obtain this information by way of deposition, Plaintiff expresses concern
that it could not. Plaintiff states that “there is absolutely no assurance[] that any such line of
questioning would not elicit an objection based on privilege.” Plaintiff’s Reply at *17. Thus,
Plaintiff posits that there are no less intrusive means of obtaining the information sought by way of
this motion.
Plaintiff devotes the final section of its Reply brief explaining the relevance of the
information sought to the matter at hand. As discussed above, Plaintiff has taken this position
throughout its pleadings; therefore, the Court will not repeat the arguments again here.
II. Discussion
Pursuant to Rule 26(b), "[p]arties may obtain discovery regarding any nonprivileged matter
that is relevant to any party's claim or defense." As is clear from the language of Rule 26(b), the
scope of discovery is broad, but not without limit. Plaintiff in this case argues that the information
sought is both relevant and nonprivileged; thus, Plaintiff concludes that it is discoverable. AEIC
disputes the relevance of the Part C documentation sought and asserts that, even if relevant, the
information sought is protected by privilege.
In order to resolve this dispute, the Court must first determine the relevance of the
information which is the subject of this motion. If relevant, the Court must determine whether a
privilege applies and, if so, whether that privilege has been waived. The question of privilege,
however, necessarily turns on the Court’s determination regarding Ms. Sharma’s role and the
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relationship between AEIC and Brooks throughout the arbitration and this litigation. A discussion
on these issues is, therefore, necessary before the Court can properly address the question of what
privileges, if any, apply to the information sought.
A. Ms. Sharma
The Court acknowledges, as Plaintiff points out, that AEIC has given Ms. Sharma many titles
throughout the course of this litigation. However, the Court is less concerned with what Ms. Sharma
was called as It is with the role that she played. Though not licensed in this jurisdiction, Ms. Sharma
is an attorney who was hired by AEIC to protect their interests. It is clear from the correspondence
exchanged that she was in place to protect AEIC. Ms. Sharma observed the arbitration and provided
insight and analysis to AEIC’s U.S. counsel. It is clear that she had no decision-making power
regarding coverage and there is no evidence to suggest that she had direct influence over the
coverage decision. Indeed, these facts are clearly set forth in an e-mail from Anthony Lennox,
Brooks’ counsel, a copy of which Plaintiff attaches to its Motion as Exhibit O [Docket Entry No. 5718]. Thus, Ms. Sharma’s role cannot be reduced to that of a mere claims adjuster as Plaintiff
suggests.
Further, Mr. Lennox’s e-mail also mentions the possibility of Plaintiff’s counsel talking
directly with AEIC’s counsel rather than through Brooks’ counsel (Mr. Lennox). Mr. Lennox states,
“[w]hilst I see no problem in that, it would, of course mean that AEIC would not have anyone
involved who was aware of the issues on the underlying claims.” The Court finds that to be the very
purpose of Ms. Sharma’s involvement. Ms. Sharma, as an independent observer, could provide
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AEIC with unbiased analysis and insight regarding the underlying claims that Mr. Lennox, as
Brooks’ representative, could not.
For the reasons set forth above, the Court finds that Ms. Sharma was hired, at least in some
capacity, as AEIC’s attorney.
B. AEIC’s relationship with Brooks (Common-Interest Privilege)
The “community of interest” or “common-interest” privilege only applies where, as here, the
clients are represented by separate counsel. RESTATEMENT (THIRD ) OF THE LAW GOVERNING
LAWYERS § 76(1); See also In re Teleglobe Communications Corp., 493 F.3d 345 (3d Cir., 2007).1
“If two or more clients with a common interest in a litigated or nonlitigated matter are represented
by separate lawyers and they agree to exchange information concerning the matter, a communication
of any such client... is privileged as against third persons.” RESTATEMENT (THIRD ) OF THE LAW
GOVERNING LAWYERS § 76(1). The theory behind the doctrine is to allow parties who have common
interests to coordinate their positions without destroying the privileged status of their
communications with their lawyers. Id. cmt. b. This privilege is most commonly used to compel
the disclosure of evidence when parties who previously shared a common interest, have interests that
later became adverse.
1
Courts commonly confuse the “Privilege in Common-Interest Arrangements” with the
“Privilege of Co-Clients.” Compare RESTATEMENT (THIRD ) OF THE LAW GOVERNING LAWYERS
§ 76(1) with id. § 75(1); In re Teleglobe, 493 F.3d at 363 n.18. The former involves parties with
common interests who are represented by separate counsel. The latter involves one attorney
acting on behalf of two (or more) clients who share a common interest. Although the concepts
are different, both require a “common interest.”
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The test for determining whether or not parties share a “common interest” is not well defined,
especially in the insurer/insured context. A District Court in South Carolina has taken a strict view
of what constitutes a “common interest.”See Duplan Corp. v. Deering Milliken, Inc., 397 F.Supp.
1146, 1172 (D.S.C. 1974)(“The key consideration is that the nature of the interest be identical, not
similar, and be legal, not solely commercial.”). However, the Restatement allows a more liberal
interpretation. RESTATEMENT (THIRD ) OF THE LAW GOVERNING LAWYERS § 76(1) cmt. e. (“The
communication must relate to the common interest, which may be either legal, factual, or strategic
in character. The interests of the separately represented clients need not be entirely congruent.”). The
Supreme Court of Illinois adopted an even broader interpretation of the doctrine. Waste Management
v. International Surplus Lines, 144 Ill.2d 178, 161 (1991)(holding that the privity of contract and
nature of the relationship between insurer and insured compelled disclosure between them because
there was no reasonable expectation of privacy even when an attorney for the insured was not in
direct communication with the insurer). Given the varying views of “common interest,” the dearth
of case law in this District defining “common interest” in the insurer/insured context, and the
frequent misapplication of the Common Interest Privilege, this Court is faced with a daunting task.
This task is further complicated by the procedural posture of the parties arguing the common interest
issue.
As discussed above, the common-interest doctrine is most commonly invoked in the
insurer/insured context by either the insured or the insurer to compel the disclosure of otherwise
privileged information after the parties’ positions have become adverse. In this case, we are
presented with the unique situation in which a third party is arguing against the existence of a
common interest in order to compel disclosure of information exchanged between an insurer and its
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insured. Plaintiff’s argument is that the insurer, AEIC, waived any privilege it may have had to the
information sought because it shared that information with the insured, Brooks, whom Plaintiff
contends is an outside party. In response, the insurer is claiming that they have not waived any
privilege (attorney-client or work product) by sharing information with the insured, because the
insurer and the insured shared a common interest at the time. Therefore, AEIC is using the
Common-Interest Privilege as a defense against Plaintiff’s Motion to Compel and AEIC has taken
the position that the information it shared with Brooks is protected as to third parties under the
Privilege of the Common-Interest Arrangement.
The central question in determining whether the common interest doctrine applies in the
insurer/insured context is whether the documents sought were generated with the reasonable
expectation of privacy. See Pittston Co., 143 F.R.D. at 69 (citing Independent Petrochemical
Corporation v. Aetna Casualty and Surety, 654 F.Supp. 1334, 1365 (D.D.C.1986)
(“Communications between an insured and its attorney connected with the defense of underlying
litigation are normally not privileged vis-a-vis the insured's carrier in subsequent litigation.”)); see
also Pittston Co., 143 F.R.D. at 70 (citing Waste Management, 144 Ill.2d 178); see also North River
Ins. Co., 797 F.Supp. at 366 (citing Carey-Canada, Inc. v. Aetna Cas. & Sur. Co., 118 F.R.D. 250,
251 (D.D.C.1987)). In addition, a significant factor in making this determination is whether or not
the insurer is paying for the cost of counsel for the insured. Id. Given that there is a general theme
that there is no expectation of privacy between the insured and insurer where, as here, there was a
common interest in defeating a third party claim and the insurer was responsible for the cost of the
insured’s counsel, it is apparent to this Court that documents relating to the underlying claim were
exchanged between AEIC and Brooks without either party invoking or expressing a concern about
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privilege. The Court is mindful, as was the court in Pittston, that “there is considerable difficulty
in applying the doctrine where there was actually no common attorney in the underlying litigation
and the existence of a ‘common interest’ is itself at issue.” Pittston, 143 F.R.D. at 69. In this case,
however, there is no question that AEIC and Brooks shared a common interest in defeating the third
party claim, at least up until the discovery of the 2001-era document in September 2009. Thus, the
common interest doctrine does apply and documents prepared by AEIC and Brooks would be
discoverable between those parties, but remain confidential as to third parties.
This conclusion is further supported by the fact that AEIC and Brooks freely shared certain
communications, which Plaintiff now seeks by way of this motion. The fact that AEIC and Brooks
passed information back and forth indicates that they did not have an expectation of privacy between
them with respect to documents related to their common goal of defeating the underlying third party
claim. Moreover, it would be contrary to the very purpose of the common interest doctrine if the
Court were to hold that the sharing of information in order to defeat a common adversary would then
require disclosure of those shared communications to that common adversary. The common interest
doctrine dictates that those communications remain privileged and undiscoverable as to third parties.
Indeed, as discussed above, this is primary the intent of the common interest doctrine.
III. Analysis
The Court will address these issues as they relate to each category of documents: Part A, Part
B, and Part C.
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A. Relevance
1. Part A & Part B
AEIC does not dispute that the information contained in Parts A and B is relevant. As such,
the Court will not address the relevance of those materials.
3. Part C
The Court holds that, to the extent the terms in AEIC’s policies triggered AEIC’s denial of
Brooks’ claim, this information should be produced and, indeed, should already have been produced.
The Court has addressed this issue twice before: in a Letter Order dated February 18, 2011 [Docket
Entry No 42] and during a telephonic conference held on April 15, 2011. Thus, the information
Plaintiff seeks in Part C is relevant and discoverable to the extent it is not protected by privilege.
B. Privilege
The privileges claimed by AIEC, in general, are the attorney-client privilege, the work
product doctrine and/or the common interest doctrine. Plaintiff argues against the existence of those
privileges and insists that, even if they did exist, AEIC has effectively waived them.
1. Part A
As set forth above, the Court finds that the Common Interest Doctrine does apply. Thus,
communications between AEIC and Brooks do not serve as a waiver of the attorney-client or workproduct privilege.2 Further, the Court finds that Plaintiff has failed to meet its burden compelling
production of privileged information as established in Kozlov. Plaintiff’s purported need for this
2
As discussed above, Plaintiff provides a discussion of the work-product doctrine in its
moving papers, but does not directly assert that the Part A communications are not protected by
that doctrine. As such, the Court declines to entertain that argument.
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information is to uncover AEIC’s basis for disclaimer and to establish what AEIC knew, and when.
However, the Court finds that AEIC has sufficiently provided this information. Thus, the Part A
communications are not discoverable by third parties and Plaintiff’s motion is denied in this respect.
2. Part B
As set forth above, the Court finds that Ms. Sharma’s role was that of an attorney. As such,
her mental impressions, analysis and opinions are protected under the attorney-client privilege,
which has not been waived. Again, the Court finds that Plaintiff has failed to meet its burden under
Kozlov which would compel the production of the privileged information. Further, the Court
questions the relevance of the information sought in this section given the fact Plaintiff does not have
an existing claim against AEIC for bad faith in failing to settle.
3. Part C
As discussed above, the information Plaintiff seeks in Part C is relevant and discoverable to
the extent it is not protected by privilege.
III.
Conclusion
For the reasons stated above, Plaintiff’s Motion to Compel is GRANTED in part and
DENIED in part. An appropriate Order follows.
Dated: March 20, 2012
s/Tonianne J. Bongiovanni
HONORABLE TONIANNE J. BONGIOVANNI
UNITED STATES MAGISTRATE JUDGE
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