Certian Underwriters at Lloyd's London v. Lowen Valley View LLC et al

Filing 77

MEMORANDUM OPINION AND ORDER: The Court GRANTS Defendants' Opposed Motion to Compel Production of Certain Documents Withheld from Production [Dkt. No. 62 ]. (Ordered by Magistrate Judge David L. Horan on 6/9/2017) (mcrd)

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
CERTAIN UNDERWRITERS AT
LLOYD’S OF LONDON, Syndicate Nos.
2003, 1414, 0510, 4472, 1182, 1200, and
4444, Subscribing to Policy Number
NJL440003612,
Plaintiff,
V.
LOWEN VALLEY VIEW, LLC and
PANADE II LTD. d/b/a HILTON
GARDEN INN,
Defendants.

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No. 3:16-cv-465-B

MEMORANDUM OPINION AND ORDER1
Defendants Lowen Valley View, LLC and Panade II, Ltd. d/b/a Hilton Garden
Inn have filed an Opposed Motion to Compel Production of Certain Documents
Withheld from Production [Dkt. No. 62] (the “MTC”), seeking an order under Federal
Rules of Civil Procedure 37(a) to order Plaintiff Certain Underwriters at Lloyd’s of
London (“Certain Underwriters”) to produce three withheld documents.
United States District Judge Jane J. Boyle has referred the MTC to the
undersigned United States magistrate judge for hearing, if necessary, and

Under § 205(a)(5) of the E-Government Act of 2002 and the definition of “written
opinion” adopted by the Judicial Conference of the United States, this is a “written
opinion[] issued by the court” because it “sets forth a reasoned explanation for [the]
court’s decision.” It has been written, however, primarily for the parties, to decide
issues presented in this case, and not for publication in an official reporter, and should
be understood accordingly.
1

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determination under 28 U.S.C. § 636(b). See Dkt. No. 65.
Certain Underwriters filed a response, see Dkt. No. 67; Defendants filed a reply,
see Dkt. No. 72; and Certain Underwriters filed a sur-reply, see Dkt. No. 80. The Court
determines that a hearing or oral argument is not necessary to resolve the MTC.
In their reply, “Defendants concede that [Certain Underwriters] have met their
burden to show that the document Bates numbered Lloyds 00387 was properly
withheld based on the attorney-client communication privilege.” Dkt. No. 72 at 2. But
remaining for decision is whether Certain Underwriters must produce three documents
withheld as protected work product: (1) Lloyds 00381-00383, report dated April 1,
2015; (2) Lloyds 00399-00402, report dated May 23, 2015; and (3) Lloyds 00387-00398,
Frontier Notes Report dated March 11, 2015 – August 5, 2016. According to
Defendants, the first two documents are “reports are from Justin Whedbee of Frontier
Adjusters to Ross Fry of Peninsula Insurance Bureau, the claims administrator for
Certain Underwriters,” and “were made by Frontier Adjusters while they were
adjusting the claim for Certain Underwriters.” Dkt. No. 63 at 5. Defendants note that
“Derek Phipps, the independent adjuster assigned to the Lowen claim testified that
Frontier Adjusters used these reports to document his investigation and make
recommendations.” Id. And the third document is a set of log notes “created by
adjusters not employed by Certain Underwriters, Justin Whedbee of Frontier and/or
Derek Phipps, the independent adjusters with Frontier.” Id. at 6. Defendants note that
“Phipps testified that the notes are made to document evaluations that occur during
the adjustment of the claim.” Id.
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The pertinent procedural and factual background is familiar to the parties, and
the Court will not repeat it here.
The following legal standards govern Certain Underwriters’ assertion of workproduct protection:
[T]he issue of whether documents are exempt from discovery under the
attorney work product doctrine is governed by federal law.... The federal
work product doctrine, as codified by Federal Rule of Civil Procedure
26(b)(3), provides for the qualified protection of documents and tangible
things prepared by or for a party or that party’s representative “in
anticipation of litigation or for trial.” A document need not be generated
in the course of an ongoing lawsuit in order to qualify for work product
protection. But “the primary motivating purpose” behind the creation of
the document must be to aid in possible future litigation. As the advisory
committee notes to Rule 26(b)(3) make clear, “[m]aterials assembled in
the ordinary course of business, or pursuant to public requirements
unrelated to litigation, or for other nonlitigation purposes are not under
the qualified immunity provided by this subdivision.”
Among the factors relevant to determining the primary motivation
for creating a document are “‘the retention of counsel and his involvement
in the generation of the document and whether it was a routine practice
to prepare that type of document or whether the document was instead
prepared in response to a particular circumstance.’” If the document
would have been created without regard to whether litigation was
expected to ensue, it was made in the ordinary course of business and not
in anticipation of litigation.
Like all privileges, the work product doctrine must be strictly
construed. The burden is on the party who seeks work product protection
to show that the materials at issue were prepared by its representative
in anticipation of litigation or for trial. A general allegation of work
product protection is insufficient to meet this burden. Instead, “‘a clear
showing must be made which sets forth the items or categories objected
to and the reasons for that objection.’” The proponent must provide
sufficient facts by way of detailed affidavits or other evidence to enable
the court to determine whether the documents constitute work product.
Although a privilege log and an in camera review of documents may
assist the court in conducting its analysis, a party asserting the work
product exemption still must provide “a detailed description of the
materials in dispute and state specific and precise reasons for their claim
of protection from disclosure.” In fact, “‘resort to in camera review is
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appropriate only after the burdened party has submitted detailed
affidavits and other evidence to the extent possible.’”
OrchestrateHR, Inc. v. Trombetta, No. 3:13-cv-2110-P, 2014 WL 884742, at *2 (N.D.
Tex. Feb. 27, 2014) (citations omitted).
“If a party meets its burden and proves that the materials sought warrant work
product protection, the party seeking discovery must prove why those materials should
still be produced.” S.E.C. v. Brady, 238 F.R.D. 429, 443 (N.D. Tex. 2006). Rule 26(b)(3)
instructs the court to “protect against disclosure of the mental impressions,
conclusions, opinions, or legal theories of an attorney or other representative of a party
concerning the litigation.” FED. R. CIV. P. 26(b)(3). A party may only obtain discovery
of documents prepared in anticipation of litigation or for trial upon showing that the
party seeking discovery has (1) substantial need of the materials to prepare for his or
her case and (2) that the party cannot obtain the substantial equivalent of the
materials by other means without undue hardship. See id.
In support of its response and withholding of the documents at issue, Certain
Underwriters submitted the Affidavit of Brian Wall. See Dkt. No. 69 at 12-13 of 13. Mr.
Wall attests:
2. “I am currently a member of the Property Claims team at Syndicate
2013. I manage the investigation and resolution of property damage
claims made under relevant policies.”
3. “During the investigation of the claim made by the Insured, Lowen
Valley View, Panade II, Ltd d/b/a Hilton Garden Inn, once the issues of
late notice and the prejudice suffered by Underwriters arose, a
determination was made that litigation was probable.”
4. “On March 2, 2015, Peninsula Insurance Bureau sent a letter to Lowen
Valley View, LLC stating that as a result of the loss, Underwriters would
be proceeding with the investigation under a full and complete
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reservation of rights.”
5. “From March 2, 2015, the actions taken by the representatives of
Underwriters were in expectation of litigation.”
6. “Once the investigation was complete, the determination regarding the
late notice and prejudice was confirmed.”
7. “On February 18, 2016, a Denial Letter based on late notice was sent
to Ajay Desai at Lowen Valley View, LLC.”
Id.
Based on this testimony, Certain Underwriters assert as follows:
•

•

•

....

After receiving notice, Underwriters’ investigation of the Loss
began with the January 12, 2015 inspection of the Property
conducted by the independent adjuster, Derek Phipps (“Phipps”)
of Frontier Adjusters (“Frontier”). Phipps was retained for the
limited purpose of inspecting the Property, documenting the
damage he observed, and reporting recommendations for repair.
On January 19, 2015, Phipps completed an estimate for repair of
damage noted during the inspection in the net amount of
$472,028.08.
On March 2, 2015, Peninsula Insurance Bureau sent a letter to
Defendants stating that as a result of the late reporting of the loss,
Underwriters would be proceeding with the investigation under a
full and complete reservation of rights (“the ROR Letter¨).
Underwriters subsequently retained Tim P. Marshall, Principal
Engineer and Meteorologist at Haag Engineering (“Haag”), who
analyzed data relating to weather activity in the vicinity of the
Property. Marshall determined that three hail events, involving
hail greater than one inch in diameter, occurred outside the Policy
period – between March 10, 2010 and April 3, 2012. In sum,
because of the passage of time and the numerous hail events that
occurred from 2010 to 2012, it is not possible to definitively discern
which hail event, if any, caused the damage to the Property.

The two Frontier reports withheld from discovery constitute
ordinary work-product. They were prepared in anticipation of litigation
by a representative of Underwriters. These reports are dated April 1,
2015 (Lloyds 00381-00383) and May 23, 2015 (Lloyds 00399-00402) and
were written by Justin Whedbee, General Adjuster of Frontier Adjusters
(“Whedbee”), and sent to Ross Fry of Peninsula Insurance Bureau. ....
These reports were generated after the transmission of the ROR Letter
and when Underwriters had reason to believe litigation would ensue. As
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such, they are protected by the work-product protection privilege.
....
The Frontier Notes Report includes twenty-eight (28) entries
prepared by Phipps and Whedbee. These notes range in date from March
11, 2015 – August 5, 2016 and bear bates label numbers Lloyds
00387-00398. Twenty-seven (27) of the Frontier Notes that have been
withheld from discovery constitute ordinary work-product prepared in
anticipation of litigation by representatives of Underwriters. These
entries were created after the ROR Letter was sent to Defendants and
after Underwriters reasonably anticipated litigation would arise.
Additionally, of these twenty-eight (28) entries, nine (9) were
drafted after Underwriters retained the law firm of Holman Fenwick
Willan USA LLP, which is yet another factor this Court can rely on to
determine the primary motivation for the creation of these notes was in
anticipation of litigation.
Dkt. No. 68 at 2, 5-7 (footnotes omitted).
In their reply, “Defendants object to Wall’s affidavit in its entirety because he
does not establish that his affidavit is based on personal knowledge. The affidavit is
self-serving and uncorroborated by support on the record. In addition, paragraphs 3
and 5 of Wall’s affidavit as they are purely conclusory, devoid of supporting facts, and
illogical.” Dkt. No. 72 at 2. But, particularly in this context, these objections go to the
weight, if any, to afforded – not the admissibility per se of – this testimony in support
of Certain Underwriters’ work-product claims.
Defendants also reply that Certain Underwriters “withheld documents of the
type typically prepared for ordinary business purposes which were created before
anticipation of litigation was objectively reasonable” and “have not established that the
primary motivating purpose behind the creation of withheld documents was to aid in
possible future litigation.” Dkt. No. 73 at 2. Defendants contend that “[t]he primary
motivating purpose behind the creation of the adjuster’s notes was not to help litigate
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over those claims but rather to make a coverage and payment determination.” Id.
Without the Court’s leave, Certain Underwriters filed a sur-reply, asserting that
“1. As a result of the thirty month delay in Defendants' reporting of the claim
Underwriters anticipated litigation very early; 2. Brian Wall's affidavit is sufficient
and Plaintiffs' objections should be overruled; and 3. The documents withheld from
discovery were prepared in anticipation of litigation and therefore, are protected from
discovery by the work-product privilege.” Dkt. No. 75 at 1.
The Court will consider Certain Underwriters’ response to Defendants’
objections to Mr. Wall’s affidavit. See id. at 5-6. But, otherwise, the Court notes that,
once a motion is filed, the Local Civil Rules permit a response by the nonmovant and
a reply by the movant. See N.D. TEX. L. CIV. R. 7.1. The movant therefore is entitled to
file the last pleading. Sur-replies, and any other filing that serves the purpose or has
the effect of a sur-reply, are highly disfavored, as they usually are a strategic effort by
the nonmovant to have the last word on a matter. Filing a sur-reply requires leave of
court and a showing of good cause or exceptional circumstances. Consequently, a party
must not seek leave to file a sur-reply as a routine matter.
Here, Defendants’ reply did not include any new evidence or legal theories in
support of their MTC that Certain Underwriters, in fairness, must be given an
opportunity to address. See Austin v. Kroger Texas, L.P., ___ F.3d ___, No. 16-10502,
2017 WL 1379453, at *8 (5th Cir. Apr. 14, 2017) (“As to Austin’s motion to file a
surreply, the district court did not abuse its discretion because Kroger did not raise any
new arguments in its reply brief, and Austin did not discuss his expert report on
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causation.”). The Court therefore will not consider the other argument in the sur-reply.
Other judges in this circuit have considered work-product claims in similar
contexts. In a case in which an insurer withheld “approximately 134 documents on
grounds of attorney-client privilege, work product doctrine, and the investigative
privilege” and “[t]he documents at issue, which are listed on Defendant’s First
Amended Privilege Log, include communications and notes regarding communications
between Defendant's employees, in-house counsel, and attorneys with the law firm of
Thompson Coe Cousins & Irons, LLP,” the court noted that
[c]ourts have routinely recognized that the investigation and evaluation
of claims is part of the regular, ordinary, and principal business of
insurance companies. See, e.g., lanelogic, Inc. v. Great American Spirit
Ins. Co., No. 3:08-CV-1164-BD, 2010 WL 1839294, at *5 (N.D. Tex. May
6, 2010) (citing cases). “[E]ven though litigation is pending or may
eventually ensue does not cloak such routinely generated documents with
work product protection.” Id. In the context of an insurance dispute, the
question of whether documents are work product often depends on
whether the insurer can point to a definite shift from acting in its
ordinary course of business to acting in anticipation of litigation. Id; see
also U.S. Fire Ins. Co. v. Bunge N. Am., Inc., 247 F.R.D. 656, 659 (D. Kan.
2007).
....
Although Plaintiff disputes that these facts provide “a solid basis for
questioning Plaintiff's claim,” [the] explanation [in the sworn declaration
of its Special Investigations Designee, Denise Lupear,] demonstrates that
Defendant’s investigation of Plaintiff's claim differed from an ordinary
coverage investigation almost from its inception. The initial loss report
from the broker to Defendant on March 6, 2012 characterized Plaintiff's
claim as “very suspicious” and requested that Defendant assign the claim
directly to the Special Investigations Unit. The next day, Plaintiff
retained counsel because of questions concerning the validity of its claim.
On March 9, Defendant learned that local police were so suspicious of the
alleged theft that they wanted [Plaintiff’s owner] to submit to a polygraph
interview. Under these circumstances, the Court has little difficulty in
determining that, by the time Lupear first contacted Thompson Coe on
March 30, Defendant anticipated litigation with Plaintiff and retained
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counsel for the specific purpose of obtaining legal services and advice in
preparation for litigation. Thus, Plaintiff is not entitled to the withheld
documents.
MM United Enter., Inc. v. AGCS Marine Ins. Co., No. 3:12-cv-3744-L, 2013 WL
12126235, at *4 (N.D. Tex. June 18, 2013) (citations and footnote omitted).
In another decision that “relate[d] to a discovery dispute plaintiff OneBeacon
Insurance Company (‘OneBeacon’) and defendants T. Wade Welch & Associates (the
‘Welch Firm’) and T. Wade Welch (collectively, the ‘Welch Litigants’) [were] having
about OneBeacon’s assertion that its claims notes on or after December 22, 2010,
[were] protected by either the attorney-client privilege or the work-product doctrine,”
the court explained that
[h]ere, the main issue is whether OneBeacon’s communications with
outside counsel relating to coverage are privileged and protected or
whether, instead, OneBeacon’s counsel was merely performing the
ordinary business functions of an insurance company. “To the extent [an]
attorney acted as a claims adjuster, claims process supervisor, or claim
investigation monitor, and not as a legal advisor, the attorney-client
privilege would not apply.” Harper v. Auto-Owners Ins. Co., 138 F.R.D.
655, 671 (S.D. Ind.1991). Similarly, “[d]ocuments created by an insurer
or its representative tend not to be protected by the work product doctrine
if they were prepared as a ‘more or less routine investigation of a possibly
resistible claim.’ ” Kan. City S. Ry. Co. v. Nichols Constr. Co., L.L.C., Nos.
05–1182, 05–5220, 05–4653, 2007 WL 2461014, at *5 (E.D. La. Aug.27,
2007) (quoting Tejada Fashions Corp. v. Yasuda Fire & Marine Ins. Co.
(U.K.), Ltd., No. 83 Civ. 5512(RO), 1984 WL 500, at *3 (S.D.N.Y. June 18,
1984)). Thus, the key question is when did OneBeacon shift from merely
investigating the claim to anticipating litigation. The Fifth Circuit has
noted that litigation pertaining to coverage is appropriately anticipated
from the date an insurer has a “solid basis to question the ... insurance
claim.” Dunn v. State Farm Fire & Cas. Co., 927 F.2d 869, 875 (5th Cir.
1991).
....
While the court agrees that often the date an insurer anticipates
litigation is the date that it denies coverage, a bright-line rule is
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inappropriate. ....
Here, unlike in [Lanelogic Inc. v. Great Am. Spirit Ins. Co., No.
3:08-cv-1164-BD, 2010 WL 1839294 (N.D. Tex. May 6, 2010)], OneBeacon
has pinpointed a “definite shift from acting in its ordinary course of
business to acting in anticipation of litigation.” The Welch Defendants
argue that this court, like the Lanelogic court, should determine that any
documents related to the investigation that predate OneBeacon’s
coverage determination cannot have been created in anticipation of
litigation and therefore were created in the course of OneBeacon's
ordinary business. OneBeacon asserts it attorneys were giving legal
advice relating to coverage and other issues because litigation was
reasonably anticipated after OneBeacon received the demand letter from
DISH. The conclusory statement that OneBeacon anticipated litigation,
standing alone, is not enough to show that OneBeacon anticipated
litigation and that the attorney-client privilege or work-product doctrine
should protect communications with attorneys about coverage or
documents prepared by OneBeacon's attorneys after this date. See
Lanelogic, 2010 WL 1839294, at *6 (considering the insurance company's
statement that “the primary motivating purpose for the creation of such
documents was to aid in possible future litigation” to be “self-serving” and
finding that “other evidence suggests that litigation concerns were not the
primary motivating purpose behind the creation of the documents at
issue”). However, when one couples the statement that the matter was
referred to outside counsel in anticipation of litigation with the contents
of the letter received from DISH on December 22, 2010, and considers
this information in light of the claims at issue in this litigation, it is
entirely reasonable to believe that OneBeacon referred the matter to
outside counsel in anticipation of litigation.
OneBeacon Ins. Co. v. T. Wade Welch & Assocs., No. Civ. A. H-11-3061, 2013 WL
6002166, at *1, *5, *6 (S.D. Tex. Nov. 12, 2013) (footnote and citations omitted).
Unlike the circumstances presented in those cases, here Certain Underwriters
have not explained how, and presented evidence of specific and precise facts to show
that, the primary motivating purpose behind the creation of these particular reports
and notes was to aid in possible future litigation. Even if Certain Underwriters have
shown that litigation was reasonably anticipated at the time of these documents’
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creation after there was a definite shift from acting in its ordinary course of business
to acting in anticipation of litigation or that there was a solid basis to question the
insurance claim, Certain Underwriters have not shown that these particular
documents created by these particular adjusters would have not been created without
regard to whether litigation was expected to ensue and were not made in the ordinary
course of business as opposed to in anticipation of litigation.
Certain Underwriters have failed to meet their burden to support withholding
these documents as protected work document and therefore must, by June 16, 2017,
produce to Defendants the withheld documents labeled as (1) Lloyds 00381-00383; (2)
Lloyds 00399-00402; and (3) Lloyds 00388-00398.
But, considering all of the circumstances here and the Court’s ruling above, the
Court orders, under Federal Rule of Civil Procedure 37(a)(5), that the parties will bear
their own expenses, including attorneys’ fees, in connection with the MTC.
Conclusion
For the reasons and to the extent explained above, the Court GRANTS
Defendants’ Opposed Motion to Compel Production of Certain Documents Withheld
from Production [Dkt. No. 62].
SO ORDERED.
DATED: June 9, 2017
_________________________________________
DAVID L. HORAN
UNITED STATES MAGISTRATE JUDGE

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