Market Place North Condominium Association v. Affiliated FM Insurance Company

Filing 69

ORDER granting in part plaintiff's 35 Motion to Compel Documents, signed by Judge Ricardo S Martinez. (SWT)

1
2
3
4
5
6
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

7
8
9
10
11
12
13

MARKET PLACE NORTH
CONDOMINIUM ASSOCIATION, a
Washington non-profit corporation,
Plaintiff,

Case No. C17-625 RSM
ORDER GRANTING IN PART
PLAINTIFF’S MOTION TO COMPEL
DOCUMENTS

v.

14
15
16

AFFILIATED FM INSURANCE
COMPANY,
Defendant.

17
18

This matter comes before the Court on Plaintiff Market Place North Condominium

19

Association (“the Association”)’s Motion to Compel Documents. Dkt. #35. For the reasons set

20

forth below, the Court GRANTS IN PART the Association’s Motion.

21
22
23
24

I.

BACKGROUND

A full background of this case is not necessary for the purposes of this Motion.
The Market Place North Condominium is located in downtown Seattle. Dkt. #22 (Peter

25

Danelo Declaration), ¶ 3. The property consists of a high-rise tower, a set of townhomes, a

26

parking garage, and four commercial spaces. Id. The property is managed by an Association,

27

which is acting as the Plaintiff in this case. In August 2015, the Association undertook certain

28

ORDER GRANTING IN PART PLAINTIFF’S MOTION TO COMPEL DOCUMENTS - 1

1

outdoor deck repairs of the high-rise tower. Id. at ¶ 5. Those repairs were completed in spring

2

2016 and cost the Association approximately $400,000. Damage uncovered during those deck

3

repairs led the Association to investigate other portions of the building. Id. at ¶ 6. After

4

learning in the summer of 2016 that water intrusion damage, or at least signs of it, existed

5
6
7

throughout the property, the Association put its insurer, Defendant in this case, on notice.1 Id.
at ¶ 7.

8

The Association’s investigation team met in person with AFM in early December 2016

9

to show damage already uncovered at the property, indicators that additional damage existed,

10
11
12

and to discuss the Association’s proposed intrusive investigation plan that it wanted AFM to
participate in. See Dkt. 20-3. AFM rejected the Association’s proposal, indicating that it did

13

not believe it had a legal obligation “to investigate potential damage, as opposed to actual

14

damage.” Dkt. #20-4 at 2. The Association then sent AFM a notice under Washington’s

15

Insurance Fair Conduct Act based on AFM’s failure to investigate. Dkt. #20-5. AFM did not

16

change its position, and the Association filed a Complaint in King County Superior Court in

17
18

March of 2017. See Dkt. #6. AFM removed to this Court in April of 2017. Dkt. #1. Later the

19

Association amended to add an IFCA claim after it believed coverage was denied in a

20

September 22, 2017 letter from AFM. See Dkt. #20-7. As the Court has previously stated, it is

21

unclear if this letter was a final decision. Although AFM stated coverage decisions and

22
23
24
25

conclusions it also stated that it was providing “preliminary analysis of potential coverage
issues,” and that it “finds itself in the position of attempting to analyze coverage in the absence
of a fully supported and documented claim.” Id.

26
27
28

1

AFM has insured the property since 2005, and the policies at issue in this case are from 2005 through 2016. See
Dkts. #20-1 and #20-2.

ORDER GRANTING IN PART PLAINTIFF’S MOTION TO COMPEL DOCUMENTS - 2

1

Discovery is proceeding in this case, and this Motion was filed to address the issue of

2

attorney-client privilege asserted by AFM for certain documents.

3

Association with documents created during its investigation including (1) a file titled “claim

4

file,” (2) emails of DiAnna Webber (AFM’s principal adjuster of the Association’s claim), and

5
6
7

AFM provided the

(3) emails of two other AFM employees, Richard Sunny and Erik Lonson, involved in the
adjustment and denial of the Association’s claim. Dkt. #36 at 2. AFM provided several

8

privilege logs claiming the attorney-client privilege for these and other documents. See Dkt.

9

#36-1. According to the Association, AFM claims this privilege for some communications

10
11
12

created seven months before this suit was filed and 13 months before the apparent coverage
denial letter in September 2017. Id. at 6.

13

The Association argues that it is entitled to the above discovery pursuant to Cedell v.

14

Farmers Ins. Co. of Washington, 176 Wn.2d 686, 295 P.3d 239 (2013) and the civil fraud

15

exception.

16

II.

DISCUSSION

17
18

A. Legal Standard

19

“Parties may obtain discovery regarding any non-privileged matter that is relevant to

20

any party’s claim or defense and proportional to the needs of the case, considering the

21

importance of the issues at stake in the action, the amount in controversy, the parties’ relative

22
23
24

access to relevant information, the parties’ resources, the importance of the discovery in
resolving the issues, and whether the burden or expense of the proposed discovery outweighs

25

its likely benefit.” Fed. R. Civ. P. 26(b)(1). If requested discovery is not answered, the

26

requesting party may move for an order compelling such discovery. Fed. R. Civ. P. 37(a)(1).

27
28

ORDER GRANTING IN PART PLAINTIFF’S MOTION TO COMPEL DOCUMENTS - 3

1
2
3
4
5
6
7

The party that resists discovery has the burden to show why the discovery request should be
denied. Blankenship v. Hearst Corp., 519 F.2d 418, 429 (9th Cir. 1975).
B. Analysis
The Association argues that, pursuant to Cedell, the attorney-client privilege generally
does not apply to the claims-adjustment process, but that Cedell recognized an exception when
the attorney is not actually engaged in investigating and evaluating or processing the claim.

8

Dkt. #35 at 7. The Association contends that AFM should have sought a protective order prior

9

to the documents being due and asked the Court to undertake an in camera review of the

10
11
12

documents it intended to withhold. Id. at 8. Finally, the Association argues that the civil fraud
exception applies here. Dkt. #35 at 11–12. The Association seeks an order to produce “all

13

documents on the four privilege logs at issue that [AFM] is withholding based on attorney-

14

client privilege (and any similar documents that it intends to withhold from future productions

15

on the same grounds).” Id. at 6–7.

16

AFM argues that, although it did hire counsel at an early stage, “counsel has not

17
18

performed AFM’s adjustment or investigation of [the Association]’s Notice of Loss or Claim—

19

that was done by AFM adjusters and its consultants at WJE, who attended MPN’s invasive

20

exploratory investigation.” Dkt. #38 at 5. AFM states that counsel only “provided legal advice

21

and strategy relating to coverage and AFM’s obligations under the Policy.” Id. AFM asserts

22
23
24

that it has produced a variety of un-redacted attorney-client communications, redacting or
withholding “only attorney fee invoices and communications where AFM counsel was asked to

25

or did provide legal advice or strategy as to AFM’s “potential liability” or coverage, which

26

Cedell protects.” Id. at 4. AFM spends significant time arguing that its use of counsel was

27

accelerated by the Association’s early filing of this lawsuit, at one point stating that the

28

ORDER GRANTING IN PART PLAINTIFF’S MOTION TO COMPEL DOCUMENTS - 4

1

Association “sued before completing its own invasive exploratory investigation—the results of

2

which it had insisted were necessary before it could inform AFM what the ‘nature and extent’

3

of loss was!” Id. at 7. AFM cites to Richardson v. Gov’t Employees Ins. Co., 200 Wn. App.

4

705, 714, (2017) for the proposition that Cedell discovery is cut off once litigation commences.

5
6
7

Id. at 9–10. However, this Court has recently found in a similar case that “nothing in Cedell
limits the discoverability presumption to prelitigation evidence, and Richardson, supra, is

8

inapposite to the facts of this case as the investigation occurred after litigation commenced.”

9

Westridge Townhomes Owner Ass’n v. Great Am. Ins. Co., No. C16-1011RSM, 2018 WL

10
11
12
13

993962 (W.D. Wash. Feb. 21, 2018). AFM argues that this case is distinct from Westridge
because, inter alia, the initial Complaint “asserted contractual and extra-contractual claims.”
Dkt. #38 at 10 (emphasis in original).

14

On Reply, the Association argues that it “was able, after comparing and contrasting

15

multiple iterations of privilege logs submitted by AFM with contradictory descriptions and

16

categorizations of documents, to identify four key letters signed by DiAnna Webber that

17
18

appeared to have been drafted by AFM’s attorneys at Wilson Smith Cochran Dickerson

19

(WSCD).” Dkt. #42 at 1–2. These letters are part of the documents withheld by AFM. The

20

Association cites to Bagley v. Travelers Home & Marine Ins. Co., No. C16-0706 JCC, 2016

21

WL 4494463, *3 (W.D. Wash. Aug. 25, 2016) as a case on point where the Court held that

22
23
24

Cedell “applies broadly to the quasi-fiduciary task of claim handling, and is not limited to only
pre-litigation activities.”

25

This case, originally about water damage to a condominium complex, has devolved into

26

a shouting match between lawyers accusing each other of bad faith. The Court finds that AFM

27

has not established solely through its declarations that the above exception to the Cedell rule

28

ORDER GRANTING IN PART PLAINTIFF’S MOTION TO COMPEL DOCUMENTS - 5

1

applies to these documents. The Court agrees that Cedell applies broadly to the quasi-fiduciary

2

task of claim handling, and is not limited to only pre-litigation activities in this case. The Court

3

is concerned by the fact that AFM had outside counsel create drafts of a coverage analysis

4

letter. To get to the bottom of the issues raised in this Motion, the Court will order an in

5
6
7

camera review of all de-duplicated records remaining in AFM’s privilege log, both pre- and
post-litigation. Documents need not be submitted for review if the mediation privilege under

8

FRE 408 applies or if the record is a legal invoice, as the Court is not convinced these could be

9

investigatory or claim handling in nature.

10
11
12

III.

CONCLUSION

Having reviewed the relevant briefing, the declarations and exhibits attached thereto,

13

and the remainder of the record, the Court hereby finds and ORDERS that Plaintiff Market

14

Place North Condominium Association’s Motion to Compel Documents (Dkt. #35) is

15

GRANTED IN PART as set forth below:

16

1) The Court will conduct an in camera review of the documents at issue.

17
18

2) The parties are to meet and confer and agree on the documents to be submitted for

19

review based on the Court’s ruling above. The parties shall take every effort to

20

minimize the number of documents that need to be reviewed.

21

3) AFM is to submit these documents to the Court no later than fourteen days after the

22

date of this Order.

23
24

4) In all other respects, the Association’s Motion is DEFERRED. The Court may
request additional briefing if necessary to rule on remaining issues.

25
26
27

//
//

28

ORDER GRANTING IN PART PLAINTIFF’S MOTION TO COMPEL DOCUMENTS - 6

1
2
3
4

DATED this 12th day of July 2018.

A

RICARDO S. MARTINEZ
CHIEF UNITED STATES DISTRICT JUDGE

5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

ORDER GRANTING IN PART PLAINTIFF’S MOTION TO COMPEL DOCUMENTS - 7