Last week the Middle District of Georgia issued a decision that a carrier’s work product protection can essentially evaporate for claims records generated during the period when the insured and insurer clearly disputed coverage if the carrier is later willing to revisit its coverage position and agreed that a covered loss occurred. Omni Health Sols., LLC v. Zurich Am. Ins. Co., 2018 U.S. Dist. LEXIS 168975 (M.D. Ga. Oct. 1, 2018). Insurer’s claims adjuster inspected a roof that allegedly suffered hail damage in February 2011 and declined the claim as he did not observe any storm-related damage to the roof. Plaintiff then hired an engineer who rendered an opinion that the roof had been damaged by hail. Zurich then hired an engineer who in March 2011 who found the roof damage was due to poor installation and not hail. Coverage was denied on initial inspection and the denial was reaffirmed after the insurer’s expert’s opinion. Plaintiff continued to demand consideration of its claim. Slightly more than 6 months after the loss, in late September 2011, the insurer ultimately agreed that covered hail damage did occur to the roof. An adjustment of the claim ensued and in January 2012 the plaintiff demanded appraisal as he was dissatisfied with Zurich’s assessment of the amount of the loss. An appraisal rendered an award in the amount of $886,795.57 but the insurer withheld $337,424.35 of the award. Suit ensued for breach of contract and bad faith.

During the course of litigation, Plaintiff asked Defendant to produce “[c]opies of all adjuster logs, internal communications, taped or recorded statements, engineering reports, and other documents and records relating to the Property.” Defendant responded that it is “in possession of its claims notes, which are not being produced herewith.” Plaintiff asserted that the claims notes were not protected by the attorney-client privilege nor the work-product doctrine. Zurich ultimately revised its privilege log and produced two sets of claims notes containing a total of 118 entries from February 15, 2011 to March 28, 2011, and from October 10, 2011 to November 2, 2011. The Court conducted an in camera review of over 1,500 pages of Defendant’s claims notes.

Zurich contended that the claims notes created in “anticipation of litigation” were those created after the point when Zurich subjectively perceived a strong possibility of litigation. Plaintiff contends that only the notes prepared in anticipation of litigation were those created because of the litigation and would not have been prepared but for the impending litigation.

The court held that a document is prepared in anticipation of litigation if it “can fairly be said to have been prepared or obtained because of the prospect of litigation, . . . (and not) in the regular course of business.” The court quoted the 11th Circuit decision of Underwriters Ins. Co. v. Atlanta Gas Light Co., 248 F.R.D. 663, 667 (N.D. Ga. 2008):

[Insurance] claim files straddle both ends of this definition, because it is the ordinary course of business for an insurance company to investigate a claim with an eye toward litigation. Consequently, claim files generally do not constitute work product in the early stages of investigation, when the insurance company is primarily concerned with deciding whether to resist the claim, to reimburse the insured and seek subrogation . . . or to reimburse the insured and forget about the claim thereafter. Once litigation is imminent, however, the claims investigation file is maintained in anticipation of litigation and its contents are protected by the work product doctrine.

After reviewing the law, the court held that “the true, objective determination is at what point litigation became “imminent” as opposed to merely possible or part of the abstract atmosphere.” Zurich contended that litigation became imminent on or around March 24, 2011, when its expert conducted an independent investigation and concluded that “he saw no evidence of hail during [the] inspection.” Zurich contended that is when the parties had “reached a complete impasse on the issue of whether the roof had covered damage.”

However, the court held that in September or October of 2011, Zurich chose to reinspect the property at Plaintiff’s insistence and, contrary to its previous position, chose to cover the damage to the roof. Critically, the court held that Zurich’s willingness to reconsider its coverage position and reinspect the roof, was evidence that “coverage was not, in fact, at an impasse.” By being willing to revisit its coverage position, the court held that there was not “the level of adversarial imminence that would warrant protection of documents.”

The court then held that a reasonable anticipation of litigation occurred on January 12, 2012, when Plaintiff demanded an appraisal under the terms of the policy. Upon demand for appraisal, the court held that the Plaintiff and Defendant were engaged in the adversarial process, whereas before that time, Zurich was “primarily concerned with deciding whether to resist the claim, to reimburse the insured and seek subrogation . . . or to reimburse the insured and forget about the claim.” Thus, the court held that the Plaintiff was entitled to discover all of Defendant’s claims notes before January 12, 2012.

The court further sought to determine whether the insured was entitled to claims notes after January 12, 2012, if the plaintiff shows “that it has substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means.” Fed. R. Civ. P. 26(b)(3)(A)(ii).

Zurich contended it provided all names of witnesses and Plaintiff could depose the witnesses as necessary so work product protection should be maintained on its claim documents after January 2012. Plaintiff contended a witness integral in the resolution of the insurance claim stated that he could not recall most of the information surrounding Plaintiff’s insurance claim.

The court ordered the suit be bifurcated. The claim notes before January 2012 were ordered produced unredacted for the breach of contract portion of the suit. Upon the resolution of Plaintiff’s breach of contract claims—and not before that time—the remaining claims notes would be subject to further consideration by the court for production in the bad faith claim portion of the suit.

By Hall Booth Smith