Nei v. The Travelers Home & Marine Ins.

INSURANCE BAD FAITH: Discovery compelled in part, denied in part. . . document “dump” prohibited, must be searchable and indexed, no “confusing and evasive” responses to broader requests. . . Plaintiff awarded 1/2 fees/costs incurred on motion. . . Molloy.

Shirley MacDonald ran a stop sign in front of a Ford Taurus occupied by Steven Nei and his daughter 1/6/15 on Hwy 93 near Florence. He has been diagnosed with injuries to his brain, spine, arm, hand, and extremities. MacDonald’s insurer USAA paid its $300,000 liability limit. Nei’s insurer Travelers Home & Marine Ins. took the position that the claim was not worth more than the USAA limits. Nei had paid for $5,000 med-pay and $500,000 UIM for each of his 3 vehicles from 2009, and argues that they should stack. He sued Travelers in State Court alleging bad faith and unfair claims practices and seeking a declaration of coverage and punitives. The case was removed to this Court. Nei sought discovery of Travelers’ claims file, manuals, and procedures, its pattern & practice, and its incentives for bonuses. Travelers objected to most of its requests. Nei moves to compel. He objects to Travelers’ boilerplate objections, seeks an unredacted claims file, and requests that Travelers be ordered to produce the requested historical & claim information. Both Nei’s requests and Travelers’ objections suffer from infirmities: Nei’s request lacks “reasonable particularity,” Rule 34(b)(1)(A); Travelers’ objections also lack particularity, Rule 34(b)(2)(B), and fail to state “whether any responsive materials are being withheld,” Rule 34(b)(2)(C).

“Boilerplate objections or blanket refusals” are not consistent with the discovery rules. BNSF (9th Cir. 2005). The Local Rules also require specific reasons for objections. “The burden lies on the objecting party to show that a discovery request is improper. Where a party’s objections are themselves vague and impermissibly overbroad, and no specifics are given, the objecting party fails to carry its burden.” Russell (D.Mont. 2012). Nonetheless, the Court has an obligation to review discovery requests to ensure that they are not frivolous. Moreno (DPR 2011). Travelers’ “boilerplate” objections state either:

Travelers objects to this Interrogatory as irrelevant, overly broad, burdensome, oppressive, not proportional to the needs of the case, seeking non-discoverable expert information beyond that allowed by Rule 26(b)(4);

or

Travelers objects to this Request for Production as irrelevant, overly broad, not limited in duration, burdensome, oppressive, not proportional to the needs of the case, and seeking information that is confidential and/or proprietary business information.

Irrespective of their individual application, none of Travelers’ objections state whether responsive material was withheld as required by Rule 34(b)(2)(C). At the 7/18 hearing, counsel argued that this is immaterial because an objection implies existence of responsive materials. However, Rule 34 was specifically amended in 2015 to make such a statement mandatory. Comm. Notes. Failure to clarify existence of responsive materials also hamstrings the Court’s ability to assess relevancy & proportionality. Travelers’ objections fail to comply with Rule 34 and can be overruled on those grounds alone. They also lack specificity in their individual application. Its argument that while they may be broad and overlap, “the objections apply,” is a truism. Almost any discovery request could be objected to by generally stating the limitations of discovery. However, that does not mean that those objections are sufficiently specific. On the other hand, as Travelers argued, many of Nei’s requests are overbroad. As a result, neither his requests nor Travelers’ objections are helpful in determining the amount of discovery that is proportional under these circumstances. Rule 26(b)(1). However, at minimum, proportional discovery lies somewhere in the middle. Accordingly, Travelers’ objections are overruled in part and it is required to provide responsive materials as outlined below.

Nei seeks a complete, unredacted copy of his claims file. Travelers insists that it has produced the file, excepting only the parts outlined in the privilege logs, which have been supplemented pursuant to Rule 26(e). It further insists that the privileged information was appropriately withheld. Nei argues that Travelers is attempting to use privilege as both a sword and a shield and that it has sent him on “a never-ending wild goose chase,” releasing different parts of the file at different times and with over 1,500 pages of shuffled, duplicate pages. It is not clear what parts of the file have been produced and which redacted. It seems that the Third Supplemental Privilege log outlines all that has been withheld. Because this case is in the unique procedural posture where both bad faith litigation and claim investigation are pending, in camera review of most of the withheld documents is necessary.

A federal court sitting in diversity applies the privilege of the forum state, Theme Promotions (9th Cir. 200), and federal law in determining application of the work product doctrine, Moe (D.Mont. 2010).

Privilege is construed narrowly under Montana law, American Zurich (Mont. 2012), and “to the extent 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, “Barnard Pipeline (D.Mont. 2014). “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. “To deserve protection, documents must contain confidential communications for the purpose of seeking legal advice.” Id.

To be protected under the work product doctrine, the document must be “prepared in anticipation of litigation.” Rule 26(b)(3)(A). This does not include documents prepared in the ordinary course of business, Barnard, and the party withholding the documents has the burden to show that each documentwithheld “was prepared or obtained because of the prospect of litigation,” Moe. “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.” Barnard. But once an insured has filed a bad faith action, “all documents generated by the insurer are generated ‘in anticipation of litigation’ and are not part of the ordinary course of business.” Id.

The Third Supplemental Privilege Log outlines 43 pages withheld as either privilege or work product. Only 1 entry pre-dates Travelers’ knowledge of Nei’s suit (8/28/17), and is described as emails between attorney Adrienne Harris and Anthony Schwisow about “a separate claim that was inadvertently added to claim notes.” All the other documents relate to communication with Travelers’ current counsel Jon Wilson. It appears that all the other information withheld under the previous privilege logs — including communications with previous counsel Spoon Gordon Ballew — has been provided.

Whether the documents identified in the Third Supplemental Privilege Log have been properly withheld is complicated by the fact that Travelers has never formally denied Nei’s claim, admitting at the 7/18 hearing that it continues to investigate with the aid of present counsel. Thus there is a question about invoking the attorney-client privilege based on the extent to which present counsel acted as a “claims adjuster, claims process supervisor, or claims investigator, and not as a legal advisor.” Barnard.

There is also a work product question because “the work product doctrine applies to documents generated by an insurer after the insured files a bad faith claim against the insurer, even when the insurer has not yet formally denied the insured’s claim.” Id. But work product protection 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.” Id.; Rule 26(b)(3)(A)(i)-(iii). “To obtain ordinary work product materials, the requesting party must show a ‘substantial need’ for the materials.” Id. And “to obtain opinion or mental impression work product as defined in [Rule] 26(b)(3)(A)(ii), the requesting party must show a ‘compelling or overwhelming need’ for the materials.” Id.; Moe.

Because an insurer’s “claims file reflects a unique, contemporaneous record of the handling of the claim” that cannot be obtained elsewhere, 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, 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. Barnard.

But an “insured cannot establish a compelling need for the opinion work product of an insurer’s attorneys” “unless the insurer relies on the advice of counsel defense.” Id.

Accordingly, in camera review of most of the documents identified in the Third Supplemental Privilege Log is appropriate. Moe (opting for in camera review over the more serious sanction of deeming deficient log entries “as a waiver of the attorney-client privilege”). Only by reviewing these documents can the Court determine if they contain claims handling, justifying Nei’s “compelling need” for them, or if they contain legal advice and/or counsel’s mental impressions & opinions limited to the present litigation. Travelers need not produce or provide for in camera review the “Draft of Civil Cover Sheet,” “Draft of Preliminary Pretrial Statement,” “Draft(s) of Exhibit Designation for Notice of Removal to U.S. District Court,” “Draft of Corporate Disclosure Statement,” or “Draft of Attachment to Civil Cover Sheet.” These documents undisputedly contain the opinions & mental impressions of current counsel in relation to the current litigation and Nei cannot establish compelling need for them.

Nei has also requested Travelers’ historic information and information for other claims and suits, arguing that other cases show that it has the information and that similar discovery has been ordered. Moe. He is entitled to certain historical and claims handling information, but he is required to show a nexus with the issues in this case or that “the defendant’s conduct in other cases” is sufficiently similar to the conduct in the instant case. Id. To the extent that he makes general requests for information unrelated to Travelers’ activities in Montana around the time of his claim, they are denied as irrelevant and disproportionate. Rule 26(a)(1).

Consistent with the analysis above, each interrogatory and request for production is addressed individually:

Int. 10. Identify the number of claims in which Defendant or its attorneys have hired any physicians to provide medical records reviews or medical examinations in any Montana cases in the last 10 years. Nei alleges numerous facts associated with his treatment & diagnosis by Dr. Rosen and claims that Travelers has been obstinate in “seeking to hire forensic medical examiners to justify its own predetermination about [Nei’s] claim” and that it “refused to accept statements from Steven Nei’s medical providers and delayed things further by stating that it needed more information before it could send Steve Nei to its hand-picked doctors for forensic medical evaluations in order to support its position.” He has made a sufficient threshold showing that the interrogatory is relevant. However, he has made no allegation that any physicians hired by Travelers were incompetent or not qualified to perform medical records review or an IME, while Travelers’ counsel indicated at the hearing that the policy required that he see one of its physicians and that the physician in this case had not worked for Travelers before. But even if that is not the whole story, the mere fact that Travelers contracts with certain physicians is not sufficient to show a “track record” of “biased medical opinions.” McCall (D.Nev. 2017) (“If the requirement for proportionality in discovery means anything, it must mean that burdensome, tangential discovery should not be permitted based on the mere possibility that something may turn up to support what is otherwise only speculation.” Weighing these concerns, Travelers is required to respond to a narrower interrogatory: Identify the number of claims in which Defendant or its attorneys hired the physician(s) that worked on this case to provide medical records reviews or medical examinations at the time of Nei’s claim and 5 years prior to the filing of his claim.

Int. 11: For all claims in which Defendant has hired any Montana physicians to provide medical records reviews or medical examinations in the last 10 years, identify the nature of the case and the name, address, and phone number of the Montana physicians Defendant or its attorneys have hired.Travelers is required to respond to a narrower interrogatory similar to Int. 10.

Int. 12: State the amount of money which Defendant or its attorneys have paid to the Montana physicians identified above in the last 10 years. Travelers is required to respond to a narrower interrogatory similar to Ints. 10 & 11.

Int. 13: Provide a list of all claims that have been made against Defendant for UIM, UM, med-pay, and bad faith at the time of Nei’s claim and 5 years prior to filing of his claim. Travelers’ objection is sustained. This request is overbroad and goes beyond the scope of matters relevant to the bad faith litigation. It is also disproportionate considering the issues and the bearing such discovery would have on them. Rule 26(b)(1).

RFP 6: Produce the entire claims file(s) pertaining to Nei’s claims in this case from the date they were opened. Withheld documents are subject to in camera review.

RFP 7: Produce a copy of all electronic documents including adjuster’s notes, diary entries, and emails dealing in any manner with Nei’s med-pay and UIM claims. Withheld documents are subject to in camera review.

RFP 13: Please produce all policy manuals, claim manuals, general manuals, rules, instructions, guidelines, internal operating procedures, or other similar written evidence of the policies, procedures, or protocols required or recommended by Defendant or Defendant’s adjusters in connection with the processing, adjustment, settlement, or handling of bodily injury and UIM claims in Montana. Travelers’ claims manual and policies are relevant to Nei’s bad faith claims. However, the request is overly broad and must be temporally limited. See First Horizon (WD Tenn. 2016) (“The Defendant’s conduct and positions they took in other insurance claims is of no consequence to the instance case.”). The request is limited to 5 years prior to filing of Nei’s claim.

RFP 15: Please produce all manuals, guidelines, newsletters, or directives made available to claim supervisors or managers from 2005. Travelers’ manuals and policies are relevant to Nei’s bad faith claims, but the request is overly broad and is limited to documents made available in connection with bodily injury and UIM claims in Montana around the time of Nei’s claim. Unlike RFP 13, it does not make sense to limit the request to those associated specifically with Nei’s claims as these types of policy documents and broader operations manuals would not necessarily be connected to a specific case. And while Travelers “cannot unilaterally narrow the geographic scope of plaintiffs’ requests to the region of Montana,” Simonsen (31 MFR 154), Nei fails to make the requisite relevancy showing for his expansive request.

RFP 16: Please produce all asset & balance sheets showing the net worth of Defendant. Production not required. As discussed at the 7/18 hearing, Nei may rely on publicly available information as to the net worth of Travelers and its related entities. Any objection that such information exaggerates or inaccurately reflects its net worth will be considered in conjunction with its refusal to provide more specific information as requested above.

RFP 17: Please produce organizational charts regarding the claims department from 2005. If you contend that your company did not maintain organizational charts during any portion of the time covered by this request, then please produce documents and writings containing information regarding the departmental structure, lines of supervision or authority, and personnel employed during such period. While Travelers’ internal structures & incentives are relevant to Nei’s bad faith claim, this request is overly broad and must be limited to employees working on bodily injury and UIM claims in Montana around the time of his claim.

RFP 18: Please produce written job descriptions for all positions held by Anthony Schwisow and his supervisors from 2005. Travelers’ objection overruled as to Schwisow, sustained as to his supervisors. Schwisow appears to have been involved in the handling of Nei’s claim. His job descriptions are relevant to Nei’s bad faith claim. McCall (“Information regarding the job qualifications and training of the claims employees who actually handled the plaintiff’s insurance claim is relevant and generally discoverable in a bad faith action.”). However, it is disproportionate to also require the job descriptions for his supervisors, without specifically naming them.

RFP 19: Please produce all directions for your claims adjusters handling cases in Montana. Travelers’ objection is sustained. This request is overbroad and it is not clear what Nei means by “directions.”

RFP 20: Please produce complete copies of all information Travelers produced in discovery in Grossi (Pa. 2013), with the exception of any of the plaintiff’s medical records or private information regarding the plaintiff. Travelers’ objection is sustained. This request is overbroad, seeks irrelevant information, and asks for discovery disproportionate to the needs of the case. “Bad faith claims are fact specific and depend on the conduct of the insurer vis a vis the insured.” Grossi (quoting Condio (Pa. 2006). The facts in Grossi — which involved Travelers holding only a $1 million reserve despite facts & value of claim — are distinguishable from those here. Moe (while “evidence of a defendant’s conduct in other cases may be relevant and admissible,” it must be “sufficiently similar to the conduct in the instant case”).

RFP 24: Please produce a computerized list of and copies of complaints filed in all civil actions against Defendant during the past 10 years alleging insurance bad faith, unfair claim settlement practices, fraud, or similar tort theories, stating the court in which the case was filed, the case number, and the name, address, and telephone number of counsel for plaintiff(s). This is overbroad, disproportionate, and includes information not relevant to this case. However, Montana cases involving similar issues during a similar period are relevant to Nei’s claims. Travelers is required to provide only the complaints, court, and case number. Further information is available in the public record.

RFP 28: Please provide copies of all complaints by policyholders received by Defendant from individuals in Montana from 2005. Travelers’ objection is sustained. This is vague and overbroad. There is no limitation on the type of complaints, making it unclear how this information is relevant to the current suit or proportionate to its needs.

RFP 29: Please produce complete copies of Defendant’s claims manuals pertaining to evaluating and reserving UM and UIM claims, including Travelers Liability Best Practices Manual(s). Travelers is required to produce. It is fair to assume that reserves may be recommended by Montana adjusters, but they may be set elsewhere in Travelers’ organization related to UIM claims in Montana at the time of Nei’s claim.

RFP 30: Please produce any documentation that explains with specificity & particularity the manner in which you compensate your employees who adjust, handle, settle, litigate, or otherwise process UM or UIM claims. Travelers’ payment, incentive, and bonus information is relevant to Nei’s bad faith claim. However, the request is overbroad and must be limited to compensation for employees that did adjust, handle, litigate, or otherwise process such claims in Montana around the time of Nei’s claim (5 years prior to filing).

RFP 32: Please produce copies of any Montana-specific claims manuals or directives you have generated or used for Montana claims from 2005.Travelers is required to produce the documents for the 5 years before Nei’s claim was submitted.

RFP 33: Please produce your UIM claims manuals and indexes from 2005. Travelers is required to produce them for the 5 years before Nei’s claim.

RFP 34: Please produce any manuals or directives regarding Montana cases which address med-pay and stacking. Travelers is required to produce them for the 5 years prior to Nei’s claim.

Travelers must produce the information to Nei within 10 days. It may not simply “dump” documents, but must provide them searchable and indexed. It is cautioned to avoid “confusing and evasive” responses to the broader disclosure requests ordered above. Simonsen.

Travelers shall bear its own fees & costs on the present motion, as well as half of Nei’s. Rule 37(a)(5)(C), (c)(1)(A). While both parties failed to adhere to the discovery rules, a partial award of fees & costs is justified based on Travelers’ complete failure to comply with Rule 34(b)(2)(C). Holmgren (9th Cir. 1992) (upholding a 37(c) award where the insurer “acted as if the rule simply didn’t exist”).

Nei v. The Travelers Home & Marine Ins., 44 MFR 191, 7/26/18.

James Towe (Towe & Fitzpatrick), Missoula, for Nei; Guy Rogers & Jon Wilson (Brown Law Firm), Billings, for Travelers.