Are Insurance Investigative Documents Work-Product-Protected?

The discoverability of an insurance claim file, containing information such as investigative and adjusters’ reports, presents distinct considerations in the work-product-protection analysis:

In the insurance claim context, the distinction between materials prepared in the ordinary course of business and work product prepared in anticipation of litigation is often a moving target. The adjustment of insurance claims by its nature presents a possibility of litigation in many, if not most, claims involving a material loss. On the other hand, a significant part of an insurance company’s ordinary course of business involves investigating insurance claims and making coverage determinations.

Milder v. Farm Family Cas. Ins. Co., C.A. No. 08-310S, 2008 U.S. Dist. LEXIS 84665, at * 3–4 (D.R.I. Oct. 21, 2008).

First-Party Claims
During an insurer’s adjustment of an insured’s claim, an investigative report is usually considered to have been drafted as part of the regular course of the insurer’s business. “The rationale is that when an insured presents a first party claim, the insurance company owes the insured a duty to adjust the claim in good faith, and there is no initial contemplation of litigation.” 6 James W. Moore, Moore’s Federal Practice § 26.70[3][c] at 26-448 (3d ed. 2013).

Third-Party Accident Claims
Federal court case law regarding investigative reports made in connection with third-party accident claims is unsettled. Galvin v. Pepe, No. 09-cv-104-PB, 2010 U.S. Dist. LEXIS 82119, at *7 (D.N.H. July 8, 2010). Federal courts have applied one of three tests to determine whether an insurer’s investigative claim file may be work-protect-protected under Rule 26(b)(3). One line holds that a claim file is conclusively presumed to have been made in the regular course of business and not in anticipation of litigation, unless it was requested by or prepared for an attorney. See, e.g., Thomas Organ Co. v. Jadranska Slobodna Plovidba, 54 F.R.D. 367, 272 (N.D. Ill. 1972). A second and opposite line holds that a document prepared by an insurer in response to a third-party accident claim is prepared in anticipation of litigation. See, e.g., Fontaine v. Sunflower Beef Carrier, Inc., 87 F.R.D. 89, 92 (E.D. Mo. 1980). The third and majority approach holds that the work-product analysis is fact-specific and that the party opposing discovery must meet its burden of proof under Rule 26(b)(3). See, e.g., S.D. Warren Co. v. Eastern Elec. Corp., 201 F.R.D. 280, 283 (D. Me. 2001).

Under the majority approach, the withholding party must show by objective evidence that the investigative documents were specifically created in anticipation of litigation and would not have been created in the same manner if the prospect of litigation had not existed. Weber v. Paduano,2003 U.S. Dist. LEXIS 858, at * 11–13. The insurer’s involvement of legal counsel does not automatically mean that the claim investigation was undertaken in anticipation of litigation. Providence Piers, LLC v. SMM New England, Inc., No. 12-532S, 2014 U.S. Dist. LEXIS 45026, at *13 (D.R.I. Mar. 25, 2014). The fact that a document was insurer-authored, as opposed to attorney-authored, is not necessarily dispositive as to whether it was prepared in the ordinary course of the insurer’s business rather than for litigation.

The Effect of a Potential Subrogation Claim
Weber is particularly important in cases where work-product protection is asserted relating to a subrogation investigation. The Weber court held that the work-product doctrine applies once the insurer has decided on pursuing the subrogation action, not at the initial stages when it is investigating the possibility of subrogation.

[A]n insurer does not have an identifiable resolve to litigate . . . until it has made a decision regarding subrogation. Until that point, an investigation into the potential for subrogation is simply part of an insurer’s ordinary practice of investigating all issues arising from an accident involving its insureds, and documents created as part of this process would have been created in the same form regardless of the insurer’s eventual decision as to litigation.

Weber, 2003 U.S. Dist. LEXIS 858, at *23.

The Providence Piers Decision
The District Court of Rhode Island’s recent ruling in Providence Piers presents a careful weighing of competing arguments in the work-product analysis. The plaintiff business brought suit against a neighboring company alleging that the defendant’s stockpiling of scrap metal caused structural and environmental damages to the plaintiff’s property. Six months after it filed its lawsuit against its neighbor, the plaintiff reported a claim to its insurer for the damages caused by the defendant’s business operations. The insurer commenced a prompt investigation of the claim, focusing on both coverage and subrogation issues. Within 10 days of its notice of the claim, the insurer engaged an engineering company to provide a causation analysis and another firm to perform a damage analysis. Two weeks after its receipt of the investigative reports, the insurance company retained a law firm regarding coverage issues. The insurer also consulted with its national coverage counsel and a third firm regarding a subrogation claim. In the meantime, the lawsuit between the insured and its neighbor moved forward with discovery. The plaintiff identified in its discovery responses that it had communicated with its insurer regarding the engineering firm’s investigative report. The defendant served document subpoenas on the plaintiff’s insurer and the engineering firm. A discovery battle ensued as the insurance company (with the engineering firm’s support) asserted work-product protection, and the defendant filed motions for compliance with its subpoenas.

The court ruled that the investigative materials were not work-product-protected under Rule 26(b)(3). The evidence showed that the reports were ordered by non-attorney adjusters upon learning of the claim and before the engagement of counsel. The insurer did not present sufficient proof that this work would not have been done but for the anticipation of litigation. The insurer cited the fact that the insured was already in litigation when it received notice of the claim. The insurer further referred to the potential for either coverage or subrogation litigation, which the court found “is in the background of every insurance claim at the outset.” The court ruled that the insurer “has presented no evidence to demonstrate that these documents were not produced in the ordinary course of its investigation of [its insured’s] claim.” Because the insurer failed to make a particularized showing to support the claim of work-product protection, the court ordered the production of the withheld reports and related investigative documents.

Conclusion
Given the lack of uniformity in federal courts’ application of the work-product doctrine in third-party accident cases, both plaintiffs seeking the production of the investigative documents and defendants and insurers opposing the discovery must identify and understand the controlling test in the jurisdiction. If the majority approach applies, the parties may dispute the precise point at which the insurance company shifted from its activity in the ordinary course of business to operating in anticipation of litigation. “[N]o hard and fast rule governs when this change occurs.” S.D. Warren, 201 F.R.D. at 285. Consequently, cases can get sidetracked as the parties haggle over precisely when an insurance company considered a claim to “be more likely than not headed for litigation.” The discovery dispute could prove to be expensive with unpredictable results. As part of their “meet and confer” obligations, the parties should determine whether a reasonable resolution can be reached regarding the discoverability of the investigative documents and whether any protective or confidentiality orders are necessary regarding the scope of production and use of the documents.

Keywords: litigation, pretrial practice, discovery, work product doctrine, confidentiality order, protective order, protecting insurer's investigation

Steven M. Richard is counsel with Nixon Peabody LLP in Providence, Rhode Island.

^{Copyright © 2014, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).}