This is the second installment of a two-part series discussing how young lawyers can contribute to the litigation team by handling several aspects of the discovery phase in insurance coverage and bad faith cases. Part 1 explained the difference between a coverage case and a bad faith cases and discussed whether claims files, reserve information, reinsurance information, and information regarding other insureds are discoverable, privileged, or otherwise protected in insurance coverage and bad faith cases. Part 2 discusses whether insurer’s claims guidelines and underwriting guidelines are discoverable, privileged, or otherwise protected in insurance coverage and bad faith cases.
Insurer’s manuals and guidelines are internal documents that outline the procedures and standards for handling claims, underwriting policies, and other operational activities. These documents provide guidance to insurance company employees on how to process claims, evaluate risks, and comply with regulatory requirements.
There is a jurisdictional split on whether insurer’s manuals and guidelines are precluded from discovery in an insurance coverage case. Compare McCalla v. Royal Maccabees Life Ins. Co., 14 F. App'x 840, 845 (9th Cir. 2001) (finding that evidence of the insurer's claims handling practices was germane to the insured's breach of contract claim) and Glenfed Dev. Corp. v. Super. Ct., 62 Cal. Rptr. 2d 195, 197-99 (Ct. App. 1997) (permitting the discovery of an excess insurer's claims manual in coverage litigation) with Columbian Chems. Co. v. AIG Specialty Ins. Co., Civ. A. No.: 5:14-cv-166, 2015 WL 12755711, at *4 (N.D. W. Va. Sept. 18, 2015) (observing in a breach of contract action that "absent a bad faith claim or perhaps an alleged ambiguity in the terms of the policy, an insurer's claims manuals, procedures, and internal guidelines are not reasonably calculated to lead to admissible evidence") and Idaho Tr. Bank v. Bankinsure, Inc., Case No. 1:12- CV-032-REB, 2013 WL 12156409, at *2 (D. Idaho Jan. 18, 2013) (refusing discovery in a declaratory judgment and breach of contract action), and Royal Bahamian Ass'n, Inc. v. QBE Ins. Corp., 745 F. Supp. 2d 1380, 1381 (S.D. Fla. 2010) ("[E]vidence of an insurance company's claims handling procedures is irrelevant to the determination of coverage and damages. . . . These procedures are only relevant to a claim of bad faith.").
In bad faith cases, courts generally find insurers' manuals and guidelines are discoverable because they are directly relevant to the insurer's conduct and handling of the claim. See, e.g., Safeco Ins. Co. of Am. v. M.E.S., Inc., 289 F.R.D. 41, 52 (E.D.N.Y. 2011); PCS Phosphate Co. v. Am. Home Assurance Co., No. 5:14-CV-99-D, 2015 U.S. Dist. LEXIS 165548, at *5 (E.D.N.C. Dec. 10, 2015); D'Aprile v. Unum Life Ins. Co. of Am., No. 2:09-cv-270-FtM-36SPC, 2010 U.S. Dist. LEXIS 95716, at *3 (M.D. Fla. Aug. 25, 2010); Renfrow v. Redwood Fire & Cas. Ins. Co., 288 F.R.D. 514, 521-22 (D. Nev. 2013); Phillips v. Hanover Ins. Co., No. CIV-14-871-R, 2015 U.S. Dist. LEXIS 51301, at *6 (W.D. Okla. Apr. 20, 2015); Glob. Client Sols., L.L.C. v. Exec. Risk Indem., Inc., No. 13-CV-35-GKF-FHM, 2013 U.S. Dist. LEXIS 117000, at *2 (N.D. Okla. Aug. 19, 2013); United States Fire Ins. Co. v. City of Warren, No. 2:10-CV-13128, 2012 U.S. Dist. LEXIS 58353, at *9 (E.D. Mich. Apr. 26, 2012); Cunningham v. Standard Fire Ins. Co., Civil Action No. 07-cv-02538-REB-KLM, 2008 U.S. Dist. LEXIS 117304, at *6 (D. Colo. July 1, 2008); United States Fire Ins. Co. v. Bunge N. Am., Inc., 244 F.R.D. 638, 646 (D. Kan. 2007). Courts, for example, have allowed discovery of these documents where a policyholder alleges that the insurer’s own policies or procedures, as described in the guidelines or manuals, “embody or encourage bad faith practices.” Grange Mut. Ins. Co. v. Trude, 151 S.W.3d 803, 813 (Ky. 2004).
Insurers' manuals and guidelines generally do not contain privileged information because they are not typically created for the purpose of obtaining legal advice or in anticipation of litigation, but some insurers have successfully argued that claims manuals and guidelines represent the insurer’s trade secrets. See, e.g., Hamilton v. State Farm Mut. Auto. Ins. Co., 204 F.R.D. 420, 424 (S.D. Ind. 2001) ("State Farm makes a sufficient showing of good cause for . . . a protective order by demonstrating a clear danger if its trade secrets are discovered by its competitors. The discovery of State Farm's policy manuals by a competitor would permit them to appropriate State Farm's trade secrets by duplicating or reconstructing its claims handling procedures. This information is of particular value to small insurance companies, which lack the resources to adopt their own procedures.").
Others, however, have failed to make that same argument. See, e.g., Ford v. Gov't Emps. Ins. Co., Case No. 1:14cv180- MW/GRJ, 2015 U.S. Dist. LEXIS 179535, at *5 (N.D. Fla. Apr. 3, 2015) (concluding that the Florida trade secrets privilege did not apply to GEICO's claims manuals); Cunningham v. Std. Fire Ins. Co., Civ. A. No. 07-cv-02538- REB-KLM, 2008 U.S. Dist. LEXIS 117304, at *7 (D. Colo. July 1, 2008); see, e.g., Paull Assocs. Realty, LLC v. Lexington Ins. Co., Civ. A. No. 5:13-cv-80, 2014 U.S. Dist. LEXIS 199318, at *3 (N.D. W. Va. Jan. 9, 2014) (“There is no blanket privilege for proprietary information or trade secrets. . . . Here, [Lexington's] assertions that the requested material is confidential are wholly conclusory and provide no detail as to exactly what, if anything, is being withheld. Nor does [Lexington] explain how it would be harmed by disclosure. Thus, [Lexington] has not met its burden of establishing that a protective order is required.”); see also Am. States Ins. Co. v. Ins. Co. for the State of Pa., No. 2:12-cv-01489- MCE-AC, 2015 U.S. Dist. LEXIS 5145, at *7 (E.D. Cal. Jan. 15, 2015) (rejecting the insurer's trade secrets claim for failing to specifically state how disclosure of its underwriting policies could harm it).
Underwriting manuals are internal documents that provide guidance on the underwriting process, or the drafting or development of insurance policy language. These documents can include underwriting guidelines, policy drafting notes, and communications related to the creation and revision of policy forms.
In coverage cases, courts may permit discovery of underwriting manuals because “[s]uch information is pertinent in determining [what] the [insurer] intended to cover[.]” Owens-Corning Fiberglas Corp. v. Allstate Ins. Co., 74 Ohio Misc. 2d 174, 179, 660 N.E.2d 765, 768 (Ct. Com. Pl. 1993). For example, in Olin Corporation v. Continental Casualty Co., the Court held that underwriting information, as well as policy drafting history, is relevant and, therefore, discoverable in a breach of contract claim because it indicates what the coverage included and also whether the insurer failed to meet its obligation. Olin Corp. v. Cont'l Cas. Co., 2011 U.S. Dist. LEXIS 98177, *9-10 (D. Nev. Aug. 30, 2011); see also Progressive Garden State Ins. Co. v. Metius, No. CV 18-2893 (WJM), 2019 U.S. Dist. LEXIS 57242, 2019 WL 1468155, at *1 (D.N.J. Apr. 3, 2019) (finding drafting histories, underwriting manuals, claims handling guidelines, and other insurance policies defining the relevant terms to be relevant for discovery purposes); Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal. 4th 645, 42 Cal. Rptr. 2d 324, 913 P.2d 878, 891 (Cal. 1995) (“Most courts and commentators have recognized . . . that the presence of standardized industry provisions and the availability of interpretative literature are of considerable assistance in determining coverage issues. . . . [W]e find the drafting history relevant in evaluating Admiral’s [public policy] argument[.]”); Champion Int'l Corp. v. Liberty Mut. Ins. Co., 129 F.R.D. 63, 67-68 (S.D.N.Y. 1989) (“The Court agrees that inquiries concerning the drafting history of the provisions in question, how-to-sell instructions and claims manuals are clearly germane to the interpretation of [the insurance] policies.”); Nat'l Union Fire Ins. Co. of Pitt., Pa. v. Stauffer Chem. Co., 558 A.2d 1091, 1095 (Del. Super. Ct. 1989) (“Stauffer seeks to discover interpretive manuals and other insureds’ claim files in order to see if ambiguities are present in the policies. This Court finds that the claim files and the interpretive materials are relevant to the determination of ambiguity and should be the subject of discovery[.]”).
Courts have also held that, particularly in rescission cases, underwriting manuals and drafting history may be discoverable to assess whether a policyholder’s alleged misrepresentation was material. See, e.g., AIG Centennial Ins. Co. v. O'Neill, No. 09-60551-CIV-ZLOCH/ROSENBAUM, 2010 U.S. Dist. LEXIS 114148, at *22 (S.D. Fla. Oct. 18, 2010); Weaver v. Lexington Ins. Co., No. 805CV-1913T-27TBM, 2007 U.S. Dist. LEXIS 32230, at *6 (M.D. Fla. Feb. 20, 2007) (holding that “the underwriting guidelines, in part, may contain matters supportive to [the] claim that there were no material misrepresentations”); S.R.R.B., ex rel. Vreeland v. Life Investors Ins. Co. of Am., No. 8:08 CIV 960 T17MAP, 2010 U.S. Dist. LEXIS 23833 (M.D. Fla. Mar. 15, 2010) (noting that underwriting manuals are relevant to a fact finder’s determination of an alleged misrepresentation’s materiality).
In bad faith cases, underwriting manuals and drafting history are generally discoverable, particularly for purposes of interpreting ambiguous policy language. See, e.g., Champion Int’l Corp. v. Liberty Mut. Ins. Co., 129 F.R.D. 63, 66-67 (S.D.N.Y. 1990) (acknowledging insurer’s underwriting file normally irrelevant to issue of coverage but permitting discovery for the purpose of interpreting ambiguous policy language); Am. Home Prods. V. Liberty Mut. Ins. Co., 565 F. Supp. 1485 (S.D.N.Y. 1983) (same); Newcastle Cty. v. Hartford Acc. & Indem. Co., 933 F.2d 1162 (3d Cir. 1991) (same).
Underwriting manuals and drafting history generally do not contain privileged information because they are not typically created for the purpose of obtaining legal advice or in anticipation of litigation. See Homeowners Choice Prop. & Cas. Ins. Co. v. Thompson, 377 So. 3d 1204, 1205 (Fla. 1st DCA 2023) (“Documents in claims and underwriting files are not automatically work product. The insurer did not argue or prove that the requested documents were prepared in anticipation of litigation; and to the contrary, the documents ordered produced were created just days after the hurricane and before any coverage determination had occurred. We find no departure from the essential requirements of law. We also reject the insurer's broad confidentiality, proprietary, and trade secret objections raised in its privilege log.”).
