Posted In: Insurance Recovery, Insurance Recovery & Insurance Recovery
on April 21, 2016
It is established Ohio law that an insurer may not rely on the attorney-client privilege or the work-product doctrine in withholding documents and other information from their claims file showing a lack of good faith in settling a claim or denying coverage. Moskovitz v. Mt. Sinai Med. Ctr., 69 Ohio St.3d 638, 1994 Ohio 324, 635 N.E.2d 331 (1994); Boone v. Vanliner Ins. Co., 91 Ohio St.3d 209, 2001 Ohio 27, 744 N.E.2d 154 (2001); Squire, Sanders, 127 Ohio St.3d 161, 2010-Ohio-4469, 937 N.E.2d 533, at P 31. Beginning with the Ohio Supreme Court’s decision in Moskovitz, and further clarified and expanded in the Court’s decisions in Boone and Squire, Sanders, this important principle of discovery in the insurance context acts to provide insureds with information essential to their claims of bad faith—information they could not receive otherwise. The reasoning that holds these cases together is this: when an insurer and its attorney act in bad faith, their communications and any related documents are unworthy of protected status. Boone at 213. Some insurers, however, have questioned whether an insurer may avoid the production of its communications when the communications are located in an in-house attorney’s files instead of the file of the assigned claims adjuster.
The Montgomery County Court of Appeals recently answered this question in the affirmative in Bausman v. Am. Family Ins. Group, a decision in which the court appeared to misapply the spirit, if not the letter, of the Boone doctrine. Bausman v. Am. Family Ins. Grp., 2d Dist. Montgomery No. 26661, 2016-Ohio-836, at 8. Bausman dealt with an insurer’s alleged bad faith behavior in failing to pay out the full amount of its insured’s uninsured/underinsured motorist coverage following a traffic accident. Id. at 2. After repeated attempts by the insured to claim the full limits of his coverage were rebuked, he filed a personal injury action against the (uninsured) driver of the vehicle that hit him and included a claim against the insurer for the unpaid coverage. Id. An in-house attorney for the insurer was assigned to the litigation and soon communicated with the insurer’s regional managing attorney, who gave the in-house attorney authority to settle the claim. Id. at 3. The insurer once again offered an amount lower than the full limits of the coverage before finally offering the full amount. Id. After accepting the offer for the full amount and dismissing the personal injury action, the insured brought an action for bad faith in the handling of the claim and sought the claims communications between the assigned in-house attorney and regional managing attorney. Id.
The insurance company resisted the discovery request, filing for a protective order and arguing that the emails in question were protected by the attorney-client privilege. Id. The trial court ordered the documents produced for an in camera review and eventually found many of them to be discoverable. Id. at 3-4. On appeal, the insurer again argued that because the documents were in attorney files, they were protected despite the bad faith claim. Id. at 6. In response, the insured argued that the regional managing attorney was acting in the capacity of an adjuster when he told the in-house attorney to settle the claim, and that his file should, therefore, be just as discoverable as a claims file. Id. The court found that while privileged documents showing bad faith would plainly be discoverable under Ohio law if they were in the insurer’s claims file, they were not discoverable here. Importantly, the court did not find that the communications maintained their privilege because they were in reference to the insurer’s own potential liability; i.e. whether the claim was covered under the law. Instead, the court found that the communications were privileged because they existed exclusively in the files of attorneys, and not in the claims files of the insurer. Id at 8. On the other hand, the substance of the communications was deemed unimportant. In fact, the court even noted that the very same communications would be discoverable if they existed in the claims file, and remanded to the trial court for that determination. Id.
Surely, however, the discoverability of bad faith communications should not rely solely on where and in which files documents are kept, or more importantly, whether the person doing the communicating has a law degree. Indeed, the Trumbull County Court of Appeals recognized as much in 2012 when it held that “under certain circumstances, a defense attorney’s file may be equally discoverable as an insurer’s.” Cobb v. Shipman, 11th Dist. Trumbull No. 2011-T-0049, 2012-Ohio-1676, ¶ 51. The Cobb court noted that Moskovitz “specifically contemplated that other cases may present scenarios in which the production of documents from an attorney’s file can and will be deemed appropriate,” and found that in some instances “access to an attorney’s file may be the only way a prevailing plaintiff can demonstrate a lack of good faith effort to settle by the defense.” Id. at ¶¶ 55-56. The Cobb case seems to be the only other Ohio case currently applying Moskovitz and Boone to the availability of attorney files as of now, however, other courts have found that documents prepared in the ordinary course of an insurance company’s investigation of a claim do not become privileged “merely because an investigation was conducted by an attorney.” Brooklyn Union Gas Co. v. Am. Home Assur. Co., 23 A.D.3d 190, 2005 NY Slip Op 8193, 803 N.Y.S.2d 532, ¶ 1; St. Paul Reinsurance Co. v. Commercial Fin. Corp., 197 F.R.D. 620, 636 (N.D.Iowa 2000)(“An insurer cannot shield its entire claims investigation behind the work product privilege simply by hiring an attorney to perform what is in the ordinary course of the insurer’s business.”); Additionally, other courts have recognized that bad faith claims present significant and unique obstacles for insureds. See Cedell v. Farmers Insurance Co. of Washington, 176 Wn. 2d 686, 696-99, 295 P.3d 239 (2013)(“When an insured asserts bad faith against his insurer in the way the insurer has handled the insured’s claim, unique considerations arise. … The insured needs access to the insurer’s file … in order to discover facts to support a claim of bad faith.”).
These cases represent an important battle for insureds. The road to proving a successful bad faith claim becomes significantly bumpier if insurance companies are permitted to avoid production of claims communications simply by transferring handling and investigative responsibilities to in-house counsel. Future Ohio courts should be aware of the growing trend of insurers hiring attorneys to act in claims investigation or evaluation roles, and should endeavor to remain sensitive to the needs of insureds who often times cannot gain access to proof of bad faith in any other way.
This blog is intended to provide information generally and to identify general legal requirements. It is not intended as a form of, or as a substitute for legal advice. Such advice should always come from in-house or retained counsel. Moreover, if this Blog in any way seems to contradict advice of counsel, counsel's opinion should control over anything written herein. No attorney client relationship is created or implied by this Blog. © 2019 Brouse McDowell. All rights reserved.