The Travelers Home and Marine Insurance Company, and its lawyers, recently had a rough couple of days in the U.S. District Court for the Western District of Washington. On August 24 and 25, that court issued orders in Meier v. The Travelers Home & Marine Insurance Co. and Bagley v. Travelers Home & Marine Insurance Co. In both cases, Travelers was ordered to produce documents and deposition testimony that it had attempted to withhold based on the attorney-client privilege and/or the work-product doctrine.
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Bad-faith claims against an insurer open the door to many more issues, and a lot more discovery about those issues, than insurers would lead you to believe. Insurers routinely clam up about anything in any of their files — even ones related directly to an insured’s claim — the moment the insured drags the insurer into court. My colleague, Kyle Sturm, recently posted an article here about a pending decision by the Oregon Supreme Court regarding an insurer’s attempt to bury its claims file.

But the claims file, the insurer’s correspondence, reports, and notes about a particular claim, tells only part of the story. That is, these documents will show an insured how he was mistreated by the adjusters. Another rich source of information powering bad-faith claims lies in what the adjusters were supposed to do, what the insurer’s own procedures and training manuals dictate should be done in handling a claim.
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With the sanctity of any time-honored tradition, insurers resist discovery of their claim file with the ritualistic incantation that it is protected from discovery because it was prepared in anticipation of litigation, and therefore qualifies as work product.  To support this argument, oftentimes insurers outsource the adjustment of the claim (a normal business activity) to outside attorneys, and then refuse to provide the attorney’s file, or communications with the insurer and the attorney, on the basis that those documents are protected by the attorney-client privilege. Courts across the county have been increasingly dismissive of these arguments, holding that an insurer cannot cloak its claim file with privilege simply by paying a lawyer to do what is otherwise an everyday claim handling activity for the insurer.  Oregon finally has a chance to weigh in on this issue and level the playing field for insureds.

In Liberty Surplus Insurance v. Seabold Construction, the Supreme Court of Oregon has the opportunity to decide whether an insurer can conceal its claim handling by outsourcing it to lawyers.
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A federal judge in Arizona recently picked the insured to win a discovery battle familiar to coverage lawyers, ordering that the insurer must produce its training and claims-handling manuals. This is excellent news to insureds left trying to determine why the insurer’s answer to coverage is so often “no” or, only slightly better, “a lot less than you thought you were going to get.”

Arizona Wildfire
“Long after the buildings damaged by the Wallow Fire have been repaired, insurance battles continue over how much lost-income damage the fire caused to businesses during the time that residents were evacuated.” Photo by Marcio Jose Sanchez/Associated Press file photo.

In White Mountain Communities Hosp. Inc. v. Hartford Cas. Ins. Co. (Dec. 8, 2014), White Mountain operated a hospital in rural eastern Arizona and had purchased a property policy from Hartford. A very large forest fire, known as the Wallow Fire, burned about 841 square miles of forest in the area around the hospital, resulting in the evacuation of thousands of residents — and potential patients for the hospital.

That loss of business income comprised the great majority of the hospital’s covered losses. Hartford paid only $40,028 for property damage, but an additional $683,520 for the hospital’s lost income from the many missing patients. White Mountain estimated its business-interruption damages much more severely than Hartford because of the expected slow return of residents to the area, figuring that the fire would cost between $2.8 million and $3.2 million in lost income.

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Recently, the federal court for the Middle District of Florida applied a rule of great interest to insureds who believe that their insurer has wrongly denied coverage: whether the insurer’s “claim file” can be requested in discovery.

In Redfish Key Villas Condominium Assoc., Inc. v. Amerisure Ins. Co. (April 3, 2014), the Redfish Key Villas Condominium Association had sued its contractor for defective work. The contractor failed to appear and defend itself, resulting in a default judgment for Redfish. But the real money in many construction-defect lawsuits, of course, often comes from the contractor’s insurer.
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