Opinion
04 Civ. 10282 (LAP) (DF).
July 25, 2006
MEMORANDUM AND ORDER
Before this Court is a motion by plaintiff Ohio Casualty Group ("Ohio Casualty" or "Plaintiff") to compel defendants Travelers Insurance Company, successor in interest to the Gulf Insurance Company (referred to herein as "Gulf"), American International Specialty Lines Insurance Company/AIG Technical Services, Inc. ("AISLIC"), and Admiral Insurance Company ("Admiral") (collectively, "Defendants") to produce certain insurance claims file documents that Defendants contend are covered by the work product doctrine. For the reasons discussed below, the motion is denied, without prejudice.
BACKGROUND
This action involves a dispute between Ohio Casualty and three other insurers: Gulf, AISLIC, and Admiral. Based on the parties' motion papers, the dispute arises from a $78 million jury verdict rendered on June 21, 2001 against Advocat, Inc. and its affiliates ("Advocat") in an underlying action known as Sauer v. Advocat, Inc. that was tried in the Circuit Court of Polk County, Arkansas, during June 2001 (the "Sauer Suit"). The Sauer Suit involved the death of a 93 year old nursing home patient, Margaretha Sauer, in July 1998. Ms. Sauer had resided at Advocat's nursing home for several years prior to her death.
Advocat was apparently insured from October 1996 to January 1998 under a primary policy issued by Reliance Insurance Company ($1 million coverage) and first-layer excess policy issued by AISLIC ($50 million coverage). Advocat was apparently insured during 1998 under a primary policy issued by Admiral ($1 million coverage subject to a $250,000 self-insured retention), a first-layer excess policy issued by Gulf ($5 million coverage), and a second-layer excess policy issued by Ohio Casualty ($45 million coverage).
In this action, Ohio Casualty asserts claims against Gulf and Admiral based upon (1) their alleged failure to keep Ohio Casualty informed of settlement negotiations that occurred prior to the June 22, 2001 verdict in the Sauer Suit and (2) their alleged bad faith failure to settle the Sauer Suit prior to the June 22, 2001 verdict. Ohio Casualty asserts claims against AISLIC based on an allocation theory; that is, Ohio Casualty contends that AISLIC is responsible for two-thirds of the Sauer judgment because Ms. Sauer resided at Advocat's nursing home for 15 months during the period that Advocat was insured by AISLIC and for only five months during the period that Advocat was insured by Ohio Casualty. AISLIC has asserted a counterclaim against Ohio Casualty for its alleged bad faith failure to settle the Sauer Suit after the June 22, 2001 verdict, but prior to remittitur.
In connection with their Rule 26(a)(1) disclosures, the parties agreed that they would produce their entire claim files, with the exception of documents protected from discovery by the attorney-client privilege or the work product doctrine. Ohio Casualty produced its entire claim file, consisting of both pre-verdict and post-verdict documents, with the exception of certain post-verdict documents that it claims are protected by the attorney-client privilege. Defendants produced the entirety of their respective claim files, with the exception of post-verdict documents that they claim are protected by the attorney-client privilege or work product doctrine. Ohio Casualty has moved to compel the production of all post-verdict claims file documents withheld by Defendants on the basis of the work product doctrine. Ohio Casualty asserts that these documents are discoverable because (1) an insurer cannot claim the protection of the work product doctrine where, as here, a bad faith claim is asserted against the insurer, and (2) by asserting a bad faith counterclaim against Ohio Casualty for its post-verdict failure to settle, AISLIC has placed post-verdict conduct "at issue," thereby forfeiting the protection of the work product doctrine.
Ohio Casualty does not challenge Defendants' assertion of the attorney-client privilege.
DISCUSSION
A. The Documents Are Eligible for Work Product Protection
The work product doctrine is governed, even in diversity cases, by a uniform federal standard embodied in Federal Rule of Civil Procedure 26(b)(3). See, e.g., Tudor Ins. Co. v. McKenna Assocs., No. 01 Civ. 0115 (DAB) (JCF), 2003 U.S. Dist. LEXIS 10853, at *3-4 (S.D.N.Y. June 25, 2003). Rule 26(b)(3) protects, as work product, documents prepared "in anticipation of litigation or for trial by or for [a] party or by or for that . . . party's representative (including the . . . party's attorney, consultant, surety, indemnitor, insurer, or agent)." The phrase "in anticipation of litigation" has been construed by the Second Circuit to mean that, "`in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation.'" U.S. v. Adlman, 134 F.3d 1194, 1202 (2d Cir. 1998) (quoting Charles Alan Wright, Arthur R. Miller, and Richard L. Marcus, 8 Federal Practice Procedure § 2024, at 343 (1994)).
The burden of establishing that communications are subject to work product protection rests with the party seeking the protection. Bogan v. Northwestern Mut. Life Ins. Co., 163 F.R.D. 460, 463 (S.D.N.Y. 1995) (citing Matter of Grand Jury Subpoenas, 959 F.2d 1158, 1166 (2d Cir. 1992)). Defendants point to the Non-Waiver Agreement that was entered into by Gulf, AISLIC, Admiral and Ohio Casualty (formerly Great American Insurance Company), in August 2001, to establish that, once the verdict in the Sauer Suit was rendered, Defendants anticipated the prospect of litigation. ( See Non-Waiver Agreement, attached to Defendant Gulf's Opposition to Plaintiff's Motion to Compel, dated June 13, 2006 ("Gulf Opp."), as Ex. D.) Defendants have also submitted affidavits attesting that the withheld documents were prepared in anticipation of post-verdict litigation. ( See Gulf Opp. at 13-14 and Affidavit of Frank Kellerman, sworn to June 9, 2006; Defendant AISLIC's Opposition to Plaintiff's Motion to Compel, dated June 13, 2006, at 8-9 and Affidavit of Michael LaValva, sworn to June 12, 2006; Defendant Admiral's Opposition to Plaintiff's Motion to Compel, dated June 13, 2006, at 10-11 and Affidavit of Jane R. Hill, sworn to June 12, 2006.) District courts in this Circuit have held that such affidavits may present adequate evidence to support application of the work product doctrine. See Ruotolo v. City of New York, No. 03 Civ. 5045 (SHS) (DF), 2005 U.S. Dist. LEXIS 5958, at *4 (S.D.N.Y. Apr. 7, 2005); see also Gulf Islands Leasing, Inc. v. Bombardier Capital, Inc., 215 F.R.D. 466, 475 (S.D.N.Y. 2003) ("[A] party asserting work product protection will generally submit affidavits or similar evidence establishing that it held [a subjective belief that litigation was likely].") After reviewing the affidavits submitted by Defendants, I find that they present evidence sufficient to establish that the withheld documents were prepared in anticipation of litigation. Therefore, unless a valid exception applies, the withheld documents are protected from disclosure by the work product doctrine.
The Non-Waiver Agreement facilitated the posting of a supersedeas bond in connection with the anticipated appeal in the Sauer Suit, but also specifically reserved the insurers' rights against each other concerning their obligations with respect to the verdict. ( See Non-Waiver Agreement at 2.) Significantly, the Non-Waiver Agreement states that: "Various issues exist concerning the extent, if any, to which the Parties may be obligated . . . to satisfy any settlement of the Lawsuit or pay any judgment ultimately entered in the Lawsuit." ( Id. at 1-2.)
B. Bad Faith Claims Against an Insurer Do Not Present a Per Se Exception to the Work Product Doctrine
Ohio Casualty contends that, in a case where a bad faith claim is asserted against an insurer, the work product doctrine cannot be used to protect claims file documents from disclosure. In federal court, however, even in a bad faith case, Rule 26(b)(3) governs the issue of whether an insurer's work product materials are discoverable. See Nat'l Industri Transformers, Inc. v. Atlantic Mut. Ins. Co., No. 91 Civ. 7192 (JFK) (KAR), 1993 U.S. Dist. LEXIS 6149, at *11-13 (S.D.N.Y. May 11, 1993) (rejecting insured's contention that it was entitled to discover insurer's attorney-client communications and work product to prove the insurer's bad faith and finding that such disclosure "would create an unwarranted exception to the attorney-client privilege and result in discovery of privileged communications and work product in virtually every insurance coverage dispute."); St. Paul Fire Marine Ins. Co. v. Continental Cameras Co., No. 85 Civ. 8984 (JFK), 1986 U.S. Dist. LEXIS 23439, at *5 n. 2 (S.D.N.Y. June 30, 1986) (rejecting insured's contention that insurer's work product documents "should be turned over because they contain evidence available nowhere else that would enable them to prove bad faith on the part of [the insurer]" because the insured had not shown the requisite hardship under Rule 26(b)(3)); see also Logan v. Commercial Union Ins. Co., 96 F.3d 971, 976 (7th Cir. 1996) (recognizing that "allowing a plaintiff to overcome an insurer's work product privilege may be particularly appropriate in an action for bad faith," but finding that the party seeking the protected documents must still demonstrate substantial need under Rule 26(b)(3)). C. Work Product Protection Has Not Been Waived
Ohio Casualty chiefly relies on a Florida Supreme Court Case, Allstate Indemnity Co. v. Ruiz, 899 So. 2d. 1121 (Fla. 2005), to support its position. In Allstate, an action for bad faith against an insurance company, the court held that all documents, "up to and including the date of judgment in the original litigation, should be produced." Id. at 1126. Nonetheless, when considering documents "prepared after the resolution of the underlying disputed matter," the court found only that such documents " may be subject to production upon a showing of good cause or pursuant to an order of the court following an in camera inspection." Id. at 1130 (emphasis added). Ohio Casualty also cites Zurich Ins. Co. v. State Farm Mut. Auto. Ins., 524 N.Y.S.2d 202 (1st Dep't 1988), for the proposition that, where a primary insurer has breached its fiduciary duties toward an excess insurer, the primary insurer may not use the work product doctrine as a shield to prevent disclosure that is relevant to the bad faith claim. Id. at 203. In Zurich, however, the documents at issue were "litigation material prepared for the liability trial and counsel's work product relevant to that action," id. at 204, not post-verdict documents created in anticipation of bad-faith litigation between the insurers, as is the case here.
Ohio Casualty also argues that, by asserting a bad faith counterclaim against Ohio Casualty for its post-verdict failure to settle, AISLIC has waived the protection of the work product doctrine because it has placed post-verdict conduct "at issue." Waiver of work product protection may result from a party's injection of an issue into the litigation that, in fairness, requires the party to disclose otherwise protected material. See In re Grand Jury Proceedings, 219 F.3d 175, 182 (2d Cir. 2000) ("This court has recognized that implied waiver may be found where the privilege holder asserts a claim that in fairness requires examination of protected communications." (internal quotation marks and citation omitted)); id. at 191 ("The fairness concerns that guide the waiver analysis . . . are equally compelling in th[e] context [of the work product doctrine]."). Courts in this Circuit find that an "at-issue" waiver has occurred when the following factors are present:
(1) assertion of the privilege was the result of some affirmative act, such as filing suit, by the asserting party; (2) through this affirmative act, the asserting party put the protected information at issue by making it relevant to the case; and (3) application of the privilege would have denied the opposing party access to information vital to his defense.Granite Partners, L.P. v. Bear, Stearns Co., 184 F.R.D. 49, 55 (S.D.N.Y. 1999) (quoting Hearn v. Rhay, 68 F.R.D. 574, 581 (E.D. Wash. 1975)). "`Cases where courts have found a waiver of privilege based on the `at issue' doctrine exhibit several common factors: (1) the very subject of privileged communications [is] critically relevant to the issue to be litigated, (2) there [is] a good faith basis for believing such essential privileged communications exist, and (3) there [is] no other source of direct proof on the issue.'" Tribune Co. v. Purcigliotti, No. 93 Civ. 7222 (LAP) (THK), 1997 U.S. Dist. LEXIS 228, at *27 (S.D.N.Y. Jan. 10, 1997) (quoting Bank Brussels Lambert v. Credit Lyonnais (Suisse) S.A., Nos. 93 Civ. 6876, 94 Civ. 1317 (KMW) (JCF), 1995 U.S. Dist. LEXIS 14808, at *12-13 (S.D.N.Y. Oct. 11, 1995)).
An "at issue" waiver will commonly occur "when a defendant asserts an advice-of-counsel defense or good-faith defense which places in issue whether his attorney made him aware that his acts were illegal or otherwise improper." Tribune, 1997 U.S. Dist. LEXIS 228, at *25. In other words, an "at issue" waiver may occur when a party puts its own conduct at issue. Here, although AISLIC's allegation of Ohio Casualty's bad faith puts Ohio Casualty's post-verdict conduct at issue (on AISLIC's counterclaim), it does not follow that AISLIC has placed its own post-verdict conduct at issue or waived its work product protection. See id. at *30 ("Simply by pleading an action in fraud, plaintiffs have not placed in issue their attorneys' work product or thought processes."); see also Arkwright Mut. Ins. Co. v. Nat'l Union Fire Ins. Co., No. 90 Civ. 7811 (AGS) (JCF), 1994 WL 510043, at *13 (S.D.N.Y. Sept. 1994) (plaintiff insurer "has not placed its good faith adjustment of the underlying . . . claim at issue simply by suing for indemnity").
D. Ohio Casualty Has Not Demonstrated "Need" or "Hardship"
Rule 26(b)(3) provides that work product may be discoverable, but "only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party's case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means." Fed.R.Civ.P. 26(b)(3). Courts in this Circuit have found that "substantial need" and "undue hardship" do not exist where the information sought can be obtained through depositions or other discovery methods. See Horn Hardart Co. v. Pillsbury Co., 888 F.2d 8, 12 (2d Cir. 1989); Tribune Co. v. Pureigliotti, No. 93 Civ. 7222 (LAP) (THK), 1998 U.S. Dist. LEXIS 5155, at *24 (S.D.N.Y. Apr. 14, 1998) ("`Substantial need' cannot be shown where persons with equivalent information are available for deposition."); Maloney v. Sisters of Charity Hosp., 165 F.R.D. 26, 30-31 (W.D.N.Y. 1995) (holding that plaintiff had failed to make the requisite showing under Rule 26(b)(3) because she could obtain the information sought through depositions); see also Robertson v. Allstate Ins. Co., Civ. Act. No. 98-4909, 1999 U.S. Dist. LEXIS 2991, at * 11-12 (E.D. Pa. Mar. 10, 1999) (finding, in a bad faith action against an insurer, "that plaintiff has failed to establish substantial need for the document in question [because the] information plaintiff seeks can be developed through depositions and other discovery of non-privileged information."); cf. Bovis Lend Lease, Lmb, Inc. v. Seasons Contr. Corp., No. 00 Civ. 9212 (DF), 2002 U.S. Dist. LEXIS 23322, at *54 (S.D.N.Y. Dec. 4, 2002) (finding that privileged communications are not discoverable under the "at issue" waiver doctrine where the party seeking disclosure "has not shown that such information is not available through depositions and interrogatories." (internal quotation marks and citation omitted)); Arkwright, 1994 WL 510043, at *13 (same).
At this point in discovery, only one deposition, that of James Danehy of Ohio Casualty, has taken place. (Gulf Opp. at 15.) The parties have scheduled several other depositions, including, inter alia, the depositions of Advocat's defense counsel (Darren O'Quinn), Advocat's representative who attended the Sauer trial (Robert Rice), Gulf's representatives (Frank Kellerman and Joyce Poff), AISLIC's representative (Michael LaValva), and Admiral's representative (Jane Hill). ( Id.) As the depositions of Defendants' representatives have not yet occurred, Ohio Casualty cannot demonstrate that it is unable "to obtain the substantial equivalent of the materials" it seeks through these depositions. See Fed.R.Civ.P. 26(b)(3). Although Ohio Casualty speculates that "Defendants will object to Ohio Casualty's oral questions in the same manner as they have objected to Ohio Casualty's informal and formal written requests for the withheld documents," (Plaintiff Ohio Casualty's Reply in Support of its Motion to Compel, dated June 20, 2006, at 8), this conclusory assertion is insufficient to establish the "substantial need" that is required under Rule 26(b)(3).
CONCLUSION
For all of the above reasons, Ohio Casualty's motion to compel is DENIED, without prejudice.SO ORDERED.