Opinion
No. 01 Civ. 8236 (LTS)(KNF)
December 4, 2002
MEMORANDUM and ORDER
I. INTRODUCTION
In this action, plaintiff Stroheim and Romann ("SR") seeks to recover approximately $3.5 million dollars, which it says are the costs associated with repairing structural damage to a facility SR owns in Long Island City, New York. SR seeks to recover its repair costs under an insurance policy issued to it by defendant Allianz Insurance Company ("AIC"). During the pretrial discovery phase of the litigation, a controversy emerged when AIC withheld from disclosure to SR certain daily activity report entries made by AIC's retained claims adjuster. AIC maintains that the work-product doctrine shields the withheld material from disclosure to SR because the material was prepared after the claims adjuster, acting on behalf of AIC, sent a letter to plaintiff's counsel declining SR's claim for its loss. Therefore, AIC contends, the disputed material was prepared at a time when litigation was anticipated and, accordingly, that material is within the work-product sphere of protection.
For its part, SR contends the withheld claims adjuster's daily activity report entries were created in the ordinary course of his claims investigation and adjustment business, prior to the issuance by AIC of a declination letter and prior to a point in time when litigation could reasonably have been anticipated to ensue. Consequently, SR urges the Court to direct AIC to provide to it the claims adjuster's daily activity report entries that have heretofore been withheld from disclosure.
II. BACKGROUND
SR is the lessee and beneficial owner of the land and buildings located at 31-11 Thompson Avenue, Long Island City, New York. AIC issued a policy of insurance to SR. SR alleges that the policy of insurance was a comprehensive all risk policy which insured the premises referenced above against all risks of direct physical loss or damage, except as expressly excluded by the policy's terms and conditions.
In the spring of 1999, while SR performed routine facade work at its Long Island City facility, cracks were discovered in the building's concrete support columns. SR alleges that as the facade work progressed, it discovered that: (a) the building's structural concrete frame had deteriorated; (b) its supporting columns had suffered severe damage; and (c) the damage was not localized.
In July 1999, SR notified AIC of the damage to its building. AIC then caused an investigation of plaintiff's property to be undertaken. As part of its investigative effort, AIC retained the services of a local claims adjuster, Joseph L. Rizzo ("Rizzo"). As Rizzo went about the task of investigating SR's claim, to determine what amount, if any, might be paid by AIC should it be determined that a covered loss existed, he prepared a daily report of his activities. On July 3, 2001, Rizzo sent a letter to SR's counsel on behalf of AIC. In that letter, Rizzo acknowledged that SR had filed a proof of loss with AIC in the amount of $3,474,000. However, Rizzo's letter informed SR's counsel that the proof of loss was being rejected.
While we accept the proof of loss insofar as it fulfills the requirement to file proof of loss, we reject the proof of loss from the standpoint of the amount of the damages due to a covered peril and we reject the proof of loss from the standpoint of causation.
Rizzo's letter also informed SR's counsel that AIC's investigation of plaintiff's claimed loss was continuing.
Also, please be advised that Allianz Insurance Company's investigation and assessment of this claim continues and is being conducted under a reservation of rights; neither this letter nor the company's continued investigation should be considered, and are not, a waiver of any rights or defenses available under the policy or law.
AIC contends Rizzo's July 3, 2001 letter to SR's counsel was a "declination letter," that is, a letter announcing AIC's decision to decline SR's claim, under the terms and conditions of the parties' insurance agreement, for the loss allegedly suffered at the Long Island City facility. AIC also contends that once the July 3, 2001 declination letter was issued, all entries made by Rizzo in his daily activity report were made in anticipation of litigation; therefore, those entries may be withheld from disclosure to the plaintiff perforce of the work-product doctrine.
SR maintains defendant's position is untenable. It notes that Rizzo gave sworn testimony, during a pretrial deposition conducted for this action, that his July 3, 2001 letter to SR's counsel was not a "declination letter," but was only a rejection of the proof of loss statement submitted to AIC by SR. The pertinent portion of Rizzo's deposition testimony follows:
Q: Is Rizzo Exhibit 9 a copy of a letter that you wrote to Bob Haber on July 3, 2001?
A: Correct.
Q. Am I correct that in this letter you're rejecting Stroheim and Romann's claim on behalf of Allianz?
A: That's not correct. We rejected the proof of loss.
Q: You told Mr. Haber that "Allianz feels that we do not have a covered loss under the policy."
A: Yes.
Q: Is this a declination letter?
A: No.
In further support of its position, that the July 3, 2001 Rizzo letter was not a declination letter, SR points to a letter dated July 25, 2001, sent to its counsel by Alan Singer ("Singer"), who is employed by AIC's Claims Department. In that letter, Singer informed SR's counsel that AIC had completed its investigation of the loss SR alleged it suffered at its Long Island City facility. Singer explained that, based upon AIC's investigation, it had determined to "deny [plaintiff's] claim." In response to Singer's letter, SR submitted additional information to AIC for it to consider with respect to the loss SR alleged it had suffered. AIC evaluated that additional information and, in a letter dated August 17, 2001, Singer reported that AIC would remain steadfast with respect to its determination, as set forth in Singer's July 25, 2001 letter, to deny plaintiff's claim.
SR also urges the Court to find that Rizzo's daily activity report entries were made by Rizzo in the ordinary course of his insurance claim investigation and adjustment business. As such, SR contends, the daily activity report entries that AIC has withheld from disclosure do not enjoy the protection afforded by the work-product doctrine.
To resolve the instant dispute concerning disclosure of Rizzo's post-July 3, 2001 daily activity report entries, the Court held a conference with counsel to the parties. During the conference, the Court directed that AIC provide it with, among other things, the letters authored by Rizzo and Singer, and Rizzo's daily activity report entries that are at the heart of the instant controversy. Those documents were received and have been reviewed by the Court in camera.
III. DISCUSSION
Fed.R.Civ.P. 26(b)(3), which is relevant to the instant dispute, in its most pertinent part provides the following:
Subject to the provisions of subdivision (b)(4) of this rule, a party may obtain discovery of documents and tangible things otherwise discoverable under subdivision (b)(1) of this rule and prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent) 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. In ordering discovery of such materials when the required showing has been made, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation.
In United States v. Adlman, 134 F.3d 1194 (2d Cir. 1998), the Second Circuit Court of Appeals made clear that a document should be shielded from disclosure pursuant to the work-product doctrine "if, 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." Adlman, 134 F.3d at 1202.
Given that the business of an insurance company is to investigate claims which have the potential for developing into litigation, courts that have been confronted with an insurance company's assertion that material should be withheld from disclosure, pursuant to the work-product doctrine, "have developed a useful presumption: if a declination decision has been made, documents subsequently drafted were created `in anticipation of litigation;' if the claim has not yet been rejected, the documents are part of the claim investigation process and are not work product." Arkwright v. National Union Fire Ins. Co. of Pittsburgh. PA, No. 90 Civ. 7811, 1994 WL 698298, at *2 (S.D.N.Y. Dec. 13, 1994).
However, "if a party prepares a document in the ordinary course of its business, it will not be protected [from disclosure under the work-product doctrine] even if the party is aware that the document may also be useful in the event of litigation." Martin v. Valley National Bank of Arizona, 140 F.R.D. 291, 304 (S.D.N.Y. 1991); see also United States v. Adlman, 134 F.3d at 1202. Moreover, in a circumstance where an insurer has denied liability for a claim made under an insurance policy, but indicates a willingness to receive additional information from the claimant in order to investigate the claim further in resolving the coverage issue, a report(s) prepared by the insurance company's assigned investigator may be deemed to have been prepared in the ordinary course of the insurer's business and not in anticipation of litigation. See Westhemeco Ltd. v. New Hampshire Ins. Co., 82 F.R.D. 702, 708 (S.D.N.Y. 1979).
In the case at bar, defendant's claims adjuster, Rizzo, makes a distinction between a letter rejecting an insured's tendered proof of loss and an insurance company's letter declining coverage upon a claim made under a policy of insurance. Although AIC claims Rizzo's July 3, 2001 letter was a "declination letter," Rizzo has testified it was not. Furthermore, Rizzo's July 3, 2001 letter invited plaintiff's counsel to submit additional information to AIC because "Allianz Insurance Company's investigation and assessment of this claim continues." In response, SR submitted additional information to AIC for its consideration.
Singer's July 25, 2001 letter informed SR that its claim was being denied by AIC. However, SR persisted in its effort to have AIC change its decision by submitting additional material for the defendant to evaluate respecting the coverage issue. AIC did consider SR's additional submissions and, on August 17, 2001, AIC determined not to retreat from the position expressed in its July 25, 2001 writing, to wit, that coverage did not apply to the plaintiff's claimed loss.
The Court finds, based upon its in camera review of the relevant material, that Rizzo's daily activity report entries made after July 3, 2001, are substantively no different in nature from the daily activity report entries Rizzo made prior to July 3, 2001, as he performed his assigned task for AIC. Although AIC contends it acted in anticipation of litigation following the publication of Rizzo's July 3, 2001 letter to plaintiff's counsel, this is undermined by its July 25, 2001, letter to SR inviting it to submit additional information to AIC respecting the claimed loss. Furthermore, AIC has not presented the Court with any specific objective facts from which the Court might conclude that the daily activity report entries Rizzo made after July 3, 2001, were not made in the ordinary course of his business as a retained claims adjuster for AIC.
Under these circumstances, the Court finds that it would not be reasonable to conclude that the daily activity report entries Rizzo made after July 3, 2001, were prepared because of the prospect of litigation and not because it was part of Rizzo's regular course of business to make those entries in his daily activity log. Therefore, the Court finds that the entries redacted by AIC from Rizzo's post-July 3, 2001 daily activity reports, before AIC disclosed that material to SR, were not prepared in anticipation of litigation but, rather, were prepared in the normal course of Rizzo's and AIC's business of investigating losses claimed to be covered under insurance policies. Consequently, the previously withheld material is not protected from disclosure by the work-product doctrine and must be provided to SR by AIC.