EVERY defense counsel has been confronted with discovery from Plaintiff's counsel that demands some variation of "[a] complete copy of the entire claims file, cover to cover, including both sides of any jacket, including all notes, memoranda, and diaries, pertaining to the claim that is the subject of this litigation up until the date that the instant suit was filed." Such a demand is objectionable as made, but understanding and articulating the basis for the objection will often mean the difference between successful opposition to the demand and an order to produce much if not all of the items requested.
It has long been true that merely noting that Plaintiff's request constitutes a "fishing expedition" is not a valid objection to discovery. (1) In general, the scope of modern discovery suggests that demands for production can be broad, even encompassing material that both sides recognize will not be admissible at a trial of the actual facts at issue. The motivation for requesting such material can be the search for facts that lead to admissible evidence, an entirely permissible goal. However, in today's litigation environment, discovery in individual cases is increasingly a vehicle for the collection of evidence to be studied, shared and used to build later cases against the defendant by large plaintiffs' firms or affiliated plaintiffs' counsel in other jurisdictions. Regardless whether true, the insurer's claims file is perceived as a potential gold mine of such information. As a consequence, defense counsel for insurers should be increasingly vigilant to protect their clients by taking steps to ensure that disclosures in individual cases are limited, as much as possible, to the proper discovery relevant to the facts actually at issue.
The purpose of this article is to outline the objections to Plaintiff's broad request for the insurer's claims file and the majority rules governing successful objections by defense counsel to discovery of the materials in that file. Correctly applied, these rules permit defense counsel to resist an all-encompassing demand like the one noted above, and respond appropriately to the more sophisticated attempts to achieve the same result by parsing the demand into discrete requests for the various components of the insurer's claims file.
Relevance: The General Rule of Discovery
The majority of U.S. jurisdictions adopted the expansive view of discovery set out in the pre-2016 version of Rule 26 of the Federal Rules of Civil Procedure. (2) Subsection (b)(1) provided the general rule of thumb that anything is discoverable so long as it is relevant to the subject matter involved in the litigation, stating:
(b) Discovery Scope and Limits. Unless otherwise limited by order of the court in accordance with these rules, the scope of discovery is as follows:
(1) In General. Parties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. All discovery is subject to the limitations imposed by Rule 26(b)(2)(I), (ii), and (iii).
Under the majority rule, the basic restriction on plaintiff's request for the claims file, as in the case of a request for any material, is relevance. A review of the rules of civil procedure in the various states reveals this standard is broad and often subjective. The modern view is that material is relevant if it has any tendency to make the existence of any fact that is of consequence to the determination of the lawsuit more probable or less probable than it would be without the evidence. (3) The defect in Plaintiff's request for "the complete claims file" is that it simply fails to identify the material requested in a way that permits the Court to make a ruling on relevance and potential claims of privilege.
Simply put, there is a difference between "the claims file" as an object with all of its contents intact, and the documents contained within the file. For discovery purposes, the disparate types of documents within the insurer's claims file are no different than any similar collection of documents. In requesting that collection as an object, the Plaintiff makes the assumption that the mere presence of a document in that particular folder renders it relevant. The error of such an assumption was outlined by the Arizona Appellate Court in Phoenix General Hospital v. Superior Court of Maricopa County. (4)
In Phoenix General Hospital the plaintiff filed a motion to produce for inspection all books and records of the hospital corporation concerning financial operations of the hospital and its board of trustees since incorporation of the hospital. In rejecting the demand, the court held that the request was a blanket request not authorized by the rules of civil procedure permitting inspection and copying or photographing of designated documents. The court noted that it was committed to the liberal view of designation by categories where under the circumstances records are voluminous and hence it may be impossible to specifically designate each document sought. However, the essential factor in approving such a demand for discovery is that the category itself be sufficiently defined to aid the parties and so the court may understand with certainty the nature of the demand. According to the court, the categories must be defined with sufficient particularity: (i) to enable the opposing party to intelligently state any grounds for objection it may have to the requested production, and (ii) to enable the Court to intelligently rule on such objections. (5)
That certain materials within the typical claims file are subject to a basic relevancy objection is clear. In Florida, for example, the courts have determined that the insurer's claims file is not open to discovery simply because, as a matter of law, claim files, manuals, guidelines and documents concerning claim handling procedures of a homeowners' insurer are deemed irrelevant to a first-party dispute over the insurer's refusal to pay a claim under the policy. (6) While there is a temptation to view the Florida Court's ruling on requests for the claims file as a ruling on all its contents, an examination of subsequent cases shows that the focus is on whether the actual material within the file demanded falls within a privilege.
For example, in Federal Ins. Co. v. Hall, (7) Florida's Third District Court of Appeal granted certiorari and quashed the trial court's order to the extent that it ordered production of the adjuster's notes contained within the claims file. The court found that portion of the order constituted a departure from the essential requirements of law as the adjuster's notes were protected by the work-product privilege. In State Farm Mut. Auto. Ins. Co. v. Cook, (8) the insurer filed a motion to stay bad faith claims until the underlying issues of coverage were resolved. It also sought a protective order to avoid production of a number of documents relevant to the bad faith claims, including its claims files, litigation files, and internal operating manuals. The trial court denied both motions. In accordance with Florida law, the appellate court ruled that an insured's first-party action for benefits against the insurer had to be resolved before a cause of action for bad faith against the insurer accrued. Further, because the bad faith claims had to be stayed, the trial court's order denying a protective order for materials within the claims file was quashed insofar as it addressed materials relating to the bad faith claims. (9)
Similar rulings concerning the relevancy of claims file materials related to bad faith in litigation to determine coverage were reached by the Rhode Island Supreme Court in Bartlett v. John Hancock Mut. L. Ins. Co., (10) and the Federal District Court of Montana in In re Bergeson. (11) A contrary ruling, permitting discovery, was entered by the Federal District Court for the Middle District of North Carolina in Ring v. Commercial Union Ins. Co. (12) However, the rationale for the court's decision in Ring is consistent with respect to the issue of relevancy as discussed in the earlier cases. In Ring, the plaintiff's pleadings put bad faith at issue. As there would be one trial, the court denied the defendant's motion to bifurcate coverage and bad faith claims for discovery purposes, holding that it simply considered "it better to require that the discovery of the underlying contract claim and the bad faith claim proceed at the same time." (13)
The Expected Contents of the Claims File
As it is the contents of the actual documents themselves that must be legally relevant to the issues before the court, it is helpful to consider what the plaintiff expects to find within the claims file. Those documents may be organized into five categories: (1) entries in a claims diary or log; (2) reports by outside investigators; (3) materials generated by the insurer's personnel and outside investigators such as statements taken from potential witnesses; (4) internal communications and memoranda, including case evaluations; and (5) materials related to internal procedures and policies such as directives, guidelines and manuals. As noted above, all of these items may be relevant in a particular case and their presence within the "claims file" does not in itself insulate them from discovery. Rather, documents are discoverable unless they fall within the attorney-client or work-product privileges. (14) While those privileges are discussed at length...