Picking Cotton: ordinary business records doctrine as applied to insurer's privilege claims.

Author:Cunningham, F. Malcolm, Jr.
Position:Cover story


The revised opinion of the Fourth District Court of Appeal in State Farm Florida Ins. Co. v. Aloni, 101 So. 3d 412 (Fla. 4th DCA 2012), illustrates the conflict among Florida's district courts in analyzing the application of privileges to an insurer's claim file in a coverage action by an insured. Courts uniformly recognize that work product must be produced "in anticipation of litigation" for an attorney work product privilege to arise; however, Florida courts have differed in their analysis of that standard in the context of defining when an insurer's claim file is subject to discovery in a coverage action. In analyzing the attorney work product privilege accruing to an insurer's claims file, the Fourth District Court of Appeal previously required in Cotton States Mut. Ins. Co. v. Turtle Assoc., Inc., 444 So. 2d 595 (Fla. 4th DCA 1984), that the threat of litigation be "substantial and imminent." Painting the Fourth District's approach as the minority position, the other districts have, however, adopted a more expansive interpretation of the privilege, extending it to insurer claims files en toto, permitting such discovery only in a subsequent bad faith action. While the Fourth District's opinion in Aloni does not expressly overrule Cotton States, the court has nonetheless moved disturbingly closer toward the absolutist approach embraced by the other districts. The First, Second, Third, and Fifth districts have created what is in essence a new "insurer claims file" privilege, making the entire insurer claim file absolutely privileged in first party coverage disputes. The Aloni opinion does not go that far; instead it moves half-way between Cotton States and the approach of the other districts by creating a rebuttable presumption that an insurer's claims file is privileged and not subject to discovery in a coverage dispute while making specific documents subject to in camera inspection to determine if each satisfies the elements for invoking a privilege.

This article argues that the Cotton States fact-based approach, as refined in subsequent federal case law, labeled by other districts as the minority approach (and implicitly an aberration), is in fact the position of Florida federal courts, as well as the majority of federal courts, and should be adopted as binding precedent in Florida. The fact-based analysis in Cotton States is more consonant with Florida's ordinary business records doctrine and the policy underlying the attorney-client and attorney work product privileges. In creating an "insurer claims file" privilege, the other districts have afforded unwarranted and unprecedented protection to the ordinary business records of insurers. Insofar as courts insulate insurance claims files from discovery, without requiring the proponent of the privilege to prove facts supporting any cognizable privilege, the courts have departed from the precedent governing privileges in all other areas, applicable to all other litigants. Barring discovery into an insurer's claim file may have a more insidious effect in that it may invite insurers to deny what an insurer acknowledges in its files to be valid claims, knowing that the facts and admissions reflected in the insurer's business records are insulated from discovery.

Elements of Attorney Work Product Privilege

The attorney work product doctrine, first enunciated by the U.S. Supreme Court in Hickman v. Taylor, 329 U.S. 495 (1947), (2) was specifically intended to prevent unwarranted inquiries into counsel's files and mental impressions. (3) The doctrine, codified in Fed. R. Civ. P. 26(b)(3), protects a lawyer's research, analysis, legal theories, mental impressions, and notes and memoranda of witnesses' statements prepared "in anticipation of litigation or for trial" from disclosure to opposing counsel. (4) Rule 26(b)(3) does not require that the work product be prepared by an attorney to be protected as it makes specific reference to the "party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent)," and, thus, the work product doctrine is not inapplicable merely because the material was prepared by or for a party's insurer or agents of the insurer. (5) Material prepared by or for a party's insurer has been accorded work product protection, even when the insurer is not a party in the action. (6)

Florida courts, consistent with the federal rule, recognize that work product can take two forms: 1) "opinion work product," which consists of "the attorney's mental impressions, conclusions, opinions and theories concerning litigation"; and 2) "fact work product," which consists of "information which relates to the case and is gathered in anticipation of litigation." (7) Under federal and Florida law, "opinion work product" is absolutely protected against disclosure, (8) while "ordinary work product" is protected only until the adversary can demonstrate some necessity or justification for obtaining the materials, such as the unavailability of the information through normal discovery devices. (9)

The conflict among the Florida districts with regard to analyzing the privileges applicable to insurance claims files arises from different interpretations of what is meant by the phrase "in anticipation of litigation." Any such interpretation must, however, be considered in the context of precedent related to burden of proof and the ordinary business records doctrine.

Deason: Claimant's Burden

The Florida Supreme Court set forth the framework for analyzing both the attorney-client and attorney work product privileges in Southern Bell Tel. & Tel. Co. v. Deason, 632 So. 2d 1377 (Fla. 1994). Its analysis started with the premise that the burden of establishing that a document is protected from discovery by any privilege rests upon the party asserting the privilege. (10) Thus, a party cannot withhold documents from discovery on the basis of privilege without producing factual evidence giving rise to a claim of privilege. (11) As the burden of establishing all the elements of the privilege rests with the party asserting the privilege, any doubt or ambiguity as to whether a document is privileged, or the absence of proof establishing the existence of a privilege should result in the document being deemed subject to production. (12)

The Deason court distinguished between materials prepared in anticipation of litigation that are subject to a work product immunity and ordinary business records created for business purposes, which are not. While acknowledging that the line between law-related communications and business communications may be especially "blurry," the Florida Supreme Court ruled that personnel managers' summaries of interviews that had been initiated by counsel in anticipation of litigation with the Public Service Commission were not attorney work product. (13) Noting that the company's investigation of a legal problem led to the discovery of a potential company business problem, the Deason court ruled that recommendations containing the thoughts and impressions of personnel managers based on counsel's communication to them were not protected under the attorney work product rule. (14) While employee interviews were conducted in anticipation of litigation, it had not been proven that the panel recommendations were prepared for anything other than management's business decision regarding disciplining its employees. (15) Since disciplining employees was in the ordinary course of business, the documents were discoverable; that the recommendations were based on work product did not convert them into work product. (16)

Insofar as the purpose of the attorney work product privilege is to protect attorney work product, the accrual of a privilege within the Deason framework often hinges on the characterization of the nature of the work product produced; not all product produced by an attorney is in fact "attorney" work product. "If a communication with a lawyer is not made with him in his professional capacity as a lawyer, no privilege attaches." (17) For instance, Bankers Ins. Co. v. Florida Dept. of Ins. and Treasurer, 755 So. 2d 729 (Fla. 1st DCA 2000), stands for the proposition that when an attorney merely acts as a "conduit" for the client, rather than as legal counsel, no privilege attaches to documents created in the course of that relationship.

The Lack of Privilege Under Florida Federal Precedent

In Florida, insurers are statutorily required to undertake a good-faith investigation of their insureds' claims. (18) Insofar as insurers are required to do so, such investigations may be considered business functions. Moreover, Florida federal district courts do not recognize claims adjusting as an attorney function. "In an insurance context, the attorney-client privilege only attaches when an attorney performs acts for an insurer in his professional capacity and in anticipation of litigation." (19) In Cutrale Citrus Juices USA, Inc. v. Zurich American Ins. Group, 2004 WL5215191 (M.D. Fla. Sept. 10, 2004), the Middle District, applying Florida law starting with the criteria in Deason, (20) concluded that no attorney-client privilege attaches to an insurance claims file, even when an attorney performs the claims investigation:

In the insurance context, "no privilege attaches when an attorney performs investigative work in the capacity of an insurance claims adjuster, rather than as a lawyer, [but] simply because [the attorney's] assigned duties were investigative in nature" does not preclude an assertion of the attorney-client privilege....Therefore, "[t]he relevant question is not whether [the attorney] was retained to conduct an investigation, but rather, whether this investigation was related to the rendition of legal services. If it was...the privilege is not waived...."

[T]o the extent that an attorney acted as a claims adjuster, claims process supervisor, or claim investigations...

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