COURT GRANTS INSURED’S MOTION TO COMPEL DISCOVERY – CLAIM FILE, CERTAIN UNDERWRITING MATERIALS, INTERNAL AND THIRD-PARTY COMMUNICATIONS – DISCOVERABLE

Last week, a Federal District Court considered an insured’s motion to compel discovery of its insurer’s claim file, underwriting materials and other information, and granted in part the insured’s motion to compel.  In Tim Long Plumbing, Inc. v. Kinsale Ins. Co., 2020 WL 6559869 (E.D.Tex. – Sherman, November 11, 2020),  the insured was the plumbing contractor on a home that developed a leak that caused water damage to the master suite.  A claim was presented, and the independent adjuster retained by the insurer authorized the general contractor to proceed with repairs in March 2018.  Repairs were completed and all invoices and receipts were submitted.  In August 2018, the insurance claims examiner wrote that they had not accepted or rejected the claim and wanted to do further testing of the failed product that caused the leak.  After further communications, the claim was ultimately denied in February 2019, based on the insured’s voluntary payment as excluded under the policy.  This lawsuit and current discovery dispute followed.

The insured’s requests for production fell into three broad categories seeking: 1) the underwriting file; 2) the claim file; and 3) the claims handling manual.  The court first considered waiver arguments asserting that the insurer’s objections were waived based on boilerplate objections that lacked the specificity required under the federal rules.  The court rejected that argument finding that the objections were “narrowly tailored as to satisfy Rule 34.” Accordingly, they were not waived.  

The court then considered the requests under the three broad categories and their findings are summarized as follows:

1. The underwriting file was “relevant for a limited purpose” to address assessment of risks the policy was intended to cover and how the insurer interpreted “various policy terms.”
2. The claims file was deemed relevant, including claim logs and notes, absent any privilege, and the insurer was required to produce the file.
3. The court noted that the claims handling manual is redactable and portions were deemed relevant but only as applicable to “(1) the circumstances and extent to which Defendant’s adjusters are permitted to authorize payment of claims and (2) any explanation of the agency relationship and authority on which Defendant’s adjusters can act on its behalf.”

Further, the court addressed the insurer’s assertion of the work-product privilege and distinguished documents created and maintained in the usual course of business from protected documents prepared in anticipation of litigation and, communications to and from an attorney. After finding the date of anticipation of litigation was in November 2018, the court held documents created before that date were not protected and should be produced. As for those documents created after November 6, 2018, the court ordered that the documents be produced for in camera review by the court to determine if the work-product privilege applied. 

Lastly, the court considered the insured’s request for attorney fees in moving to compel production of documents.  Finding that the insurer’s objections and responses were “substantially justified in some instances” and that an award of attorney fees and expenses would be unjust, the court denied the insured’s request.

Editor’s Note: The court’s finding in this case is in line with decisions we see from both state and federal courts in Texas.  It serves as an important reminder that good faith claim handling should be properly documented with the understanding that with limited exceptions, the claim file, notes and documents will be produced if the claim ends up in litigation.