The opinion of the court was delivered by: Geraldine Soat Brown, United States Magistrate Judge
Judge Sharon Johnson Coleman Magistrate Judge Geraldine Soat Brown
MEMORANDUM OPINION AND ORDER
Before the court are two motions to compel discovery: Defendant Transport Insurance Company's Motion to Compel Plaintiff and Frank/Gecker LLP to Produce Documents (Def.'s Mot.) and Plaintiff ARTRA 524(g) Asbestos Trust's Motion to Compel Production of Reinsurance Documents and Communications (Pl.'s Mot.). For the reasons stated below, defendant's motion to compel is granted, and plaintiff's motion to compel is granted in part and denied in part.*fn1
ARTRA 524(g) Asbestos Trust ("the Trust") brought this action against Transport Insurance Company ("Transport") for a declaratory judgment and damages under Illinois law for breach of an insurance policy issued by Transport's predecessor in interest.*fn2 Transport issued a policy of excess comprehensive general liability insurance coverage to ARTRA Group, Inc. ("ARTRA Group") for the policy year April 1, 1984 - April 1, 1985. (First Am. Compl. ¶¶ 1, 15, 17.) [Dkt 37.] On June 3, 2002, ARTRA Group filed for bankruptcy protection from mounting liabilities it faced resulting from its ownership of the Synkoloid Company, a company that manufactured, sold and distributed products containing asbestos. (First Am. Compl. ¶¶ 10, 11, 22; see also Voluntary Pet., In re ARTRA Group, Inc.) [Bankr. N.D. Ill., No. 02 B 21522, dkt 1.] As described below, the Trust was established by ARTRA Group's Joint Reorganization Plan to liquidate and resolve all of ARTRA Group's asbestos-related personal injury liabilities. (Ans. ¶ 23.) [Dkt. 38.]
In this lawsuit, the Trust seeks to reach Transport's excess policy in order to pay claims for asbestos-related injuries; Transport denies liability. In the present motions, both sides seek documents the other claims are privileged or protected. In order to resolve the motions, it is necessary to understand the background of the Trust.
A. Creation of the ARTRA 524(g) Asbestos Trust In June 2002, the United States Trustee appointed a creditors committee (the "Creditors Committee"), consisting of ARTRA Group's largest unsecured creditors and certain attorneys for holders of asbestos-related personal injury claims. (Pl.'s Opp'n, Unlabeled Ex., Aff. of Joseph D. Frank ¶ 4.) [Dkt 112-3.] The Creditors Committee retained Joseph Frank and Frances Gecker (first of Freeborn & Peters, later Neal Gerber & Eisenberg, then Frank/Gecker ("F/G")) as its attorneys. (Id.) The Creditors Committee also hired Legal Analysis Systems ("LAS"), a claims forecaster, to provide expert assistance. (Id. ¶ 5.) The Creditors Committee negotiated the terms of an Amended Joint Reorganization Plan ("the Plan") with ARTRA Group and with the Future Claimants' Representative (former Bankruptcy Judge Erwin Katz (ret.)) who had been appointed by the Bankruptcy Court to represent the interests of future asbestos claimants. (Id.)
On January 24, 2007, ARTRA Group filed the Plan, which was confirmed by the Bankruptcy Court and by the District Court. (Id. ¶2.)*fn3 The Plan became effective on April 2, 2007. (Id. ¶2.)
The Plan included the formation of the Trust pursuant to Section 524(g) of the Bankruptcy Code (11 U.S.C. § 524(g)). (Plan § 6.6.) The purpose of the Trust is "to assume liability for all Asbestos Personal Injury Claims . . . and to use the Asbestos Trust Assets to pay holders of Allowed Asbestos Personal Injury Claims in accordance with the Asbestos Trust Agreement and the Trust Distribution Procedures." (Plan § 6.6(a); see also 11 U.S.C. § 524(g)(2)(B)(i)(I-IV).) The Trust is required to implement certain procedures to resolve and pay claims such that it "will value, and be in a financial position to pay, present claims and future demands that involve similar claims in substantially the same manner." 11 U.S.C. § 524(g)(2)(B)(ii)(V).
The Trust is the successor to certain assets and liabilities of ARTRA Group. (Ans. ¶ 23; Plan § 6.6.) The Honorable Alfred Wolin (ret.) serves as the trustee. (J. Frank Aff. ¶ 2.) Allowance of a claim by the trustee establishes the Trust's liability for that claim. (Ans. ¶ 26.) Notably, Transport has denied that the allowance of any claim by the trustee operates to establish liability under the Transport policy. (Id.)
The Trust evaluates and pays claims pursuant to the Trust Distribution Procedures ("TDPs"), including Scheduled Values and Average Values for certain claims, which are incorporated into the Plan. (Def.'s Mot., Unlabeled Ex., Aff. Kevin A. Titus, Ex. N.) [Dkt 101.] The TDPs, which are publically available, define the criteria for determining whether an asbestos bodily injury claim is compensable, and specify the Scheduled Values of amounts to be paid for claims reviewed under the Trust's expedited review procedure. (Id. §§ 5-7.) The TDPs provide for both an expedited review pursuant to the schedules and an Individual Review Process that allows for more intensive individualized claim evaluation. (Id. § 5.3(a), (b).) According to Transport, the overwhelming majority of claims submitted to the Trust seek expedited review under the TDPs. (Def.'s Mem. at 11.)
The TDPs were the product of negotiations between the Creditors Committee (then represented by F/G) and the Future Claimants' Representative regarding the Plan and the Trust Agreement. Among the documents Transport seeks in its motion are communications between F/G and the Creditors Committee about those negotiations.
The Creditors Committee dissolved in April 2007, when the Plan became effective. (Plan § 15.3.) The Trustee then retained F/G to represent the Trust, and Verus Claims Services, LLC, ("Verus") to process claims. (J. Frank Aff. ¶ 2.) According to the Trust, as of July 2009, the Trust had allowed 5,934 claims, and had paid over $464,000,000 in claims and pre-petition settlements. (First Am. Compl. ¶28.)
The Transport policy is a part of an excess layer of ARTRA Group's insurance coverage. (Ans. ¶¶ 15, 17.) In pertinent part, the Transport policy provides indemnification for "ultimate net loss" following "the insuring agreements, conditions and exclusions of the underlying insurance (whether primary or excess) immediately preceding the layer of coverage provided by" the Transport policy. (Id.; First Am. Compl., Ex. C ¶¶ 1, 2.) According to the Trust, as of September 2009, only about $2,451,000 of the policy limits of the lower ("umbrella") layer of insurance coverage remained unexhausted, and the total allowed claims had already exhausted the underlying layer of insurance. (First Am. Compl. ¶ 14.)
The Trust alleges that it has made several demands to Transport for payments of the allowed claims, but Transport has refused or reserves its right to refuse to pay. (Id. ¶¶ 29-30.) Transport disputes that it owes any coverage under the policy for the Trust's liabilities. (Ans. ¶ 33.) It alleges a number of affirmative defenses, including that the Trust is not an insured and has no rights under the Transport policy. (Ans., Sixth Aff. Defense.) Transport also alleges that some or all of the claims or damages are not covered by the policy because they do not fall within the terms of the policy coverage (for example, the claims do not constitute an "occurrence" or are not based on "bodily injury" as defined in the policy). (Ans., Seventh, Eighth, Ninth, Eleventh Aff. Defenses.)
Both parties served discovery requests upon each other. In addition, Transport sought documents in connection with depositions and served a subpoena on F/G, which has asserted privilege and work product objections. (Titus Aff., Exs. E, G, H.) The parties submitted their withheld documents for in camera review. During the course of briefing and court hearings on the motions, the parties narrowed the disputes. The number of contested documents has been significantly reduced.*fn4 The motions are addressed below in turn.
I. Transport's Motion to Compel
Transport seeks to compel the Trust and F/G to produce documents related to the following:
(1) the handling, adjustment, processing and payment of asbestos bodily injury claims;
(2) the Trust's evaluation and payment of pre-petition settlements of asbestos bodily injury claims; and
(3) the drafting and determination of the TDPs, including the Expedited Review Schedule and Average Values. (Def.'s Mot. ¶ 5; Def.'s Mem. at 2-3.)
It is important to note that Transport does not seek documents relating to the Trust's litigation of this lawsuit. (Def.'s Reply at 8.) Rather, it seeks documents relating to the claims for asbestos-related damages that the Trust alleges Transport must pay under the policy.
The Trust does not argue that the documents Transport seeks are not relevant. Rather, the objections before the court are that the documents are protected by attorney-client privilege or work-product protection, and that there is no common interest between the Trust and Transport. (Pl.'s Opp'n at 4, 10.) The Trust asserts such protection for documents dated after the creation of the Trust in April 2007. It also argues for protection for communications between the Creditors Committee and its then-counsel F/G and the consultant LAS that pre-date the formation of the Trust, and that deal with the negotiation of the terms of the Plan, including the TDPs. (Id. at 6-8.)*fn5
Transport argues that documents that belong to the Trust or F/G are either not protected by the attorney-client privilege or work-product doctrine or have been put at issue by the Trust's indemnification claims. (Def.'s Mem. at 7-9, 11-14; Def.'s Reply at 7-11.) It further argues that any claim of privilege relating to communications with the Creditors Committee can no longer be sustained since that Committee no longer exists. (Def.'s Reply at 4-5.)
At a hearing on the motion, the court raised the question of who can assert privilege on behalf of the now-dissolved Creditors Committee. F/G was given leave to file a supplemental memorandum in opposition to Transport's motion on that issue. (Order, Apr. 12, 2011.) [Dkt 121.] That memorandum does not answer the question directly, but it appears that F/G is asserting privilege on behalf of its former client, the Creditors Committee. F/G maintains that communications between it, the Creditors Committee and LAS remain protected because the Committee members expected their communications to remain confidential beyond the lifetime of the Committee and because the Creditors Committee itself has not put them at issue in this case. (F/G Suppl. Mem. at 5-10.) In support, F/G submitted identical affidavits from attorneys who had been members of the Creditors Committee regarding communications with F/G and LAS. (Id., Exs. A-F.) Each of the affiants states that he or she "rel[ied] upon the understanding that these communications were, and would remain confidential communications covered by the attorney-client privilege." (Id.¶ 6.)
A. Claims handling and evaluation documents, and pre-petition settlement documents The claims handling and evaluation documents reflect communications among the Trustee, the Trust's counsel (F/G), and employees of Verus pertaining to the processing and valuation of asbestos claims made against the Trust. (Def.'s Mem. at 7-9; Titus Aff., Ex. A at 1-17.) They discuss, for example, whether a particular Synkoloid product contained asbestos (FGA 1631); or whether a particular claimant's claim might be barred by the state statute of limitations (FGA 1632-35). The "pre-petition settlement" category consists of documents that reflect communications among those same persons relating to F/G's and Verus's analysis of settlements reached between ARTRA Group and various asbestos claimants before ARTRA Group filed its petition for bankruptcy, and a discussion of processes for handling such settlements. (Def.'s Mem. at 14-15; Titus Aff., Ex. A at 20-23).
1. The Trust's assertion of attorney-client privilege Relying on the Illinois Supreme Court's holding in Waste Mgt., Inc. v. Int'l Surplus Lines Ins. Co., 579 N.E.2d 322 (Ill. 1991), Transport argues that the attorney-client privilege and work-product protection do not prevent Transport from discovering all of the Trust's documents on those subjects, both because of the common interest shared between an insurer and its insured and because of the cooperation clause in the Transport policy. (Def.'s Mem. at 7-8, 14-15.) By bringing this coverage action, Transport argues, the Trust has put information regarding its claims evaluation and payment process at issue in the case. (Id. at 9, 14-15.)
Because Illinois state law supplies the rule of decision here, Illinois law applies to the analysis of attorney-client privilege. See Fed. R. Evid. 501. In Waste Management, the Illinois Supreme Court held that, in a coverage action, the attorney-client privilege and work-product protection do not bar discovery of the insured's counsel's underlying litigation files. Waste Mgt., 579 N.E.2d at 327. The court started its analysis by observing that, under Illinois law, "it is the privilege, not the duty to disclose, that is the exception. . . . [I]n Illinois, we adhere to a strong policy of encouraging disclosure, with an eye toward ascertaining that truth which is essential to the proper disposition of a lawsuit." Id. (citations omitted). Although the court found the underlying litigation files relevant and at issue in the subsequent coverage litigation, its holding focused on the cooperation clause of the policy at issue and the common interest among the insurer and the insured. Id. at 327-28. "Any condition in the policy requiring cooperation on the part of the insured is one of great importance. . . . The basic purpose of a cooperation clause is to protect the insurer's interests and to prevent collusion between the insured and the injured party." Id. at 327 (citations omitted, emphasis in original). The cooperation clause in Waste Management required the insureds to "give all such information and assistance as the insurers shall reasonably require." Id. at 327-28. As a result, the court said, the insureds could not withhold communications with defense counsel representing them on a claim that the insurer had the ultimate duty to satisfy. Id. at 328. That duty to cooperate continues for as long as insureds seek to enforce the terms of the policy. Id.
The principle announced in Waste Management is not, as the Trust characterizes it, a "limited waiver" of attorney-client privilege (Pl.'s Opp'n at 10); rather, the court found the attorney-client privilege had "no application" in that context. Waste Mgt., 579 N.E.2d at 327.
The Transport policy contains a broad duty of assistance and cooperation, consistent with Transport's position as an excess, not primary, carrier. It provides, in relevant part:
The Insured shall immediately advise the Company [Transport] of any accident or occurrence which appears likely to result in liability under this Policy and of subsequent developments likely to affect the Company's liability hereunder. . . .
[T]he Company shall have the right and shall be given the opportunity to associate with the Insured or its underlying insurer or insurers, or both, in the control, defense and/or trial of any claims, suit or proceedings which, in the opinion of the Company, involves or appears reasonably likely to involve the Company. If the company avails itself of such right and opportunity, the Insured, any underlying insurer or insurers and the Company shall cooperate in the control, defense and/or trial of such claims, suits or proceedings, so as to affect a final determination thereof. Failure on the part of the Insured or the underlying insurer or insurers to cooperate shall relieve the Company, at its option, of liability under this Policy.
The Insured shall use due diligence and prudence to settle all such claims and suits which in the exercise of sound judgment should be settled, provided, however, that the Insured shall not make or agree to any settlement for any sum, in excess of the underlying insurance, without the approval of the Company. (First Am. Compl., Ex. C. ¶¶ 8, 9, emphasis added.) Notably, the Trust's complaint alleges that it has allowed claims, including pre-petition settlements, that have exhausted the underlying insurance, which why the Trust is reaching ...