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AU Electronics, Inc. v. Harleysville Group, Inc.

United States District Court, N.D. Illinois, Eastern Division

May 28, 2014

AU ELECTRONICS, INC., et al., Plaintiffs,
v.
HARLEYSVILLE GROUP, INC., et al., Defendants.

MEMORANDUM OPINION AND ORDER

GERALDINE SOAT BROWN Magistrate Judge.

As stated in the Order of April 22, 2014 [dkt 69], the court has re-reviewed in camera the documents sought in Plaintiffs' Motion to Compel [dkt 53] in light of defendants' response to plaintiffs' motion [dkt 80], and plaintiffs' supplemental brief [dkt 81]. The court reconfirms its decision to deny the motion.

BACKGROUND

In this lawsuit, plaintiffs AU Electronics, Inc., et al. (collectively, "AU"), seek a declaratory judgment that an insurance policy issued by defendants Harleysville Group, Inc., et al. (collectively, "Harleysville"), covers certain claims asserted in lawsuits that Sprint Nextel Corporation and T-Mobile USA, Inc., filed against AU in November and December 2012. (Compl.) [Dkt 1.]

Harleysville has produced 943 pages of documents in response to AU's document requests. (Pls.' Mot. Compel at 2.) [Dkt 53.] Harleysville has withheld or redacted portions of a small number of documents as to which it claims attorney-client privilege and/or work-product protection.[1] AU contests Harleysville's claims of privilege and protection, particularly with respect to certain "claims notes" (Bates nos. HAR 001 through HAR 005).[2] Claims notes are entries in a computer log notation system that includes entries relating to Harleysville's handling of AU's claim. Harleysville has produced most of the log, but the text of certain notes was redacted. The name of the person making the entry is shown on the log produced by Harleysville, as well as the date and time of the entry, even with respect to the redacted notes.

After receiving briefing on the motion and reviewing the disputed documents and redactions in camera, this court denied the motion to compel for reasons stated on the record on April 22, 2014. (Order, April 22, 2014.) [Dkt 69.] Harleysville was required, however, to provide additional factual support for its assertion of confidentiality with respect to the claims notes. ( Id. ) Harleysville submitted a supplemental affidavit by Sharon McGoldrick, whose title is Claims Manager-Commercial for Nationwide Mutual Insurance Company, the owner of Harleysville. (Defs.' Resp., Ex. 1, Suppl. Aff. Sharon McGoldrick ¶ 2.) [Dkt 79-1.] She states that, when a claim file is opened, the claim number is given to certain claims representatives assigned to handle the claim. ( Id. ¶ 6.) Access to the notes and permission to make entries in the notes are restricted by password and by the use of the claim number. ( Id. ¶¶ 4-7.) She states that she believes that no one had access to the disputed claims notes other than the persons listed in her original affidavit as having authority to make final decisions on claims or who had a necessary advisory role for such decisions. ( Id. ¶ 20.)

In its response, AU requested that the court reconsider its decision with respect to the claims notes. (Pls.' Suppl. Br.) [Dkt 81.] Having reviewed the parties' latest submissions and re-reviewed the disputed documents, the court confirms the decision to deny the motion. The documents are protected by both attorney-client privilege and work-product protection.

DISCUSSION

Attorney-client privilege and work-product protection are different grounds for withholding otherwise discoverable material. In this case, the parties agree that assertions of attorney-client privilege are governed by Illinois law while assertions of work-product protection are governed by federal law. Fed.R.Evid. 501. The general principles of privilege and work-product protection are well-established, but their application to a particular communication or document depends on the specific factual circumstances in which the document was created or the communication made and maintained.

Issues of attorney-client privilege and work-product protection create some interesting challenges in lawsuits between insurers and insureds, because, as a number of courts have observed, insurers are in the business of reviewing and allowing or denying claims. Of course, litigation between insurers and insureds usually involves claims for which the insurer has denied coverage.

Lawyers may play a number of roles in the decision to deny a claim, which, for an insurance company, is a business decision. As a general proposition, the fact that a lawyer is part of a business decision does not, by itself, cloak the communications relating to that decision with privilege. That does not mean, however, that there can be never be any privilege for a communication with a lawyer during the course of the decision. It depends on the facts, including the nature of the communication and the role of the lawyer. In Illinois, communications between an insurer and its coverage counsel generally are privileged. Ill. Emasco Ins. Co. v. Nationwide Mut. Ins. Co., 913 N.E.2d 1102, 1106-8 (Ill.App. 2009). "Moreover, the fact that the declaratory judgment action may be filed later does not mean that the coverage issues may not arise from the outset of a dispute." Id. at 1108.

Under Illinois law, privileged communications lose their privileged status if disseminated to persons not in the control group. The Illinois Supreme Court defined the control group in Consolidation Coal Co. v. Bucyrus-Erie Co., 432 N.E.2d 250, 257-58 (Ill. 1982) (internal citations omitted):

[A]s a practical matter, the only communications that are ordinarily held privileged under this test are those made by top management who have the ability to make a final decision, rather than those made by employees whose positions are merely advisory. We believe that an employee whose advisory role to top management in a particular area is such that a decision would not normally be made without his advice or opinion, and whose opinion in fact forms the basis of any final decision by those with actual authority is properly within the control group.... Thus, if an employee of the status described is consulted for the purpose of determining what legal action the corporation will pursue, his communication is protected from disclosure. This approach, we think, better accommodates modern corporate realities and recognizes that decisionmaking within a corporation is a process rather than a final act.

The assertion of work-product protection likewise depends on whether the facts demonstrate that the material was created in anticipation of litigation rather than as a customary part of a business which in the ordinary course involves litigation. Logan ...


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