United States District Court, N.D. Illinois, Eastern Division
For Arthur Slaven, John Mclinden, Laurence Ashkin, Plaintiffs: Christopher James Barber, Williams Montgomery & John, Ltd., Chicago, IL; Elissa L. Isaacs, Joshua M. Wiersma, Stephen O'Donnell, Steptoe & Johnson LLP, Chicago, IL.
For Great American Insurance Company, Defendant: Peter F. Lovato, LEAD ATTORNEY, William Joel Vander Vliet, Boundas, Skarzynski, Walsh & Black LLC, Chicago, IL; Stephen J. Rosenfeld, LEAD ATTORNEY, John David Fitzpatrick, Mandell Menkes LLC, Chicago, IL.
MEMORANDUM OPINION AND ORDER
JEFFREY COLE, Magistrate Judge.
The question presented by this case is a recurring one in litigation between insurance companies and their insureds: to what extent documents generated in connection with a " coverage review" -- a phrase with an elastic definition -- by a lawyer hired by the carrier, are insulated from disclosure in discovery by virtue of the attorney/client privilege or the work-product doctrine. This inquiry, like all inquires involving claims of attorney/client privilege, is fact intensive, In re Grand Jury Proceedings, 220 F.3d 568, 571 (7th Cir. 2000), and the outcome will vary depending on whether the outside lawyer hired by the carrier conducted or participated in the underlying factual investigation and/or made the ultimate coverage determination. For, in that event, the lawyer was acting not merely as a lawyer, but in essence, was performing the business function of being a claims adjuster, claims process supervisor, or claims investigation monitor.
Faced with the question of the capacity in which an outside counsel was acting, some courts have found that a lawyer retained to provide coverage advice, who also performs the traditional functions performed by an insurance carrier in making a coverage determination, may nonetheless assert that all the lawyers' communications with the insurer are privileged. Illustrative is the California Court of Appeals' decision in Aetna v. Superior Court, 153 Cal.App.3d 467, 200 Cal.Rptr. 471, 476 (Ct.App. 1984), which holds that when an insurer retains outside counsel to investigate a claim by the insured and make a determination as to coverage, the privilege applies even to documents involving the attorney's investigative efforts since they are deemed indispensable to and a part of a coverage determination under the policy.
Other courts construe the attorney/client privilege more narrowly, emphasizing the nature of the actions of the attorney, rather than the broader relationship between the attorney and the insurer. Those courts hold that if the attorney performed an investigation or engaged in other conduct generally considered part of the insurer's ordinary business functions, or merely acted, in effect, as an outside claims adjuster, the attorney is not acting as a lawyer, and an insurer cannot shield the results of that investigation simply by having the attorney conduct the investigation or make the ultimate claims determination. While the answer to the question in these cases often eludes easy answer, it is not an all or nothing proposition as the plaintiffs seemingly assume when they say: " Because the Gordon Firm and Boundas Firm were, prior to the Arons Claim being denied, evaluating whether to accept to [sic] deny the claim, as well as performing other claim adjuster functions, the documents involving those attorneys and generated prior to September 4, 2009 claim denial are not protected by the attorney-client privilege." [Dkt. 89 at 10].
As the court of appeals explained in In re Allen, 106 F.3d 582 (4th Cir. 1997), while generally " no privilege attaches when an attorney performs investigative work in the capacity of an insurance claims adjuster, rather than as a lawyer," it is only " to the extent" attorneys acted as claims adjusters, a " pure, ordinary business function," that communications relating to the investigation are outside the protective ambit of the attorney/client privilege or the work-product doctrine. Id. at 602. See also Lagestee-Mulder, Inc. v. Consolidated Ins. Co., 2010 WL 4781461, 1 (N.D.Ill. 2010)(Feinerman, J.); Chicago Meat Processors, Inc. v. Mid-- Century Ins. Co., 1996 WL 172148, at *3 (N.D.Ill. 1996)(Holderman, J.); and infra at 4. See generally, Michael Division and Dolores Parr, Ethical Considerations in the Handling of Fidelity Claims, 20 Fidelity Law Journal 305 (2014); Jerez Hill, Karen Hearn, and Steven Parker, Recent Developments in Title Insurance Litigation, 47 Tort Trial & Ins. Prac.L.J. 501 (Fall 2011) for a discussion of the issue and a large sampling of cases from across the country.
Ultimately, the answer to the question of whether a particular document is privileged and thus immune from discovery will depend on the law that controls the decision. Since " nothing is simpler than to make an unsubstantiated allegation," Parko v. Shell Oil, 739 F.3d 1083, 1086 (7th Cir. 2014), all jurisdictions adhere to the basic principle that it is the obligation of the party claiming privilege to show by competent evidence that it is entitled to the protection of the attorney/client privilege or work-product doctrine. Shaffer v. American Medical Ass'n, 662 F.3d 439, 446 (7th Cir. 2011); Consolidation Coal Co. v. Bucyrus--Erie Co., 89 Ill.2d 103, 118-19, 432 N.E.2d 250, 59 Ill.Dec. 666 (1982); Holland v. Schwan's Home Service, Inc., 2013 IL App. (5th) 110560, 992 N.E.2d 43, 84, 372 Ill.Dec. 504, (5th Dist.2013).
The plaintiffs insist that Great American has failed to sustain its burden of proof and thus virtually every document prepared by the two sets of lawyers retained in connection with the Centrum claim is discoverable. The defendant is equally adamant that the documents that have been withheld are immune from discovery.
The threshold question is what law governs the present dispute. As jurisdiction is based on diversity, the parties agree that Illinois law applies to questions of attorney/client privilege. [Dkt. # 89, at 6; Dkt. # 91, at 4-5]. See Fed.R.Evid. 501; Dunn v. Washington County Hosp., 429 F.3d 689, 693 (7th Cir. 2005). In Illinois, as elsewhere, the general rule is that communications between an insurer and its outside coverage counsel are privileged. See Ill. Emcasco Ins. Co. v. Nationwide Mut. Ins. Co., 393 Ill.App.3d 782, 913 N.E.2d 1102, 1106--08, 332 Ill.Dec. 812 (1st Dist. 2009). But, also in Illinois, as in many other states, " to the extent that an attorney acts as a claims adjuster, claims process supervisor, or claims investigation monitor, and not as a legal advisor, the attorney/client privilege does not apply." Lagestee-Mulder, Inc., 2010 WL 4781461. Accord, Great American Ins. Co. v. J. Aron & Co., Inc., 1995 WL 325652, 2 (S.D.N.Y.1995 )(" Nor will the attorney/client privilege protect documents prepared by outside counsel hired to monitor the progress of a case to the extent that attorneys act as claims adjusters, claims process supervisors, or claims investigation monitor rather than legal advisors." ); Harper v. Auto-Owners Insurance Company, 138 F.R.D. 655 (S.D. Ind. 1991).
The public policy underlying this result is that insurance companies, which are in the business of reviewing, processing, and adjusting claims, should not be permitted to insulate from discovery documents and communications resulting from those aspects of routine claims review conducted by insurance carriers in the normal course of their business activities by delegating them to outside counsel. See also Harper v. Auto-Owners Insurance Company, 138 F.R.D. 655 (S.D. Ind. 1991)(documents prepared by outside counsel hired five days after fire to monitor progress of case and to conduct examination under oath of insureds were not subject to the attorney/client privilege to the extent that the attorney acted as claims adjuster, claims process supervisor, claims investigation monitor, and not as legal advisor).
Finally, while the attorney/client privilege protects communications between the carrier and outside counsel seeking or giving legal advice that refer to the otherwise discoverable documents, the documents referred to in the protected communication are, themselves, independently discoverable. See Lee v. Chicago Youth Centers, 304 F.R.D. 242, 2014 WL 2618537, 4 (N.D.Ill. 2014)(collecting cases); Steele v. Lincoln Financial Group, 2007 WL 1052495, at * 2 (N.D.Ill.2007).
By contrast to analysis of attorney/client privilege claims, courts sitting in diversity consider the work-product doctrine not under Illinois law, but on the basis of federal law. In re Professionals Direct Ins. Co., 578 F.3d 432, 438 (6 Cir. 2009)(" The th work-product doctrine is a procedural rule of federal law; thus, Federal Rule of Civil Procedure 26 governs this diversity case." ); Lagestee-Mulder, Inc. v. Consolidated Insurance Co., 2010 WL 4781461, 2 (N.D.Ill. 2010). The doctrine protects documents that an attorney or a representative of a party creates in anticipation of litigation in order to prepare or analyze the case. Fed.R.Civ.P. 26(b)(3); Sandra T.E. v. South Berwyn Sch. Dist. 100, 600 F.3d 612, 618 (7th Cir. 2010). Its protection is " distinct from and broader than the attorney-client privilege." United States v. Nobles, 422 U.S. 225, 238 n. 11, 95 S.Ct. 2160, 45 L.Ed.2d 141 (1975).
While a lawsuit need not be underway for the doctrine to apply, Mattenson v. Baxter Healthcare Corp., 438 F.3d 763, 768 (7th Cir. 2006), " [t]he mere contingency that litigation may result is not determinative." Id.; Logan v. Commercial Union Ins. Co., 96 F.3d 971, 976-977 (7th Cir. 1996). " '[S]ome articulable claim, likely to lead to litigation'" must have arisen that served as the primary motivating purpose behind the creation of a document claimed to be protected. Sandra T.E., 600 F.3d at 622. See also B.F.G. of Ill., Inc. v. Ameritech Corp., 2001 WL 1414468 at *3 (N.D.Ill. 2013)(Norgle, J.); Tellabs Operations, Inc. v. Fujitsu Ltd., 283 F.R.D. 374, 388 (N.D.Ill. 2012). And that applies to attorney-led ...