United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
Jeffrey Cole Magistrate Judge
case stems from a lawsuit between construction worker, Daniel
Fleck, and construction company, W.E. O'Neil. Mr. Fleck
sued WEO when he was injured on a WEO project. WEO tendered
defense of the suit to its primary insurer, the plaintiff in
this case, West Bend. Mr. Fleck won the suit and gained a
judgment of just over $2 million. After the waiver of the
worker's compensation lien, the recoverable amount was
$1, 739, 908.26, which West Bend paid. West Bend then went to
the defendant here, Zurich, secondary insurer, to recover the
amount over the policy limit of $1 million, claiming Zurich
was next in line to pony up. Zurich refused, saying that West
Bend ought to have settled the case within the million-dollar
limit and that it was bad faith on its part not to have.
[Dkt. #20, at 1-2].
is a discovery dispute, of course - “the bane of modern
litigation.” Rossetto v. Pabst Brewing Co.,
Inc., 217 F.3d 539, 542 (7th Cir. 2000). West Bend asked
for the documents in Zurich's Fleck case claim
file and communications with attorney, John Moroney. Zurich
was monitoring the progress of the case and retained the firm
of Franco & Moroney for that purpose. Zurich, as is
usually the case, made sweeping claims of attorney-client
privilege and work product, and produced only heavily
redacted documents. The claims were exaggerated, proving once
again that excessive claims of privilege are all too
commonplace in modern litigation and that they are
indiscriminately and improperly used “on documents that
do not truly qualify for protection.” Towne Place
Condo. Ass'n v. Philadelphia Indem. Ins. Co., 284
F.Supp.3d 889 (N.D. Ill. 2018). See also Dietz &
Watson, Inc. v. Liberty Mut. Ins. Co., 2015 WL 2069280,
at *6 (E.D. Pa. 2015); Falin v. Condo. Ass'n of La
Mer Estates, Inc., 2012 WL 760831, at *1 (S.D. Fla.
2012);Employer's Reinsurance Corp. v. Clarendon Nat.
Ins. Co., 213 F.R.D. 422, 430 (D. Kan. 2003).
Bend has moved to compel production of clean documents and
any withheld documents, arguing that “at issue”
waiver applies. After an initial hearing on this dispute,
Zurich had more than a moment of self-realization and
“reconsidered many of the redactions made in its
Privilege Log.” It then produced many previously
withheld or redacted documents. And so, of the original 200
or so documents at issue [Dkt. # 20, at 12-38], only about 80
Illinois law, an insurer has a duty to settle in good faith
on behalf of its insured, which, arises from the covenant of
good faith and fair dealing implied in an insurance contract.
Iowa Physicians' Clinic Med. Found. v. Physicians
Ins. Co. of Wisconsin, 547 F.3d 810, 812 (7th Cir.
2008). As the Seventh Circuit has explained, in the
paradigmatic duty-to-settle case, there are three parties:
the injured third party; the insured, who is being sued; and
the insurer, who controls the insured's defense. If the
third party sues the insured for an amount above the policy
limit and seeks a settlement at the upper limit of the
policy, a conflict of interests arises. In this situation,
the insurer may be tempted to decline the settlement offer,
no matter how good the deal is for the insured, and go to
trial. It makes no difference to the insurer's bottom
line whether the case is settled or the jury awards
astronomical damages; in either event it will pay out only
the maximum on the policy. And if the case goes to trial, at
least there's a shot that they will win and pay nothing.
The insured, on the other hand, calculates the risks of trial
differently because he will be stuck paying anything above
the policy limit.
such, the insurer is in a heads-I-win-tails-you-lose
position. See, e.g., Twin City Fire Ins. Co. v. Country
Mut. Ins. Co., 23 F.3d 1175, 1179 (7th Cir. 1994). To
even things up, and “combat the temptation to ignore an
insured's interest . . . llinois courts have recognized
that an insurer has a ‘duty to act in good faith in
responding to settlement offers, ' and if that duty is
breached the insurer is on the hook for the entire judgment,
regardless of the policy limit.” Iowa
Physicians', 547 F.3d at 812. Here, as West bend
describes it, the temptation not to settle would have stemmed
from Zurich being on the hook if the recovery amount exceeded
West Bend's policy limit. And so, it is not a complete
surprise that Zurich charged West Bend with bad faith in its
that doesn't mean Zurich has waived its attorney-client
privilege. Black letter law on at-issue waiver is fairly
To waive the attorney-client privilege by voluntarily
injecting an issue in the case, a defendant must do more than
merely deny a plaintiff's allegations. The holder must
inject a new factual or legal issue into the case. Most
often, this occurs through the use of an affirmative defense.
Lorenz v. Valley Forge Ins. Co., 815 F.2d 1095, 1098
(7th Cir. 1987). While Lorenz dealt with Indiana
law, there is nothing in Illinois law to suggest the general
principles are any different. The Illinois Supreme Court
recognized that both the attorney-client privilege and the
work-product privilege may be waived as to a communication
put “at issue” by a party who is a holder of the
privilege in Waste Management, Inc. v. Int'l Surplus
Lines Ins. Co., 144 Ill.2d at 199-200, 579 N.E.2d 322
(1979). Since then, courts have applied the concept by asking
whether the sought-after communications were actually placed
‘at issue' or whether they were simply relevant to
the dispute. See, e.g., Edgewater Med. Ctr. v.
Rogan, No. 04 C 3579, 2010 WL 2711448, at *9 (N.D. Ill.
July 6, 2010); Western States Ins. Co. v.
O'Hara, 357 Ill.App.3d 509, 520-21, 828 N.E.2d 842');">828 N.E.2d 842
(4th Dist. 2005); Shapo v. Tires 'N
Tracks, Inc., 336 Ill.App.3d 387, 394, 752 N.E.2d 815
(1st Dist. 2002); Hayes v. Burlington No. and
Santa Fe Railway Co., 323 Ill.App.3d 474, 752 N.E.2d 470
(2001); Chicago Meat Processors, Inc. v. Mid-Century Ins.
Co., No. 95 C 4277, 1996 WL 172148, at *4 (N.D. Ill.
Apr. 10, 1996). Most pertinent of such cases here is
Western States, where the Illinois appellate court
held that where an insurer put at issue whether it had
settled a claim in good faith, the insured was entitled to
discovery of the insurers' communications with the law
firm that represented the insurer during the settlement
process. 357 Ill.App.3d 509, 520-21, 828 N.E.2d 84.
West Bend at its word, we can't see how Zurich has waived
its attorney-client privilege or work product protection. As
West Bend puts it:
following the exhaustion of the West Bend Primary Policy, the
Zurich Commercial General liability Policy was next in line
to cover the Fleck judgment, but Zurich refused to pay any
part of the Fleck judgment because it ...