When an Insurer Disputes Some Elements of Coverage its Files are Protected

Posted on April 21, 2021 by Barry Zalma

The Work Product Protection & Insurance

Avatar Property & Casualty Insurance Company sought a writ of certiorari quashing an order granting a motion by its Insureds, Niulsury S. Flores and Ernesto Valdes, to compel production of documents in the Insureds’ breach of contract action for insurance coverage. Avatar Property & Casualty Insurance Company v. Niulsury S. Flores And Ernesto Valdes, Case No. 2D20-2458, District Court Of Appeal Of Florida Second District (April 16, 2021)

BACKGROUND

After their home was damaged in Hurricane Irma in September 2017, the Insureds submitted a claim under their home insurance policy with Avatar. Avatar determined that “there is coverage under [the] policy” and paid the Insureds over $24,000 in January 2018. In July 2018, the Insureds filed a single-count breach of contract action against Avatar alleging that it owed them additional payments under the same policy.

The Insureds sought discovery from Avatar, which produced some documents but withheld others on the basis of work product protection and other objections. The Insureds moved to overrule Avatar’s objections. Their motion was referred to and heard by a magistrate, who entered a recommended order granting the Insureds’ motion. The only finding of fact or conclusion of law in the recommended order states: “This is a dispute over scope and pricing of damages where coverage is not at issue. Therefore, anticipation of litigation is the standard by which to determine protection by the work product doctrine.”

The trial court entered an order generally denying Avatar’s exceptions and approving the magistrate’s recommended order but directing Avatar to submit copies of all objected-to documents for in camera inspection. Following its review of the documents, the trial court entered an order requiring production of four discrete documents (referred to as Documents #3, #5, #6, and #10) but ruling that five other requested items “are privileged and shall not be disclosed.” The trial court noted that one other disputed item had not been provided to the court for review, but the court did not order its production or otherwise address the omission. Avatar then filed its petition for writ of certiorari, contending that the trial court impermissibly ordered it to produce protected documents from its claims file.

Avatar filed the disputed documents under seal with this court. All four documents concern the same Insureds, although they are split between the hurricane loss claim at issue in the Insureds’ lawsuit and another prior claim for a water leak. Documents #5 and #6 predate the loss at issue and address Avatar’s investigation of a different claim for a pre-hurricane leak in the same home. By contrast, Documents #3 and #10 postdate the loss and address the Hurricane Irma claim now at issue. Document #3 is a composite of investigative photographs taken by Avatar’s adjuster. Document #10 is a printout of a Claim Payment Screen from Avatar’s Claims Management System addressing the Insureds’ claim.

ANALYSIS

Avatar asserts that these four documents from its claims file are investigative and claims handling material that are protected from disclosure because coverage remains in dispute. Despite the fact that Avatar has admitted that some coverage exists under the policy, the amount and nature of that coverage remains in dispute, and thus the trial court departed from the essential requirements of the law by overruling the work product objection and directing production of these privileged documents on the express basis that “coverage is not at issue.”

Material injury and a lack of an adequate appellate remedy constitute the jurisdictional threshold for our certiorari review; the first element concerns the merits of the petition. Discovery of “cat out of the bag” material, like documents protected by the work product protection, satisfies the jurisdictional prongs of this test because disclosure of such information may cause irreparable harm.

Case law in Florida is replete with opinions holding that ‘[a] trial court departs from the essential requirements of the law in compelling disclosure of the contents of an insurer’s claim file when the issue of coverage is in dispute and has not been resolved.'” Owners Ins. Co. v. Armour, 303 So. 3d 263, 267 (Fla. 2d DCA 2020).

It is true that there is no privilege under Florida law that automatically attaches to “claims file” material. Nonetheless, without question, materials within an insurer’s claim file will frequently fit within the definition of work product.

Work product is broadly defined to include documents that can fairly be said to have been prepared or obtained because of the prospect of litigation. Consequently, even preliminary investigative materials are privileged if compiled in response to some event which foreseeably could be made the basis of a claim.

Consistent with these principles, Florida courts routinely hold that materials generated during an insurer’s investigation of a claim for coverage constitute protected work product. The magistrate’s express finding, which the trial court adopted, was that the investigative and claims handling materials were not privileged because “coverage is not at issue,” presumably because Avatar admitted that some coverage existed under the policy. That finding is contrary to Florida law, which holds that, regardless of the binary question of whether any coverage exists, the issue of coverage remains disputed for these purposes where the amount of coverage remains to be determined.

When the extent of coverage remained in dispute despite a partial payment of the policy limits, thereby precluding the simultaneous litigation of breach of contract and bad faith claims the insured’s breach of contract suit against the insurer raised a coverage issue, which was not settled by the insurer’s payment of only part of what the insured was claiming in the breach of contract action.

Since the issue of coverage remains in dispute despite Avatar’s payment of some benefits to the Insureds, the payment was made before the lawsuit was filed, and Avatar’s answer raises several affirmative defenses to coverage, including alleging that the Insureds breached their post loss obligations under the policy. Under the circumstances, the trial court departed from the essential requirements of law by ordering production of Avatar’s investigative and claims handling materials based on the express contrary conclusion that “coverage is not at issue.”

Finally, the mere fact that no litigation arose directly from the Insureds’ prior leak claim that caused Avatar to produce some of the materials at issue does not affect the determination of work-product protection. The view that materials in an insurer’s claim file could not be work product if that claim was settled without litigation is an overly circumscribed view of what constitutes work product. Instead, “the work product doctrine protects documents created in anticipation of terminated litigation as well as anticipated litigation that never materializes.

Because the trial court departed from the essential requirements of the law by ordering production of these protected claims file materials on the mistaken basis that “coverage is not at issue,” the Court of Appeal granted the petition and quashed the order.

ZALMA OPINION

The work product protection – sometimes erroneously called a “privilege” – allows a party’s lawyer’s work to be protected from disclosure to the adversary. When an insurer disputes the amount of money it owes its insured on a claim coverage is disputed and the work done by the insurer is in anticipation of litigation or by its lawyer in preparation for trial is protected from the adversary. If one side gets to read the preparation and analysis of its opponent any litigation would be unfair.

? 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at https://www.zalma.com and [email protected].

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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