Northern District of Iowa: Litigation “Reasonably Foreseeable” After Insured Accuses Insurer of Acting in Bad Faith

by Saul Ewing LLP
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Meighan v. TransGuard Ins. Co. of Am., Inc., No. C13-3024-MWB, 2014 WL 1199596 (N.D. Iowa Mar. 24, 2014).

The Northern District of Iowa finds that claim reserves and settlement information created after litigation was reasonably foreseeable is protected by the work product doctrine, but that documentation of an insurer’s factual investigation and surveillance of the insured must be produced.

TransGuard Insurance Company of America, Inc. began making benefits payments to Michael Meighan in November 2011, after Meighan sustained injuries covered by his occupational injury policy.  TransGuard ceased making payments in early 2012 because of Meighan’s failure to provide TransGuard with updated medical records.  TransGuard resumed making payments after discussions with Meighan’s attorney, including a discussion in which the attorney accused TransGuard of acting in bad faith.  TransGuard’s payments continued for a little more than a month, again stopping payment after a doctor reported that Meighan’s disability resulted from a pre-existing condition, not his on-the-job injury.  After TransGuard denied his claim, Meighan filed suit in the Northern District of Iowa alleging breach of contract and bad faith.  

During discovery, TransGuard produced its complete claims file for the period from October 28, 2011 through March 9, 2012, the day that Meighan’s attorney first contacted TransGuard to inquire why TransGuard had ceased making disability payments.  TransGuard produced the remainder of its claims file in heavily redacted form.  The redacted portions of the file consisted of three categories of documents: 1) claim reserves information; 2) communications related to settlement or mediation; and 3) communications regarding investigation and coverage.  TransGuard claimed that the documents it redacted and withheld were protected work product or were subject to attorney-client privilege.  Meighan filed a motion to compel and argued that the privilege did not apply because TransGuard’s outside counsel’s work consisted of investigating and adjusting the claim rather than giving legal advice.

In considering Meighan’s motion to compel, the Court was first required to determine the date on which: (1) TransGuard and its counsel established an attorney-client relationship; and (2) litigation between the parties became “reasonably foreseeable.”  First, the Court concluded that TransGuard and its outside counsel established an attorney-client relationship when counsel accepted TransGuard’s request for “legal assistance” in “handling the file” on March 12, 2012.  Next, the Court found that litigation was “reasonably foreseeable” on March 13, 2012, when Meighan accused TransGuard of acting in bad faith. 

With respect to TransGuard’s claims of work product protection, the Court found that claim reserves information that was noted in the file after March 13, 2012 was protected work product.  In so doing, the Court explained that the Eighth Circuit draws a distinction between individual case reserves, which are typically prepared in anticipation of litigation and thus protected from discovery, and aggregate reserve information used for business-planning purposes.  The Court held that because the withheld reserves information was related to Meighan’s particular claim and was documented after litigation was reasonably foreseeable, it was protected regardless of the fact that a non-attorney claims adjuster documented the information. 

The Court also held that all documents, including file notes regarding settlement authority, created prior to the date that litigation became reasonably foreseeable had to be produced.  Any documents concerning settlement and mediation created after that date, however, were prepared in anticipation of litigation and protected as work product.  The third category of documents for which TransGuard claimed work product protection were related to surveillance of Meighan and to TransGuard’s investigation of the extent and nature of Meighan’s injuries.  The Court found that while these documents were created after the date that litigation became reasonably foreseeable, they consisted of “pure factual investigation of the claim” and were therefore not prepared in anticipation of litigation. 

Meighan also moved to compel certain communications between TransGuard employees and outside counsel that TransGuard claimed were protected from disclosure by the attorney-client privilege.  Meighan argued that TransGuard hired the outside attorney to step into the shoes of the claims adjuster to perform a non-legal investigation and adjustment of the claim.  The Court rejected Meighan’s argument and held that the correspondence at issue was protected by attorney-client privilege.  Central to the Court’s reasoning was the adversarial relationship between the parties and the fact that TransGuard conducted the initial investigation on its own and only retained outside counsel after Meighan’s attorney became involved.  The Court noted that if attorney-client privilege did not apply in this situation, this would have a chilling effect on an insurer’s decision to seek legal advice regarding close coverage questions.    

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