In a recent decision, the Supreme Court of New York granted an insured's request for production of documents in a bad faith action, after determining that the insurer failed to prove that the documents were protected by work product privilege. Estee Lauder Inc. v. One Beacon Ins. Co., 2013 NY Slip Op, Docket No. 602379/05 (April 15, 2013).
The insured, Estee Lauder Inc., (“Estee Lauder”), brought a declaratory judgment action and claims for breach of contract against its insurer, One Beacon Insurance Company (“One Beacon”). Specifically, Estee Lauder sought an order compelling One Beacon to pay for costs and to indemnify it for underlying claims brought by the State of New York relating to the alleged dumping of hazardous materials in landfills. Initially, One Beacon prevailed on summary judgment but on appeal the decision was reversed, and in 2009 New York’s Appellate Division held that Estee Lauder was entitled to all reasonable fees and expenses incurred in defense of ongoing litigation, plus judgment interest accruing from the date of One Beacon’s repudiation of its duty to defend.
In 2012, Estee Lauder filed an amended complaint adding a cause of action for bad faith, pertaining to the delay in payment of defense costs from the 2009 judgment. Estee Lauder sought documents relating to One Beacon’s delay in paying the court ordered defense fees. The documents Estee Lauder requested during discovery were: (1) written recommendations as to the readjustment process; (2) large payment requests sent to the insurer; (3) documents referenced during the readjustment process; (4) notes taken at the insurer’s meetings regarding the claim; (5) adjustment period correspondence concerning justifications for the delay of payment (excluding correspondence with litigation counsel solely respecting strategy and tactics); (6) communications showing approval of counsel with respect to the readjustment; (7) the result of any review conducted by counsel of the defense expenses submitted; (8) documents of first investigations that the insurer claimed it needed to revisit as part of the readjustment; and (9) progress notes created during the readjustment period.
One Beacon denied the request and argued that the documents were protected under the attorney-client privilege because the documents were created during the “midstream of litigation.” The court rejected OneBeacon’s argument, finding that One Beacon failed to show that the documents were “predominantly of a legal character.” The court found that OneBeacon is not entitled to a categorical privilege because it is unclear whether all of the documents sought are privileged. Specifically, the court found that the payment of a covered client’s attorneys fees is “an ordinary part of an insurers business,” and the Appellate Division already resolved the question of whether OneBeacon must pay this subset of Estee Lauder’s claim. Thus, these documents cannot be considered attorney work product simply because they were created during the “midstream of litigation.” In ordering One Beacon to turn over the nine categories of documents, the court also noted that the documents sought in this case were created after Estee Lauder filed its complaint and were not documents pertaining to the initial denial of coverage, and are therefore discoverable absent a showing that the document was protected by work product privilege.
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